Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 80988 -SN

INTERNATIONAL DEVELOPMENT ASSOCIATION

PROGRAM DOCUMENT

FOR A PROPOSED DEVELOPMENT POLICY CREDIT

IN THE AMOUNT OF SDR 19.6 MILLION (US$30 MILLION EQUIVALENT)

TO THE

REPUBLIC OF SENEGAL

FOR THE

SECOND GOVERNANCE AND GROWTH SUPPORT CREDIT

November 20, 2013

Poverty Reduction and Economic Management 4 Country Management Unit AFCF1 Africa Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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SENEGAL - FISCAL YEAR

JANUARY 1 – DECEMBER 31

CURRENCY EQUIVALENTS

(Exchange Rate Effective as of 10/10/2013)

Currency Unit = CFAF US$1.00 = CFAF 485

ABBREVIATIONS AND ACRONYMS

ACAB Framework Agreement on Budget Support AfDB African Development Bank APIX Investment Promotion Agency AGS APR

Accelerated Growth Strategy Annual Progress Report

ARMP Autorité de Régulation des Marchés Publics (Public Procurement Regulation Authority)

ASTER Application des Services du Trésor en Réseaux (Treasury Service Database) BCEAO Banque Centrale des Etats de l’Afrique de l’Ouest (Central Bank of West

African States) BOAD Banque Ouest Africaine de Développement (West African Development Bank) BOM Bureau of Organization and Method CFAA Country Financial Accountability Assessment CPAR Country Procurement Assessment Review CPS Country Partnership Strategy CPSPR Country Partnership Strategy Progress Report DCMP Direction Centrale des Marchés Publics (National Procurement Department) DPL Development Policy Lending DPO Development Policy Operation DREAT Délégation à la Réforme de l’Etat et à l’Assistance Technique (Delegate for

the Reform of the State and Technical Assistance) EC European Community ECOWAS FCFA

Economic Commission for West African States Franc CFA

GGSC GER

Governance and Growth Support Credit Gross Enrollment Rate

GCC Government Contractors Certificate GDP Gross Domestic Product HIPC Heavily Indebted Poor Countries Initiative ICOR Incremental Capital Output Ratio IDA International Development Association IDB Islamic Development Bank IFC International Finance Corporation

ii

IMF International Monetary Fund MCC MDG

Millennium Challenge Corporation Millennium Development Goals

MDRI Multilateral Debt Relief Initiative MEF Ministry of Economy and Finance MTDS Medium-Term Debt Strategy MOU Memorandum of Understanding NHDP NSBD

National Health Development Program National Standard Bidding Documents

OECD/DAC Organization for Economic Co-operation and Development/Development Assistance Committee

PASEC PDS PEFA

Program on the Analysis of the Educational System Parti Démocratique Sénégalais (Senegalese Democratic Party) Public Expenditure and Financial Accountability

PFM Public Finance Management PPFR PRSC

Programmatic Public Finance Review Poverty Reduction Support Credit

PRSP Poverty Reduction Strategy Paper PSI IMF Policy Support Instrument RPBEC Reform Program on Business Environment and Competitiveness SAED SENELEC

Société nationale d’Aménagement et d’Exploitation des Terres du Delta du Fleuve Sénégal (Company for the Development of the Senegal River delta.) Société Nationale d’Electricité (National Power Utility of Senegal)

SIGFIP Système Intégré de Gestion des Finances Publiques (Integrated public finance management system)

SNDES SYSCOA

Stratégie Nationale de Développement Economique et Social (National Strategy for Economic and Social Development) Système Comptabilité Ouest-Africaine (West African Accounting System)

TA Technical Assistance USAID UNICEF WAEMU

United States Agency for International Development United Nations Children’s Fund West African Economic and Monetary Union

WBG World Bank Group

Vice President:

Country Director: Sector Director: Sector Manager:

Task Team Leader:

Makhtar Diop Vera Songwe Marcelo Giugale Miria Pigato Philip English

iii

REPUBLIC OF SENEGAL

SECOND GOVERNANCE AND GROWTH SUPPORT CREDIT

TABLE OF CONTENTS

1. INTRODUCTION AND COUNTRY CONTEXT ............................................................... 1 2. MACROECONOMIC POLICY FRAMEWORK ............................................................... 3

A. Recent Economic Developments ..................................................................................................... 3 B. Macroeconomic Outlook and Debt Sustainability ........................................................................... 5 C. IMF Relations ................................................................................................................................... 9

3. THE GOVERNMENT PROGRAM ..................................................................................... 9 4. THE PROPOSED OPERATION ........................................................................................ 10

A. Link to Government Program and Operation Description ............................................................. 10 B. Prior Actions, Results and Analytical Underpinnings .................................................................... 11 C. Link to CPS and Other Bank Operations ....................................................................................... 25 D. Consultations, Collaboration with Development Partners ............................................................. 25

5. OTHER DESIGN AND APPRAISAL ISSUES. ................................................................ 26 A. Poverty and Social Impact .............................................................................................................. 26 B. Environmental Aspects .................................................................................................................. 27 C. PFM, Disbursement and Auditing Aspects .................................................................................... 27 D. Monitoring and Evaluation ............................................................................................................. 29

6. SUMMARY OF RISKS AND MITIGATION ................................................................... 29

List of Annexes Annex 1: Policy Matrix and Results Framework ............................................................................................. 31 Annex 2: Letter of Development Policy ........................................................................................................... 35 Annex 3: IMF Executive Board Completes Fifth PSI Review for Senegal ...................................................... 49 Annex 4: Country Map ..................................................................................................................................... 50 List of Tables Table 2.1: Selected Economic and Financial Indicators, 2011-2018 ................................................................ 4 Table 2.2: Fiscal Developments and Projections, 2011-2018 ............................................................................ 7 Table 4.1: GGSC II Prior Actions and Analytical Underpinnings ................................................................... 24 List of Figures Figure 1.1: Growth in consumption per welfare group (%) ............................................................................... 2 Figure 2.1: Domestic and External Public Debt ................................................................................................. 8

iv

The core team for this operation includes: Philip English (TTL), Alexandre Arrobbio and Djibril Ndoye (AFTP4), Christophe Lemière (AFTHE), Atou Seck (AFTEW), Linda English (AFTHD), Eric Brintet and Maimouna Mbow Fam (AFTMW), Demetrios Papathanasiou (AFTSD), Fatouma Toure Ibrahima (AFTG1), Jean Philippe Tre and Aifa Niane (AFTA1), Jean-Michel Marchat (AFTFW), Cheick Traore and Sidy Diop (AFTPC), Khady Fall Lo (AFCF1), Maya Abi Karam (LEGAM) and Wolfgang Chadab (LOAFC). Vera Songwe (AFCF1, Country Director), Miria Pigato (Sector Manager, AFTP4) and Marie-Chantal Uwanyiligira (AFCF1, Country Program Coordinator) provided overall guidance. The team worked closely with the IMF team headed by Hervé Joly, and donor representatives under the Framework Agreement on Budget Support (ACAB) in Senegal, and the Public Finance Management thematic group.

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SUMMARY OF PROPOSED CREDIT AND PROGRAM

REPUBLIC OF SENEGAL

SECOND GOVERNANCE AND GROWTH SUPPORT CREDIT

Borrower Republic of Senegal.

Implementation Agency

Ministry of Economy and Finance

Financing data IDA Credit Amount: SDR 19.6 million (US$30million equivalent); standard IDA terms; 40-year maturity with a 10-year grace period, single tranche

Operation type Second of three programmatic Development Policy Operations, single tranche

Pillars of the Operation and Program Development Objective(s)

The proposed operation supports the Recipient’s efforts to improve economic governance by strengthening Government accountability, increasing public sector performance, and promoting growth through private sector development. The reforms supported by the operation seek (i) to improve economic governance by strengthening accountability systems; (ii) to promote service delivery through better governance and efficiency in the education, health and agriculture sectors, rationalization of agencies and strengthening monitoring and evaluation; and (iii) to enhance private sector development through energy sector reforms, and improvements in the investment climate.

Results Indicators

Indicator Baseline (2012)

Target (2015)

Percentage of public office holders identified in the law who have made a declaration of assets

3 100

Delay in the publication of the Audit Court annual report after submission to the President

>1 year < 1 month

Budget credibility: ratio of executed wages and salaries in basic education to approved budget

>110 100

Budget credibility: ratio of executed university spending to approved budget

133 <105

Hospital efficiency index (%) 79.5 85

Government Subsidies to the energy sector for tariff compensation (billions of CFAF)

105 50

Agencies without a performance contract (%) 100 0

Doing Business indicators for tax payment 59 payments 666 hours

37 payments 318 hours

Risk rating Moderate

Operation ID P126470

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IDA PROGRAM DOCUMENT FOR A PROPOSED

SECOND GOVERNANCE AND GROWTH SUPPORT CREDIT

TO THE REPUBLIC OF SENEGAL

1. INTRODUCTION AND COUNTRY CONTEXT

1.1 This program document proposes a Second Governance and Growth Support Credit (GGSC II) for the Republic of Senegal in the amount of SDR 19.6 million (US$30 million equivalent). This operation is the second in a series of three GGSCs, following a series of two Poverty Reduction Support Credits (PRSCs IV and V) completed over 2009-2011. The proposed operation supports the Recipient’s efforts to improve economic governance by strengthening government accountability, public sector performance, and promoting growth through private sector development. Policies and reforms supported by this operation are well aligned with Senegal’s National Strategy for Economic and Social Development (SNDES1), which the Bank supports. The proposed operation is also fully consistent with the objectives of the Senegal FY13-17 Country Partnership Strategy, presented to the Board in February 2013.

1.2 Senegal is now a lower middle income country but its economic growth has been sluggish since 2006. Income per capita in 2012 was US$1040 (Atlas method). The economy has shown little structural change, with a continued dependence on remittances to fuel domestic demand, a growing reliance on capital-intensive exports while labor-intensive sectors faltered, and thus little job creation. The effects of global slowdown, commodity price shocks and instability in neighboring countries have been exacerbated by the weakness of the domestic reform agenda.

1.3 Senegal needs more productive private investment and public spending. Investment levels are fairly high but not reflected in economic growth. Public spending is high but not reflected in human development indicators. Private investment needs to shift from residential construction and real estate to more productive, permanent job-creating enterprises, but that will require a better investment climate, starting with more reliable, lower-cost electricity supply. The notable expansion of public finances has been accompanied by large deficits, and rapidly rising debt. The state needs to shift its emphasis from spending more to spending more effectively. Public investment needs to be more efficient, but since much of it is now domestically-financed and goes through independent public sector agencies, this will require better planning, evaluation and monitoring of domestic programs and institutions. Current spending can be made more efficient by reducing and better targeting energy subsidies, reallocating hospital subsidies to primary care, and improving the composition of education spending. Stronger governance institutions will help control the general level of public spending.

1.4 The current DPO series addresses these concerns by supporting the adoption of several critical but overdue reforms and the necessary follow-up over the next two years. These reforms underpin major projects supported by IDA in the electricity, higher education, health and agro-business sectors. At the same time, the proposed operation would provide financial support at a time when the government faces a revenue shortfall while trying to reduce debt financing.

1 The SNDES is published on the Ministry of Finance website http://www.finances.gouv.sn/UserFiles/SNDES%202013-2017%20-%20version%20finale%20-%2008%20novembre%202012(2).pdf

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1.5 Senegal’s democratic tradition has been strengthened by the March 2012 presidential elections. Overall the elections were characterized by integrity and transparency, resulting in a second democratic transition and confirming Senegal’s democratic maturity. Civil society made an important contribution to the electoral process, particularly youth groups and the media. The ‘Assises Nationales du Senegal’, another civil society initiative, had previously generated a Charter of Democratic Governance, which provides some guiding principles and key proposals that the new government has committed to pursue. These include the suppression of the Senate and a new law on transparency, both achieved in 2012. Legislative elections were held in July 2012 when, for the first time, gender parity was required in the candidate lists. Thanks to this regulation, 43 percent of the members of the National Assembly are women. Municipal elections are scheduled for March 2014.

1.6 The latest poverty estimate gives the incidence of poverty at 46.7 percent of the population in 2011. From 1994, when the FCFA was devalued, to 2005, GDP growth in Senegal was around 4.6 percent per year, and poverty rates fell significantly, from 68 percent in 1994/95 to 48.5 percent in 2005. However, since 2005-06, repeated shocks have contributed to reducing per capita income growth to little more than the rate of population growth. The 2011 household survey indicates that poverty has declined by only 1.8 percentage points to 46.7 percent, which is in fact not significant in statistical terms. The number of poor has actually increased.

1.7 Inequality remains moderate and has not worsened recently, but geographical disparities are pronounced and remain broadly unchanged. More than two-thirds of poor households live in rural areas. The Gini coefficient of inequality is estimated at 38 which is lower than the average of 42 in sub-Saharan Africa. About a quarter of all people live in a household that is headed by a woman, which tend to be less poor. This is only partly explained by the fact that most female-headed households are in urban areas, and that they receive somewhat larger transfers.

1.8 Despite clear progress over the past decade, most MDGs will be difficult to achieve. Achievement of the first MDG on halving poverty is unlikely. It will be very difficult to reach the MDG on the primary school completion rate, given the high level of repetition and dropout rates. Recent surveys suggest that the primary Gross Enrollment Rate (GER) is only 80-85 percent at the national level, and the net enrollment rate is much lower. According to the recent Demographic and Health Survey (2011), Senegal registered a significant reduction in under-five-year child mortality which put it back on track for that MDG, but the country will likely miss the MDG relative to maternal mortality.

1.9 Poverty can be dramatically reduced if pro-poor growth is aggressively pursued and if a well-targeted cash transfer scheme is implemented. Such pro-poor growth was achieved for a brief period in 2006-11 when agricultural output expanded substantially. This contributed to faster growth in consumption among the poor than among the non-poor – supporting shared prosperity – as depicted by the graph in Figure 1.1. The current government’s emphasis on agricultural development will help move in this direction, but job creation in the cities will also be needed for a population that will soon be more urban than rural.

Figure 1.1: Growth in consumption per welfare group (%)

-5%

0%

5%

10%

15%

Poorest Nearpoorest

Middle Nearrichest

Richest

2001-2005

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2. MACROECONOMIC POLICY FRAMEWORK

A. RECENT ECONOMIC DEVELOPMENTS IN SENEGAL

2.1 In the decade since 1995, Senegal enjoyed robust per capita GDP growth but, starting in 2006, the economy was buffeted by a series of domestic and external shocks. Periodic droughts or unfavorable rains, international food and oil price shocks, and the global financial crisis have all contributed to a slowdown in the economy, and deterioration of Senegal’s external and fiscal positions. However, domestic policy also played a part, with weaknesses in public financial management, ineffective energy policy, and slow reforms in the investment climate. Overall, real annual GDP growth averaged only 3.3 percent in 2006-12, down from 4.4 percent in 2000-05.

2.2 Senegal’s public finances were marked by a steady increase in expenditures since 2000. By end 2011, non-debt government spending had expanded by 120 percent in real terms to a projected US$4.2 billion. The main factors accounting for this sharp increase include a decade of modest but sustained growth, successful revenue mobilization efforts, and debt forgiveness, making room for new debt financing. The Government was able to reduce the share of “non-discretionary expenditures” in the overall budget—wages, pensions, debt service—thus providing room for other development spending.

2.3 With debt relief, the authorities launched new capital spending and increased subsidies and transfers, leading to growing fiscal deficits. Public investment spending increased from below 6 percent of GDP in 2000 to 10.5 percent of GDP in 2011.2 With stable donor contributions to the budget, this overall growth in capital spending reflects a sustained increase in the share that is domestically financed. Such capital expenditure represented 7 percent of total expenditure in 1996, 17 percent in 2000, and 24 percent in 2011 (although about one quarter should probably be reclassified as recurrent spending). About one-half of all investment spending is undertaken by autonomous public sector agencies, which poses problems for monitoring and evaluation. Fiscal space was not used exclusively for investment spending: the government has provided counter-cyclical spending and adjusted various subsidies to help households absorb shocks, such as rising food and fuel prices. The increased frequency of such shocks in recent years has led to higher subsidies, contributing to a fiscal deficit rising above 5 percent since 2010. Within recurrent spending, expenditures on goods and services have increased, reflecting among other things the growing importance of payments for contractual teachers who are not civil servants and therefore not included in the wage bill.

2.4 Rapidly rising debt levels now require fiscal consolidation. At the most general level, the fiscal situation calls for a strengthening of Senegal’s public financial management institutions. Despite repeated public financial management reforms over the decade, the strengthening of the institutions of public resource management has not kept pace with the fast growth in budgetary means and the larger role of domestic resources. The tools, policies and institutions to manage an ever-growing budget need adaptation, be it in the planning, arbitrage, execution, financing, reporting, control or evaluation of public spending initiatives, so as to improve efficiency, effectiveness, equity and governance. After a decade where the thrust of budget policies was to spend more, the state needs to shift its emphasis to spending more effectively. Key areas of focus must include energy, education (teachers’ wage bill), health (hospitals), and autonomous agencies, all of which are targeted in the current series. 2 Some of this spending is not true capital investment, so the national accounts data presented in Table 2.1 have been corrected to show a lower amount. The budget data presented in Table 2.2 retains the government’s classification.

4

Table 2.1: Selected Economic and Financial Indicators, 2011-2018

2.5 Economic growth rebounded in 2012 after the slump of 2011, but remains sluggish. Real GDP grew by only 2.6 percent in 2011, but GDP growth increased to 3.5 percent in 2012 thanks largely to a good harvest. However, the continued difficulties in European economies and Mali dampened demand for tourism services in the former, and cement and transit trade in the latter.

2014 2015 2016 2017 2018EBS/

13/72 Proj.

National income and pricesGDP at constant prices 2.1 3.5 4.0 4.0 4.6 4.8 5.1 5.1 5.1

Of which: nonagriculture GDP 4.8 2.6 3.7 3.7 4.3 4.7 5.0 5.0 5.1GDP deflator 4.2 1.7 2.2 0.3 2.2 2.3 2.2 2.3 2.3Consumer prices

Annual average 3.4 1.4 1.5 0.8 1.4 1.7 1.7 1.9 1.9End of period 2.7 1.1 1.7 1.2 1.7 1.7 1.8 1.9 1.9

External sectorExports, f.o.b. (CFA francs) 15.4 8.0 5.6 8.4 5.9 7.2 9.3 9.8 8.0Imports, f.o.b. (CFA francs) 19.7 17.5 0.4 4.2 3.1 4.0 7.5 7.8 7.3Export volume 10.2 3.7 4.1 7.4 7.3 7.7 7.1 7.2 5.3Import volume 8.9 13.3 4.2 7.4 5.7 6.1 5.9 6.3 5.0Terms of trade ("–" = deterioration) -4.0 0.4 5.5 4.1 1.2 1.6 0.5 0.9 0.5Nominal effective exchange rate 1.4 -2.3 … … … … … … …Real effective exchange rate 1.1 -3.8 … … … … … … …

Broad money 6.7 6.8 6.8 4.9 … … … … …Net domestic assets 9.0 8.6 6.4 4.5 … … … … …

Domestic credit 10.2 4.9 6.3 5.0 … … … … …Credit to the government (net) -2.0 -2.1 -0.8 -2.9 … … … … …Credit to the economy (percentage growth) 18.8 9.6 9.6 10.7 … … … … …

Government financial operationsRevenue 20.2 20.4 20.7 20.9 20.8 21.0 21.2 21.3 21.3Grants 2.2 2.9 2.7 2.8 2.8 2.6 2.6 2.5 2.4Total expenditure and net lending 29.1 29.1 28.7 29.1 28.6 27.7 27.6 27.4 27.2Overall fiscal balance

Payment order basis, excluding grants -8.9 -8.7 -8.0 -8.2 -7.7 -6.6 -6.4 -6.1 -5.9Payment order basis, including grants -6.7 -5.9 -5.3 -5.4 -4.9 -4.0 -3.8 -3.7 -3.5

Primary fiscal balance -5.2 -4.4 -3.8 -3.8 -3.3 -2.1 -1.7 -1.5 -1.2

Savings and investmentCurrent account balance (official transfers included) -7.9 -10.3 -9.3 -9.3 -8.3 -7.7 -7.5 -7.3 -7.1Current account balance (official transfers excluded) -8.8 -11.3 -10.0 -10.0 -9.0 -8.2 -8.0 -7.8 -7.5Gross domestic investment 27.3 27.8 30.3 26.8 26.1 25.0 25.4 25.8 26.0

Government 6.4 6.8 … 6.9 7.1 6.9 6.9 7.0 6.8Nongovernment 20.8 21.0 … 19.9 19.0 18.1 18.5 18.9 19.2

Gross national savings 19.4 17.4 21.0 17.6 17.8 17.3 17.9 18.5 18.9Government 6.9 6.6 … 7.6 8.4 9.5 9.8 10.2 10.1Nongovernment 12.5 10.9 … 9.9 9.4 7.9 8.1 8.4 8.8

Gross domestic savings 9.0 5.5 10.8 5.7 6.3 6.2 7.1 8.1 8.5Government 4.7 3.7 … 4.9 5.7 6.8 7.2 7.7 7.7Nongovernment 4.4 1.9 … 0.8 0.6 -0.7 -0.1 0.4 0.9

Total public debt 40.5 43.4 45.4 45.9 47.4 48.2 48.6 48.8 48.9Domestic public debt 2 11.3 12.4 11.6 12.0 11.8 12.7 13.6 14.5 15.4External public debt 29.2 31.0 33.9 33.9 35.6 35.5 35.0 34.3 33.5

External public debt servicePercent of exports 13.2 5.4 6.9 7.8 6.7 10.0 10.0 9.7 9.4Percent of government revenue 17.2 7.1 8.7 10.4 8.8 13.0 12.8 12.6 12.2

Memorandum item:Gross domestic product (CFAF billions)1 6,814 7,171 7,631 7,485 8,002 8,582 9,223 9,917 10,665

1Some ratios changed because of revisions to GDP numbers.2SDomestic debt includes government securities issued in local currency and held by WAEMU residents.

(Annual percentage change)

2011 2012 2013

Projections

(Changes in percent of beginning-of-year broad money, unless otherwise indicated)

(Percent of GDP, unless otherwise indicated)

Sources: Senegal authorities; and IMF staff estimates and projections.

5

Supply-side constraints related to over-fishing continue to hamper the largest traditional commodity export, fish products, while neglect of the tourism sector has undermined its role as the single largest foreign exchange earner. On the other hand, gold exports have grown substantially and are likely to become the largest commodity export in 2013. The telecommunications and construction sectors have been two other sources of growth in recent years, the latter funded partly by strong remittance flows. Remittances are equivalent to 13 percent of GDP or 50 percent of exports of goods and services, and continued to grow by 7 percent in nominal terms in 2012.

2.6 The current account deficit widened sharply in the second half of the 2000s but the country’s overall external position remained sound. The 2012 current account deficit including official grants widened by 2.4 percentage points to 10.3 percent of GDP, as import volumes rose three times as fast as exports, while the terms of trade deteriorated. Imports are roughly twice as large as exports. The growth in remittance inflows and project grants helped maintain the overall balance of payments position at a small deficit. Senegal’s contribution to West African Economic and Monetary Union (WAEMU) reserves at the regional central bank fell slightly. Total WAEMU reserves fell from 5.9 months of WAEMU imports in 2011 to 5.2 months in 2012.

2.7 The first half of 2013 has seen mixed results, with strong growth in the primary and tertiary sectors but stagnation in the secondary sector. The General Activity Index (which excludes crop production) rose by 5.2 percent, driven by services (7.3 percent). Transport and telecommunications both grew by over 20 percent. A temporary fall in phosphates production led to a sharp decline in extractive industry output (16 percent), while industrial output also fell (4 percent). Gold exports continued to increase, however, contributing to a 13.5 percent rise in exports.

2.8 A revenue shortfall and new spending pressures led to a revised budget in June 2013. Industrial stagnation and implementation of the new tax code have resulted in a temporary fall in revenues. Reductions in taxes on salaries had an immediate effect while other measures in the new code (e.g. rationalization of exemptions, simplification of payments, increase in business profit taxes) will take longer to show results. Higher spending has been required to respond to the security threat related to the war in Mali, as well as to address flooding problems in suburban Dakar. In addition, extra allocations were needed to reflect the likelihood that electricity subsidies are unlikely to decline as much as forecast. The projected fiscal deficit for 2013 was revised upward from 4.9 percent of GDP to 5.4 percent, still consistent with the macroeconomic framework supported by the IMF Policy Support Instrument.

2.9 The new budget maintains a strong public investment program and protects pro-poor spending. Planned public investment was revised downward but remains comparable to 2012 levels at 11.5 percent of GDP. Priority pro-poor spending is maintained at the previous year’s level of 12.7 percent of GDP, while wages and salaries are projected to fall from 31.5 percent of revenues to 30.1 percent, well below the WAEMU maximum target of 35 percent. At the same time, the government is committed to honoring the President’s campaign pledge to reduce the cost of living. Consequently, the authorities have been reluctant to increase electricity or water tariffs, although they have now achieved full pass-through of world prices to domestic petroleum products.

B. MACROECONOMIC OUTLOOK AND DEBT SUSTAINABILITY

2.10 Over the medium term, Senegal will need to break out of the low growth trend in which it has been trapped since 2006. The country will need to accelerate growth and do so in a more sustainable way - reducing the fiscal deficit, improving the quality of public investment, and promoting the private sector, notably export development. While external shocks have played an

6

important role in holding back the economy, much can be done to improve the investment climate. Senegal has slipped to 178th in the 2014 Doing Business report. One of the most critical variables over which the government has some influence is the electricity sector. The Senegalese economy depends on imported petroleum fuels for more than 90 percent of electricity generation, yet the authorities have done little to expand capacity and even less to diversify to cheaper sources. Electricity prices are among the highest in Sub-Saharan Africa (SSA), and even then subsidies to the sector reached 2.5 percent of GDP in 2012, crowding out other investment.

2.11 As the investment climate improves, Senegal is expected to regain economic momentum and return to its historical growth trajectory. The authorities have made some improvements in the quality of electricity supply and have taken measures to reduce costs in the medium term by changing the energy mix away from expensive oil-based thermal generation. Implementation of an ambitious program of reforms in the business environment began in 2013. The toll road leading out of Dakar was opened in August of 2013, dramatically improving the flow of goods and services between the capital and its port, and the rest of the country. The economy should receive a significant boost from other upcoming large-scale projects, several of which involve Public-Private Partnership (PPP) or FDI-financed projects—including a Special Economic Zone, the new AIBD airport, and the Sendou coal power plant. Higher growth can be achieved if the Government accelerates market-oriented structural reforms, promotes exports, and executes infrastructure projects efficiently, including energy and road infrastructure.

2.12 The authorities will need to improve the quality of public investment while promoting more efficient private investment. The overall efficiency of investment, as measured by the Incremental Capital-Output Ratio (ICOR), will need to improve from its current level approaching 10 to half that ratio, while maintaining the investment to GDP ratio of 30 percent. A new system for evaluating and implementing public sector proposals will be useful to enhance the quality of domestically-financed projects, but removing misclassified investment spending which is recurrent in nature would also help. As electricity supply improves, the share of private investment devoted to private generators will decline and thus improve the composition of private investment.

2.13 The authorities have renewed their commitment to maintaining a prudent fiscal stance over the medium term. The government’s objective remains to bring the fiscal deficit below 4 percent by 2015. The gradual decline in the overall fiscal deficit will reflect the return to more normal levels of infrastructure spending, expenditure restraint in non-priority areas together with improvements in the quality of spending and, to a lesser extent, further efficiency gains in tax administration. The full benefits of the new tax code in widening the tax base and reducing leakages should start to be felt in 2014. After a long period where the thrust of budget policies was to spend more, the authorities now acknowledge that they need to focus on spending more effectively. The rapid growth in revenue cannot be sustained. Critical areas for reduced spending are higher education scholarships, hospitals, energy subsidies and transfers to autonomous agencies, all of which are targeted in this DPO series. The authorities are also applying strict controls on the government’s utility bill, and on housing privileges for senior officials. There is also a need to improve investment planning and implementation capacity, which are supported by this operation and a parallel Public Financial Management (PFM) Technical Assistance (TA) project.

7

Table 2.2: Fiscal Developments and Projections, 2011-2018

2.14 The external current account deficit will remain high but gradually narrow in the medium term. The external current account deficit is projected to gradually decrease due to improved terms of trade in 2013, followed by somewhat faster growth in exports compared to imports. However, it will likely remain above 7.0 percent of GDP until 2018. The financing of the current account deficit is expected to remain sound as capital flows into the country. The capital and financial account surplus is projected to stay in the range of 6-8 percent of GDP, as FDI grows and aid flows are sustained. As a result, the overall balance of payments is expected to show only a modest deficit with Senegal’s national reserves slightly below 4 months of imports

2.15 Overall, Senegal’s macroeconomic framework for 2013 and the medium term outlook provide an adequate basis for the proposed operation. Economic policy makers are fully aware

2011 2014 2015 2016 2017 2018EBS/

13/72Adj.

proj.

Total revenue and grants 22.4 23.3 23.4 23.7 23.6 23.7 23.8 23.8 23.7Revenue 20.2 20.4 20.7 20.9 20.8 21.0 21.2 21.3 21.3

Tax revenue 18.9 19.2 19.1 19.2 19.5 19.7 19.9 20.0 20.0Income tax 5.1 5.6 5.4 5.4 5.6 5.7 5.8 5.9 5.9Taxes on goods and services 10.7 10.9 10.7 10.9 11.0 11.1 11.2 11.2 11.2Taxes on petroleum products 3.1 2.4 3.0 2.9 2.9 2.9 2.9 2.9 2.9

Nontax revenue 0.7 0.6 1.1 1.3 0.9 0.9 0.9 0.9 0.9FSE 0.6 0.6 0.5 0.5 0.4 0.4 0.4 0.4 0.4

Grants 2.2 2.9 2.7 2.8 2.8 2.6 2.6 2.5 2.4

Total expenditure and net lending 29.1 29.1 28.7 29.1 28.6 27.7 27.6 27.4 27.2Current expenditure 18.1 17.5 17.3 17.6 16.8 16.1 16.1 15.8 15.9

Wages and salaries 6.3 6.4 6.3 6.3 6.1 6.0 6.0 6.0 6.0Interest payments 1.5 1.5 1.6 1.6 1.6 1.9 2.1 2.2 2.3Other current expenditure 10.3 9.6 9.5 9.7 9.0 8.1 7.9 7.6 7.6

Transfers and subsidies 4.9 4.9 4.4 4.6 4.2 3.4 3.3 3.0 3.0Of which : SAR and butane subsidy 0.2 0.2 … 0.2 0.2 0.0 0.0 0.0 0.0Of which: SENELEC/energy 1.8 1.5 … 1.1 0.7 0.6 0.4 0.0 0.0Of which: Food subsidies 0.0 0.1 … 0.1 0.0 0.0 0.0 0.0 0.0

Goods and services 5.4 4.6 4.9 5.1 4.8 4.7 4.6 4.6 4.6Capital expenditure 10.5 11.4 11.4 11.5 11.8 11.6 11.5 11.6 11.3

Domestically and nonconcessionally financed 7.0 6.9 7.0 7.0 7.2 6.9 7.0 7.2 7.0Externally (concessionally) financed 3.6 4.5 4.4 4.5 4.6 4.7 4.5 4.4 4.3

Net lending 0.4 0.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Selected public sector entities balance 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Primary fiscal balance -5.2 -4.4 -3.8 -3.8 -3.3 -2.1 -1.7 -1.5 -1.2

Overall fiscal balancePayment order basis, excluding grants -8.9 -8.7 -8.0 -8.2 -7.7 -6.6 -6.4 -6.1 -5.9Payment order basis, including grants -6.7 -5.9 -5.3 -5.4 -4.9 -4.0 -3.8 -3.7 -3.5

Financing 6.7 5.9 5.3 5.4 4.9 4.0 3.8 3.7 3.5External financing 6.2 6.6 5.7 6.0 6.0 3.6 3.2 2.9 2.5Domestic financing 0.2 -0.7 0.0 -0.3 -1.0 0.4 0.7 0.8 1.0Settlement of payment delays 0.3 0.0 -0.3 -0.3 0.0 0.0 0.0 0.0 0.0Errors and omissions 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Memorandum items:Priority expenditure 9.0 12.7 10.2 12.7 ... ... ... ... ...Wages and salaries (percent of revenue) 31.1 31.5 30.2 30.1 29.5 28.8 28.5 28.4 28.4

Sources: Senegal authorities; and IMF staff estimates and projections.

2012

Projections

2013

(Percent of GDP, unless otherwise indicated)

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of the need to remain cautious and monitor ongoing developments domestically and abroad. Short-term adjustments to the authorities’ policy stance, if needed, would focus mainly on fiscal policy—the sole macroeconomic policy instrument clearly under their direct control. When confronted with the deteriorating fiscal position in mid-2012, the new authorities promptly adjusted it while preserving priority spending.

2.16 Risks, external and domestic, remain important. Risks to growth remain weighted on the downside, particularly for the Eurozone —Senegal’s main economic partner—though the public debt and financial sector situation in some countries appears to be improving. The crises in Mali and Guinea Bissau are also receding, but all neighboring countries are vulnerable to political instability which could impact the industrial and transport sectors. Additional risks to medium-term growth include food and fuel price shocks. Although the implementation of the energy recovery plan has shown improvement in electricity supply, higher oil prices remain a risk to the financial position of SENELEC, and could potentially lead to a return to recurring power blackouts, with adverse impacts on growth, including a loss of investor interest. A new increase in world oil prices would also pose problems for macroeconomic management. The cumulative effect of subsidies over the last five years has pushed up the fiscal deficit and debt, thereby reducing the margin for adjustment. Yet the high price of electricity makes further tariff increases politically and economically difficult.

2.17 The most recent Debt Sustainability Analysis3 shows that the risk of debt distress in Senegal will remain low, though the debt outlook has deteriorated and risks have increased. Under the baseline scenario, which includes the issuance of a new ten-year US$500 million Eurobond in 2013 (now postponed to 2014), all debt burden indicators remain below their indicative thresholds. This external non-concessional borrowing is consistent with debt sustainability as it will extend the maturity of debt by substituting for short-term domestic debt, without significantly increasing the cost or exchange rate risk. However, public debt has risen quickly, from 25 percent of GDP in 2008 to 43 percent in 2012. Large spikes in medium-term debt service ratios suggest the need to calibrate the medium-term fiscal stance back to the 4 percent deficit range, manage spending priorities, and improve debt management in order to minimize roll-over risks.

2.18 Under the baseline scenario, public debt indicators remain comfortably below the thresholds, but stress tests lead to breaches of two thresholds. Total public debt is expected to remain below 50 percent of GDP, and to start declining in 2018. The present value of debt to the sum of GDP and remittances breaches the threshold under a stress test simulating a one-time 30-percent depreciation of the exchange rate. The breach lasts for 15 years but is relatively small (less than 2 percentage points at its peak).4 The same threshold is breached under a scenario where

3 Senegal, Joint IDA/IMF Debt Sustainability Analysis, June 2013. 4 The exchange rate shock is arguably overstated in light of the peg to the euro, which is guaranteed by the French Treasury, and the relatively large percentage of Senegal’s public external debt stock denominated in Euro and SDR (which is partially linked to the Euro).

Figure 2.1: Domestic and External Public Debt

Source: Authorities and WB Staff

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borrowing terms are less favorable than under the baseline scenario, but the breach is even smaller and of shorter duration. The debt service-to-revenue threshold is breached by a small margin in 2021 under the one-time 30-percent depreciation shock. These stress tests highlight the importance of reducing fiscal deficits and raising potential output growth.

2.19 The authorities acknowledge that fiscal consolidation and a cautious approach to non-concessional borrowing are critical for safeguarding debt sustainability. The government has renewed its commitment to reducing the fiscal deficit to below 4 percent by 2015, and has requested an extension of the IMF program until December 2014 to help it stay on track. In place of the 2013 Eurobond issue, a loan was negotiated with a regional bank with an effective interest rate slightly above 7 percent; 60 percent of this loan is denominated in CFAF and the rest in Euro. IMF staff are proposing that the ceiling for semi-concessional borrowing with a grant element between 15 and 35 percent be raised from CFAF67 billion to CFAF132 billion (about US$275 million) to facilitate the financing of high-return investment projects. The authorities are committed to further strengthening debt management, having created a new directorate in charge of both internal and external debt and prepared a medium-term debt management strategy for the period of 2013-2015. The government will need to strengthen its capacity to conduct debt sustainability analyses.

C. IMF RELATIONS

2.20 The IMF and the World Bank maintain a close working relationship on Senegal, especially with respect to reforms in public financial management and structural measures in sectors such as electricity which have a systemic impact on public finances and macroeconomic stability. There is close coordination and collaboration to ensure that consistent advice is provided to the authorities.

2.21 The IMF Board approved the fifth review of the Policy Support Instrument (PSI) for Senegal in June 2013. Performance under the program was considered broadly satisfactory, with all quantitative assessment criteria met, although progress on structural benchmarks was mixed. Staff worked with the authorities to reduce the fiscal deficit as described above, with a view to achieving the original medium-term targets of the PSI – a fiscal deficit under 4 percent by 2015. The Board also approved the extension of the PSI program by one year, as requested by the authorities. The sixth review was initiated by IMF staff in mid-September. All quantitative targets for June 2013 were met, but there were widespread slippages across structural benchmarks. The review by the IMF Board was pushed back to allow more time for the authorities to advance on reforms, but is now scheduled for December 16, 2013. The delays appear to reflect weaknesses in coordination and monitoring within the Ministry of Economy and Finance and with other key actors, notably the Ministry of Energy, and the offices of the Prime Minister and President.

3. THE GOVERNMENT PROGRAM

3.1 The National Strategy for Economic and Social Development (SNDES) presents the authorities’ vision for the period 2013–2017. This new medium-term poverty reduction strategy is articulated around three pillars: (i) growth, productivity, and wealth creation; (ii) human capital, social protection and sustainable development; and (iii) governance, institutions, peace, and security. The new authorities decided to revise the poverty reduction strategy, which had just been finalized by the previous government, to reflect their own program which was endorsed through the popular vote in the presidential election. It draws on the conclusions of the “Assises Nationales”

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which represented an impressive exercise in participatory decision-making and consensus-building among opposition groups and civil society during the previous regime. The SNDES was validated in November 2012.

3.2 A new government was formed in September 2013 with a mandate to accelerate the implementation of the President’s agenda. The new Prime Minister was a key member of the previous government, serving as the Minister of Justice, and was one of the principal architects of the President’s Yoonu Yokuté5 campaign program. In her Déclaration de Politique Générale6, the new Prime Minister presented the Government’s broad policy orientations. Her statement emphasized meeting the expectation of the population by accelerating progress toward an emerging economy, within an inclusive society, characterized by the rule of law and a reformed Administration. The program has three key objectives:

• Addressing urgent social needs and reducing inequality. An emphasis was placed on social sector infrastructure in the most disadvantaged communities, universal health insurance, a cash transfer scheme, health, education, and support to women, youth and the handicapped.

• Re-launching economic growth and job creation. The Government continues to emphasize improving the investment climate, including access to finance and the reliability and cost of electricity, as well as agriculture, mining, tourism and industry, with a view to achieving average GDP growth of 6 percent per annum.

• Consolidating the rule of law through good governance and local development. Justice reform, security, decentralization, civil service reform, results-based management, and accountability received special attention.

3.3 The Senegalese authorities intend to promote performance and social accountability and enhance linkages between the economic and social development strategy and the budget. The government has committed to shifting from voluntary to mandatory performance budgeting by implementing the 2009 WAEMU directives relative to public finance management. By doing so, the government seeks to meet four categories of accountability criteria: (i) fiscal: public money is spent as authorized by the Parliament; (ii) ethical: government operates honestly without conflicts of interest, fraud or abuse of power; (iii) democratic: citizens and Parliament are engaged in making well-informed choices and understanding trade-offs among competing priorities; and (iv) results: performance of government works in delivering effective and cost-efficient programs.

4. THE PROPOSED OPERATION

A. LINK TO GOVERNMENT PROGRAM AND OPERATION DESCRIPTION

4.1 The GGSC II supports all three pillars of the SNDES. The Program Development Objectives (PDOs) are: a) to improve economic governance by strengthening accountability systems; b) to promote service delivery through better governance and efficiency in the education and health sectors, rationalization of agencies and strengthening monitoring and evaluation; and c) to enhance private sector development through energy sector reforms and improvements in the investment climate. The first PDO responds to the governance component of the third SNDES

5 Yoonu Yokuté or the Path to Development was the economic and social program that the coalition Macky2012, led by the Candidate Macky Sall presented to voters in the 2012 presidential campaign. 6 The Declaration of General Policy is required by the Senegalese Constitution and consists of the presentation of the policy orientations of a new government to the Parliament. The Prime Minister’s presentation was held on October 28, 2013 and was followed by a day-long discussion.

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pillar. The second one addresses the human capital dimension of the second pillar, and the third one supports the emphasis on growth, productivity and wealth creation in the first pillar.

4.2 The GGSC series builds on past PRSCs while shifting the focus to support the new government’s priorities. It highlights difficult reforms in the governance, education, and energy sectors, which the new government is prepared to tackle as an important break with the past. It also serves to lock in a multi-year program necessary to deepen the initial reforms and expand into a progressively more extensive agenda covering private sector development, land reform, and strategic planning and monitoring. Policies and reforms supported by this series are well aligned with the SNDES and are fully consistent with the objectives of the Country Partnership Strategy (CPS). By ensuring more efficient use of public resources, service delivery will be enhanced and fiscal space will be created for pro-poor spending, including an expanded social safety net. Jobs and wealth creation will benefit from an improved investment climate, as well as lower fiscal deficits which will reduce pressure on interest rates and avoid crowding out credit to the private sector.

4.3 The implementation of the second PRSC series and other DPOs, including the Energy DPO, has led to six key lessons: (i) Budget support has continued to be an effective tool to mobilize the Government on key reforms, as evidenced by past reforms promoted in the road maintenance fund, the sustainable management of fisheries, and public financial management; (ii) A combination of several instruments is advisable, including analytical work and sector SIL/TA operations; (iii) Policy-based lending under a harmonized approach among donors can be an effective tool to strengthen the country-based development model, notably in the case of PFM reform, where a common action plan was adopted, and in the case of the procurement code, where donor coordination helped to correct slippage; (iv) Ministries and agencies participating in budget support operations have a tendency to focus on the realization of prior actions, so systematic follow-up actions are needed; attention should also be paid to follow-up actions and outcome indicators; (v) Difficult sector reforms take time. The two-part 2008 Energy Sector DPL underestimated the time required for major sector reforms and as a result the second tranche had to be cancelled; and (vi) More attention should be paid to political leadership and the commitment at the highest level.

B. PRIOR ACTIONS, RESULTS AND ANALYTICAL UNDERPINNINGS

4.4 The proposed operation builds on the first DPO in the GGSC series and deepens the reform agenda in the same components. The first pillar focuses on the management of public resources and has two parts: government accountability and public sector performance. The second pillar concerns growth and private sector development. The first DPO supported a new code of transparency which called for, among other things, the preparation of an asset declaration law. This is being supported under the current operation. The first DPO also included a new law to increase the independence of the Cour des Comptes; the current operation promotes more timely publication of its most important report. A new financial regime for universities was approved in 2012; this year its implementation is encouraged through the approval of budgets consistent with that regime. The extension of hospital performance contracts, begun in 2011, is continued this year. The reforms in the electricity sector initiated in 2012 are pursued in 2013 with a performance contract for SENELEC.

4.5 Since the first operation, some reforms have moved more quickly than expected while others have lagged. The authorities have adopted an ambitious 3-year program of reforms in the investment climate which allowed one reform on property transfer, expected in 2014, to be moved forward and included in this operation. The record on higher education has been mixed, with faster

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progress in some areas (scholarship policy, which has been brought forward to this operation) and slower progress in others (university budget approval, which resulted in a weakening of the prior action). The interface of HR and payroll systems between education, finance, and civil service has proceeded more slowly than desired, but the authorities remain committed to completing the work by early 2014. Land reform has proven more difficult than hoped – though this was not entirely unexpected – but another less controversial approach has been identified within the current legal framework. As a result, the land reform agenda has been dropped from the GGSC series. Governance, energy and health sector triggers identified last year were maintained in the current operation. Thus, overall the program remains on track and this second operation provides an important opportunity to pursue the reforms initiated in the first DPO of the series. All prior actions of this DPO have been met.

Pillar 1: Government Accountability and Public Sector Performance

4.6 The presidential elections underlined the high expectations held by the population for better governance and improved public services. With a relatively solid public sector but a challenging fiscal situation and the need to maintain a democratic dialogue with civil society, the Government has put governance and public sector performance at the center of its program. The PDOs are i) to improve economic governance by strengthening accountability systems, and ii) to promote service delivery through better governance and efficiency in the education, health and agriculture sectors, rationalization of agencies and strengthening monitoring and evaluation.

Pillar 1a: Government Accountability

4.7 Despite some improvements, there is a perception that lack of transparency and corruption increased in the last years of the previous regime. Transparency International’s Corruption Perception Index (CPI) for Senegal declined between 2007 and 2011, decreasing from 3.6 to 2.9. However, access to budgetary information has improved with the publication on a monthly basis of budget execution tables, and the availability of information of procurement practices, but Senegal should do much better. The new government has joined the Stolen Asset Recovery Initiative and has adopted a new law on illicit enrichment “Loi sur l’Enrichissement Illicite”. By doing so, the new government acknowledged the need to build and reinforce its accountability system. Senegal’s ranking on the CPI improved in 2012 from 112 to 94.

4.8 To address limitations in accountability, the country is changing its legal and institutional budgeting framework. In 2009, the West African Economic and Monetary Union (WAEMU) adopted six new PFM directives covering transparency in public finances in general, budget preparation and execution laws, government accounting, budget classifications, a central government chart of accounts (CoA), and central government operations (TOFE). These new directives set ambitious objectives, including performance budgeting, decentralization of commitment authority to line ministries, reinforcement and modernization of internal and external controls, modernization of expenditure management, implementation of accrual accounting and new budget classifications aligned with international standards. The Senegalese Parliament approved five of the six directives in 2011 and the remaining one on the transparency code in 2012. These new directives are expected to be implemented over a period of five years from 2012 to 2017, and to improve the focus on results and principles, contrary to the current model. The country is receiving strong support from the Bank PFM-TA project to implement these reforms.

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4.9 The adoption of the WAEMU directive on the Code of Transparency will improve fiscal transparency. Developing effective disclosure systems and integrating them into wider anti-corruption programs is critical for building integrity and preventing corruption. Asset declaration systems in particular serve an important role. When such systems are linked to training and enforced codes of conduct, they can be a powerful tool to prevent corruption and detect the theft of public assets, including land. The 2009 WAEMU directive on the transparency code sets very strict rules regarding the probity and integrity of senior government officials involved in the management of public funds, including:

• The requirement for senior government officials to make an asset declaration at the beginning and end of their functions or mandate.

• The requirement for senior government officials to comply with a code of ethics.

• Enhanced public access to key fiscal information through strengthened provisions for disclosure of information on tax collection, allocation and execution of expenditure, and accountability rules in the public sector.

4.10 During FY14, a joint program of USAID and the World Bank will assist the Government in the implementation of the Code of Transparency. A first mission on the asset declaration system and the code of ethics was conducted in July 2013. Another mission will deal with the issue of access to information. These missions support the preparation of a new law on asset declaration, by elaborating a policy note and organizing a validation and dissemination workshop to stimulate public debate.

4.11 The fiscal transparency principles and practices that concern the scope of government and the framework for fiscal management are also included in the Code of Transparency. They are crucial as a basis for assigning accountability for the design and implementation of fiscal policy. A legal and administrative framework that clearly assigns the roles and responsibilities of government and government officials in the collection and use of public resources promotes accountability and good governance.

4.12 Improving the effectiveness and independence of the Supreme Audit Institution is also critical for an enhanced Government accountability. Senegal’s Supreme Audit Institution or Audit Court (Cour des Comptes) is a solid institution with a comprehensive legal framework and qualified staff, which has made significant progress over the last years with the support of various donors, including the World Bank and the European Commission. However, the Cour des Comptes’s effectiveness has been hampered by long delays in examining public accounts, opacity in financial information, and weak capacity. To date, the review and certification of the public accounts from fiscal year 2005 have not started. On the other hand, significant effort has been made to clear the backlog in the review of the draft Budget Execution Laws (Lois de Réglements). The Cour des Comptes has submitted the 2011 draft law to the National Assembly, and plans to submit the 2012 draft law by end December 2013. This should enhance ex-post legislative oversight.

4.13 The authorities have committed to speed up the transmission of budget execution laws and public accounts to the Audit Court and improve their quality. The Cour des Comptes is facing serious capacity constraints, including inadequate staffing, an obsolete archive system, and limited use of the IT system. The Parliamentary Finance Committee is also facing capacity constraints to review the Audited Financial Statements and audit reports submitted to Parliament by the Cour des Comptes. The IDA PFM TA project has components to strengthen both the Audit Court and the Parliamentary Finance Committee.

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4.14 However, the level of independence of the Audit Court has also limited its effectiveness as external auditor of the state. The findings of the audit conducted by the Cour des Comptes are not automatically made available to the public. The 1999 law concerning the Cour des Comptes allows the publication of the annual report of the Court only after presentation of the findings to the President. This consideration creates some time delay in the publication of the Court’s annual report and can be used to withhold embarrassing information. The 2009 annual report7, which was prepared in 2010, has been published only in 2011. The new organic law removes any obligation to advise the President, though for the moment this remains the tradition. It further strengthens the independence of the court by granting financial autonomy, and guaranteeing the tenure of its senior members. A permanent position has been created for the General Prosecutor at the Audit Court, replacing the former temporary one, to strengthen prosecutorial capabilities. However, the incentive and sanction regime that ultimately underpins compliance with the laws must be developed. The new organic law for the Cour des Comptes was passed by the National Assembly in 2012, but its enforcement was delayed pending adoption of the necessary decree, which has now been signed. The proposed GGSC II supports the effective implementation of the new law, while the third operation in the GGSC series will promote follow-up on the recommendations of the Annual Report.

Focus of the GGSC series under Pillar 1a — Government Accountability

4.15 The proposed GGSC II supports two policy actions that build on the first operation and are critical to foster transparency, accountability, and integrity: (i) the establishment of an Asset Declaration System by submitting to Parliament a draft law making asset declarations mandatory for all Ministers; and (ii) the publication of the 2011 Annual Report of the Audit Court on the website of the Cour des Comptes.

4.16 The subsequent operation would support continued progress in fostering transparency, accountability, and integrity. Two indicative triggers for GGSC III are: (i) Implementation of the asset declaration law is under way; and (ii) effective follow-up of recommendations from the Annual Report of the Audit Court.

Expected Results of the GGSC series under Pillar 1a

4.17 By the closing date of the proposed GGSC series, Senegal expects to achieve the following results related to the prior actions for GGSC II:

• The percentage of holders of public office defined in the asset declaration law that make a declaration of assets reaches 100 percent.

• Delay in the publication of the Cour des Comptes annual report after submission to the President decreases to no more than one month.

Pillar 1b: Public Sector Performance

Education

4.18 Despite significant public resources invested in public education, progress on effectiveness, efficiency and equity of spending has fallen short of the government’s objectives. The recent household poverty survey suggests that the gross enrolment rate at the primary level

7 The Court’s annual public report is published on the Court’s website http://www.courdescomptes.sn/

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remains around 80 percent, and lower in most rural areas. Dropout rates remain high, and quality remains a major concern. The sustainability of education financing is in question due to the growing wage bill and the costs of public universities.

4.19 Personnel costs represent the highest share of the education spending and are inefficiently used. Personnel costs in primary and secondary education represent about 93 percent of education spending, leaving only 7 percent of recurrent education spending to administrative services and educational inputs such as textbooks, classroom material and teacher training. This reflects the relatively high level of teacher salaries and the high proportion of non-teaching staff. Regular Senegalese teachers receive a salary that, relative to GDP per capita, is among the highest in Africa. About 28 percent of personnel costs go to non-teaching staff. The expansion of the education system will not be financially viable without better management of the wage bill.

4.20 This DPO series aims to improve human resource management through a combination of a more decentralized education system and better systems and controls at the central level. Teachers will be hired for jobs at the regional and district level thereby removing the option for teachers to move to larger cities and wait for a job while being paid. Reducing the role of the central ministry in day-to-day management of the education sector will improve effectiveness if it involves a clear definition of roles and responsibilities, stronger institutions at regional and district levels, and a proper balance of resources and authority at the school level, with accountability to communities, and more responsibility to local education authorities in allocating and managing education resources. This should be accompanied by a leaner, more flexible central ministry capable of effectively directing policy, monitoring and evaluation, and quality assurance. The 1993 decree creating the departmental and regional inspections was modified in 2012 to transfer more authority to local administration in education management.

4.21 A related objective is to make better use of existing staff, control the growth of the wage bill, and establish more credible forecasts of wages and remuneration, including contractual and higher education personnel. The Government will need to strengthen controls over staffing numbers, the geographical assignment of teaching staff, as well as recruitment programs based strictly on actual needs. For this, a strengthened HR management system—with an individual identification system for both staff and positions—has become essential. A personnel audit of the entire civil service has recently been conducted and a number of ghost workers and individuals receiving two salaries have been identified. It is now necessary to establish an effective payroll and HR control in education by linking databases for contractual agents and civil servants in the education ministry with that of the public service ministry, and then linking this with the ministry of finance payroll. Technical assistance has been provided by a project supported by the Canadian government and a clean database of education staff has been established. However, a new payroll system is being finalized in the ministry of finance, so interconnection with the education ministry system will only be possible by the end of 2013. The third operation in the GGSC series will support the effective utilization of this new system in the recruitment program for the 2014/15 academic year.

4.22 Public universities are primarily funded by the state budget, although information on the actual contribution of other revenue sources has not been available. However, it is well-known that universities run a significant number of parallel programs charging substantial fees, estimated to provide over 15 percent of university funding. This has resulted in an annual budget negotiation in which the Ministry of Higher Education argues that they are under-funded while the Ministry of Economy and Finance responds that they can manage once revenues from external

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services are included. This then leads to a budget crisis in September/October at which time the finance ministry is under great pressure to come up with additional resources, or risk strikes. For this reason, a new financial regime was introduced in 2012, supported by GGSC I, to require full disclosure of all revenues, and modernize the accounting framework, so that a proper discussion could be held over budget needs, and performance contracts could be defined. Budgets for 2013 were prepared by all the universities along the lines of the new financial regime and performance contracts signed. Budgeting can now be more closely tied to results, strengthening incentives to achieve outcomes such as graduation rates and providing programs with a better fit with the labor market. Proper accounting of university-generated revenues will also help to improve transparency and reduce misuse. An audit completed in mid-2013 revealed significant financial management problems which the government is in the process of addressing.

4.23 A broader reform program is under way including changes in the management of student scholarships and revision of tuition levels. Traditional criteria for scholarships have been eroded to the point where all students received some level of assistance regardless of merit, performance or even participation in final exams. Costly foreign scholarships have expanded, including for programs available at home. Tuition levels were extremely low, much less than the willingness or capacity to pay for most of the student body. The recent household budget survey suggests that over 80 percent of public spending on higher education benefits the non-poor. A Presidential Council on higher education in Senegal was held in May 2013 and a series of reforms on scholarships, tuition and other key issues were endorsed. A new scholarships and tuition fees policy will be implemented during the academic year that starts in late 2013.8 Technical assistance is being provided under the Senegal Tertiary Education Governance and Financing for Results Project to design and implement some of these reforms.

Health

4.24 To release more resources for pro-poor health services, the authorities will need to reduce the heavy burden of hospital debt. A 2008 study showed that the efficiency of public hospitals had clearly deteriorated in recent years, with the rapid recruitment of clinical, unskilled personnel bearing on their cost structure with little gains in “output”—indeed, it was estimated that, in 2007, a quarter of hospital resources (mainly staff) made no contribution to hospital outputs. As a result of spiraling staff costs, and non-payment of free services by government, most hospitals in Dakar were virtually bankrupt and relied heavily on exceptional subsidies. These subsidies have “crowded out” public investment capacity in the health sector, with available funding almost entirely shifted to cover hospitals’ financial losses. Previous DPOs supported financial restructuring plans for the hospitals, and now the majority are operating with a balanced budget. Nonetheless, further reforms are needed to improve the efficiency of hospital spending, which accounts for 30 percent of the health budget, or about US$45 million. With estimated efficiency running below 80 percent, there is a potential gain of some US$10 million. In addition, annual subsidies for those hospitals with deficits remain at US$5 million.

4.25 The next critical step is to develop and implement hospital performance contracts that define basic targets for improving efficiency and make oversight rule-based. Five hospitals prepared and signed such contracts with support from the second PRSC series. In 2012, a contract was signed with the Grand Yoff Hospital (HOGGY), which is facing the biggest financial losses in

8 Only students accepted in certain high-quality programs such as the Grandes Ecoles in France will receive external scholarships, and for students who fail their year in Senegal, those with full scholarships will lose half, and those with a half scholarship will be dropped. There are also measures to improve the share of scholarships going to girls.

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the system. Another five hospitals have signed contracts in 2013, and the remainder are eager to join up as these contracts come with an initial injection of investment funds. To ensure that these performance contracts are implemented and monitored, the government needs to strengthen its Directorate in charge of the hospital sector and to upgrade hospital information systems and implement a cost accounting system. These investments are part of the proposed FY14 health operation.

4.26 The principle of performance contracting needs to be institutionalized and deepened through the enactment of a financial and budgetary regime for hospitals. Many past problems can be explained by the lack of clear rules for financial accountability of hospitals after the hospital autonomy reform in 2000: (i) hospital budgets can be executed without any formal approval from the ministries of health or finance; (ii) hospital recruitment decisions are not constrained by a staffing plan which defines the maximum number of staff that can be hired by a given hospital (without approval from the Government); (iii) no cost accounting system is required, although such a system has been designed; and (iv) there is no required cash management system. These issues could be addressed with a new financial and budgetary regime for hospitals, which would complement the performance contracts in their effort to reintroduce accountability within hospitals. Whereas performance contracts may be characterized as curative, a new financial regime would be preventive. The third operation in this series would support this measure.

Agriculture 4.27 Subsidies for agricultural inputs have become a significant expenditure in recent years, while also suffering from major inefficiencies and leakages in their allocation. Such subsidies reached roughly CFAF35 billion (US$70 million) in 2012, but somewhat less in 2013. They have been offered in a fairly indiscriminate fashion for a wide range of inputs and crops, and with no attempt to target the more needy farmers. The process of distributing the inputs was also hampered by high costs and significant leakages, with inputs often arriving too late to be useful. The World Bank has worked with the authorities to develop criteria for more selective subsidies based on effectiveness, and a new e-platform which exploits cell phone technology. SMS and Interactive Voice Response (IVR) are used to send e-vouchers of fertilizers and seeds directly to producers, notify subsidy availability in a local agro-dealer, validate vouchers, and distribute the subsidy. A database of approximately 200,000 farmers has already been created, including crop variety, area, location, and cell phone number. By March 2014, when inputs need to be distributed, the aim is to have 1 million farmers registered such that at least 50 percent of all subsidized inputs can be channeled through this mechanism.

Agencies 4.28 The government allocates a significant and increasing part of its public investment program to a number of autonomous public sector agencies and specialized funds. Agencies receive budget transfers but enjoy relative management autonomy, the legal nature of which remains imprecise in the statutes. Budgetary information on individual agencies remains limited. It is clear that the number of agencies has increased in recent years, and they account for a growing proportion of the budget. In 2011, more than 70 operating agencies were identified of which 47 received budget allocations from the central government in the period 2007-2011. At present, roughly one-quarter of the investment budget (or about 2 percent of GDP) is executed by these agencies. As a result, the principle of budget comprehensiveness has been weakened. A law on agencies was adopted in 2009, to strengthen oversight of their budget execution, promote performance contracts, and establish procedures for the creation of new agencies, but progress has

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been slow. A 2011 decree created a Commission in charge of the evaluation of the agencies, but it was necessary to wait for the new government to operationalize it. An evaluation of all autonomous agencies was finally completed in mid-2013, with proposals to close or merge various agencies, and return some to the appropriate ministry. The next steps will be to validate the recommendations of this study, incorporate any budget implications into the 2014 budget, and prepare performance contracts for all remaining agencies.

Monitoring & Evaluation 4.29 The existing institutional framework for Monitoring & Evaluation needs to be consolidated to support the delivery of Government commitments. While the public administration has many qualified civil servants and relatively strong capacity to formulate strategies, policy implementation has been a critical challenge. M&E functions are characterized by the uneven performance of relevant units in line ministries, and the need to strengthen the institutional link between the head of the executive and sector M&E units.

4.30 In 2013, the Government launched a monitoring mechanism for the implementation of strategic priorities, with the support of the World Bank. Starting in March 2013, a monitoring mechanism of public policies was launched with five objectives: (i) facilitate the use of program information and the coordination of government monitoring; (ii) regularly measure results achieved; (iii) contribute to swift adoption of measures to address bottlenecks and delays; (iv) support the institutionalization of results monitoring; (v) and anticipate the requirements of the 2012 organic budget law that will require, starting in 2017, a performance oriented budget including multi-annual program budgeting and performance indicators. This mechanism focuses on a limited number of priority results extracted from the SNDES,9 and will be expanded over time. Seminars are being held quarterly, chaired by the President of the Republic or the Prime Minister.

4.31 The Delegation of State Reform and Technical Assistance (DREAT) at the Presidency was established as the Service Delivery Unit with responsibility for monitoring state priorities. DREAT was renamed the Bureau of Organization and Method (BOM) in September 2013 as part of the changes in government. Through the Presidential decree creating BOM, it was granted the responsibility to monitor selected priorities of the SNDES. This decree is expected to be complemented by a manual of procedures and technical assistance to strengthen the capacity of the unit. BOM will coordinate with the office of the Prime Minister and relevant ministries, conduct regular monitoring reviews and field missions related to these priorities, prepare brief reports and notes informing the President, and organize quarterly seminars to review progress.

Focus of the GGSC series under Pillar 1b — Public Sector Performance

4.32 The proposed GGSC II supports four policy actions that build on reforms supported in the first DPO in health and higher education and broaden the focus on governance and efficiency of public spending through reforms in agencies and strategic monitoring: (i) adopt 2013 budgets for the two largest universities which are in compliance with the revised financial regime, and adopt new criteria for the allocation of scholarships; (ii) evaluate existing performance contracts and sign performance contracts between 5 new public hospitals, the Ministry of Health and the Ministry of Economy and Finance; (iii) finalize the evaluation of autonomous agencies; and approve an action plan including the closure and merger of some agencies; and (iv) establish an institutional mechanism for regular monitoring of strategic priorities linked with the budget cycle.

9 Areas covered during the first half of 2013 included: agriculture, education, energy, flood prevention and disaster relief, governance, and social protection.

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4.33 The follow-on operation would support continued progress in the education and health sectors and the rationalization of agencies. Five indicative triggers for GGSC III are: (i) improve payroll and HR controls in education by a) linking databases of the ministries of education, civil service and finance,b) preparing the 2014/15 recruitment plan for education in consultation with ministry of finance, and c) eliminating ghost and double-counted teachers; (ii) implement the Presidential directives to improve the utilization of own resources generated by universities by a) adopting an arrêté defining the utilization of these resources, b) preparing a manual of procedures, and c) creating secondary accounting offices in key faculties and schools; (iii) adopt a decree defining a new financial regime for hospitals, along with the necessary arrêtés; (iv) adopt a new e-platform and have 1 million farmers registered such that at least half of subsidized agriculture inputs are allocated through it to reduce leakages and improve targeting; and (v) close and merge some agencies, and sign a Performance Agreement between all remaining Agencies with a budget over CFAF 1 billion and the Oversight Institution.

Expected Results of the GGSC series under Pillar 1b

4.34 By the closing date of the proposed GGSC series, Senegal expects to achieve the following results related to the prior actions for GGSC II:

• Credibility of the budget for wages and salaries in basic education is restored as the ratio of executed to budget spending decreases from 110 percent in 2011 to 100 percent in 2015.

• The ratio of the executed university recurrent budget to the approved budget decreases from 133 percent to less than 105 percent.

• The share of girls in the total number of students receiving scholarships increases from 35 percent in 2011 to 40 percent in 2015.

• The hospital efficiency index increases from 79.5 percent in 2012 to 85 percent in 2015.10 • The percentage of assisted births increases from 65 percent in 2011 to 70 percent in 2015. • 75 percent of subsidized agricultural inputs are allocated using a new e-platform. • All agencies are compliant with the 2009 law and have signed a performance contract. • Ten government programs have results frameworks approved by the M&E unit in BOM.

Pillar 2: Private Sector Development

4.35 For the new government, growth is the most important means for poverty reduction in Senegal. The situation in the energy sector and the cost inherent in the difficult business environment are among the most binding constraints to growth, while growth in agriculture could have a major impact on poverty reduction. The GGSC series focuses on these domains with the following program development objective: to enhance private sector development through energy sector reforms, and improvements in the investment climate.

Energy

4.36 The Senegalese power sector continues to face significant challenges in the short term. Due to insufficient or delayed investment in generation capacity during the last decade, there has been a gap between supply and demand since 2008, which resulted in major service disruptions in 2010 and 2011. Without action, this gap would have widened further with growing demand

10 The hospital efficiency index is the distance between (i) each hospital's combination of outputs and inputs and (ii) an efficiency frontier estimated through a data envelopment analysis. This technique is standard for assessing technical efficiency in data-poor environments.

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emanating from economic expansion, population growth, urbanization and the rural electrification program, bringing further deterioration in power services. The state-owned electricity utility (SENELEC) was forced to use old and costly generation units, compromised plant maintenance, and resorted at the end of 2011 to leasing 150MW of high-cost, emergency diesel generators to serve peak demand of about 460 MW. Power supply increased significantly and service provision improved, but the cost of power production became excessive, causing considerable financial deficits - despite relatively high tariffs11. Elevated international oil prices in 2012, combined with the high-cost generation base, resulted in the electricity sector needing heavy subsidies from the state, reaching about 2.5 percent of GDP. This included tariff compensation, unpaid taxes, and the rental and rehabilitation of capacity. The sector will remain heavily dependent on oil products for power generation, until at least 2016, exposing Senegal’s power sector to oil price risks.

4.37 Nevertheless, some recent developments indicate improvements can be expected in the medium term. In late 2012, the Government of Senegal adopted an updated Letter of Development Policy for the Energy Sector outlining key policy objectives to improve performance in the medium term; diversification of primary sources for electricity generation away from oil is a primary aim. Some key actions have started taking place. Following a series of rehabilitations and extensions of SENELEC’s heavy fuel oil generators, in 2013 SENELEC managed to significantly reduce the quantity of emergency power generation in the system (from 150MW to 50MW, though this increased again to 92MW in June). The Government has made progress on three front-runner projects that will diversify the energy generation mix and move away from expensive oil based thermal generation.12 They have revived an AfDB-supported investment for a coal-based independent power producer (IPP) and facilitated the closing of its financing by removing certain disproportionate up-front registration taxes and fees --AfDB made its first disbursement for that project in August 2013. In addition, SENELEC is in late-stage negotiations with another IPP for a heavy fuel oil power plant that could come on-line in late 2014 to completely remove the expensive emergency generators from the system13. Negotiations are advanced for electricity imports from Mauritania, based on that country’s off-shore natural gas, with the first imports expected in 2016. These last two projects are supported by the World Bank Group (WBG). The above mentioned efforts on power generation should contribute to somewhat reduced power generation costs in 2014 and 2015, and result in more significant cost reductions from 2016 and beyond.

4.38 Operations and governance of the power sector should improve with the recently signed performance-based contract. The Government of Senegal and SENELEC concluded in May 2013 a formal contract that sets specific targets for improvements. The agreement covers 2013-15 and, among others, stipulates: (i) a reduction in distribution losses accompanied by increased bill recoveries, which will produce financial improvements even in the short-term; (ii) better governance for SENELEC with specific targets for financial management system enhancements and financial reporting; (iii) the separation of accounts between SENELEC’s key segments of generation, transmission, distribution and retail/commercial operations; and (iv) enhanced accountability via an inter-ministerial committee that will follow the implementation of the performance contract, as well as provisions for external auditing of the key performance indicators. The agreement has been published and should bring a renewed focus to SENELEC and the sector, along with a better-defined pathway for sector recovery in the medium-term. The

11 At about US cents 24/kWh, electricity tariffs in Senegal are among the highest in Africa and the World 12 For more details on these and other aspects of the electricity sector see the PAD for the Taiba Ndiaye Independent Power Producer project presented to the Board of the World Bank on December 19, 2013. 13 This 70 MW project would be supported by the WBG (IFC equity and debt financing, IDA Partial Risk Guarantee).

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proposed DPO for 2014 would support implementation through: (a) a new power generation investment plan; (b) the separation of accounts; and (c) the publication of a summary financial model for the company. The first measure is discussed in more detail below (cf. para. 4.39). The second one will enable Senegalese authorities to hone in on business units requiring the most urgent reform; the third one will permit stakeholders to monitor financial progress in the sector.

4.39 Moderate gains in the power sector are beginning to take place. As part of its recovery plan SENELEC is targeting efficiency gains that could represent about $30 million in 2013 and further improvements that have been agreed upon under the above-mentioned performance contract. The government has agreed to a settlement of debts owed to, and due from, the company, as well as defining and implementing SENELEC’s financial restructuring plan, including debt restructuring, treatment of arrears, and recapitalization. The proposed sector reforms are difficult but, with the existing political commitment of the new government, it appears that they could be successful. Such political will, together with the decision to increase SENELEC accountability, and to establish the needed separation of sector functions and further strengthen sector institutions, is in contrast with conditions that prevailed at the time of previous Bank-supported sector reform efforts. Although the Performance Contract has been signed by the ministers responsible for finance and energy, as is the practice in Senegal, the proposed reforms are rooted in decisions and guidance at the highest Government level.

4.40 Senegalese authorities need to focus more on finalizing the generation investment plan and accelerate its implementation. Although preliminary actions have taken place to support new power investments, the country’s dependence on oil generation for electricity will only be addressed once projects with alternative resources materialize. The Government recognizes the need to bring independent power producers to the country and is relying on third parties to develop, finance, construct and operate most new electricity capacity. However, given the sector’s current difficult financing situation and overall perceived risks by investors, combined with construction periods of a few years for most significant projects, it is important that Senegalese authorities focus on: (i) improving SENELEC’s credibility as a customer; (ii) selecting the best investments; (iii) negotiating and agreeing rapidly with the sponsors, so that new power generation can come on-line quickly. Recent experience has shown that negotiations can be protracted, while on occasion investors can change their strategy regarding investments, or raising financing can be complicated. Nevertheless, development partners have indicated their willingness to work with the Government to support investments in power for the right projects. As the sector is gradually exiting its emergency state, Government needs to focus on medium and longer term projects. The performance-based contract includes provisions for monitoring progress with investments and will be a useful tool for Government coordination and follow-up of proposed projects.

4.41 The reforms underway are consistent with experience in Senegal and the region. Electricity sector unbundling in small-sized systems such as Senegal’s entails risks and has to be designed carefully and gradually. Sustained political commitment and appropriate arrangements for reform implementation and monitoring are key elements. Private investment in power generation, if well designed, can result in balanced contracts that also bring efficiency in investment execution and contribute fiscal space. Private participation in state-owned utilities has mixed results and in Senegal it has to overcome the legacy inherited from two failed concession attempts. Conversely, well-designed performance contracts between empowered SOEs and states which respect their commitments can succeed, as a first step in reform, to significantly enhance performance.

4.42 External support to the energy sector will continue to be coordinated within and outside the WBG. Several development partners are providing significant support to the sector: the

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AfDB is promoting private sector investment for a new 125 MW coal power plant, as well as for rural electrification; the Agence Française de Développement (AFD) is assisting the rehabilitation of power generation assets for capacity expansion and rural electrification; Banque Ouest Africaine de Développement (BOAD) and the Islamic Development Bank (IfDB) are financing power capacity expansion; the German government through KfW is focusing on the promotion of wind energy, and will contribute to energy efficiency with network and metering investments (alongside the World Bank), as well as rural electrification concessions and household energy; EU is also supporting rural electrification projects; the European Investment Bank (EIB) is assisting in the development of regional hydropower projects; China is financing transmission and distribution improvements and containerized generation plants. There is an active donor coordination group, led by the AfDB. Within the WBG, coordination and collaboration among the WB, IFC and MIGA has been excellent since 2007, in particular around support to and promotion of private investment in the power sector. Finally, the WB and the IMF are in continuous dialogue and are coordinating actions around sector reform and fiscal and economic impacts. Indeed, the IMF program has a structural benchmark for March 2014 requiring the publication of the audit of the SENELEC performance contract as well as the report of the committee responsible for monitoring this contract, including an overview of the sector, its financial status, and the strategy for reform.

Investment Climate

4.43 The reform momentum in the investment climate stalled between 2008 and 2012. Deficiencies in the business environment hinder the ability of the Senegalese private sector to generate growth and employment for the growing labor force. These include infrastructure (especially the quality of electricity supply), higher education and training (especially enrollment in tertiary education and staff training), innovation and technological readiness (capacity for innovation, patents, internet bandwidth), and institutions (business environment). Survey data suggest that the most important constraints for doing business include infrastructure (mainly electricity), access to finance and taxation, both in terms of rates and regulations. Overall, the legal system is not favorable to the private sector as shown by the Doing Business indicators. In 2013, Senegal’s overall ranking was 178th out of 189 countries.

4.44 Improving the business environment and competitiveness has been recognized as a priority by the SNDES. The December 2012 meeting of the Presidential Investment Council (PIC) - Senegal’s main forum for public-private dialogue - underscored the importance of continued investment climate reforms and adopted the Reform Program on Business Environment and Competitiveness (RPBEC). It aims to provide Senegal with a high quality business environment, improving its ranking in international ratings including Doing Business, and joining the group of most competitive countries in Africa. A program of 50 measures was adopted, to be implemented over three years, with a first set of 20 urgent reforms to be achieved in 2013. Within this framework, improvements have taken place in several areas: (i) firm creation (reduction in registration time and costs at the APIX single window); (ii) construction permits (reduction in time required, down to 150-170 days from 210 days); (iii) property registration (reduction in transfer tax from 15 to 10 percent, reduction in number of procedures and duration, down to 80 days from 122); (iv) tax payments (reduction in number of payments for small enterprise, and the time required to fill forms, and the creation of a specialized SME Center for tax payments); (v) improvements in commercial justice (reduction in time required to enforce contracts and better investor protection); and (vi) improvement in trade processes which help reduce the required time to process imports and

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exports. The current operation supports reforms in the areas of property registration and tax payment.14

4.45 Irrigated agriculture offers major opportunities for domestic and foreign investment, but maintenance has been a long-standing problem. There is an estimated renewable potential of more than 35 billion cubic meters, but the utilization of these resources remains at a rate of only 5.5 percent. Large public investments have been made in irrigation infrastructure and crop perimeters, mainly in the Senegal River valley for rice and horticulture. Performance has not met expectations and Senegal needs to establish a strong institutional, legal and regulatory framework for infrastructure maintenance. The Millennium Challenge Corporation (MCC) has laid important groundwork in the Senegal River delta to ensure quality control and timely execution of works. Now, a detailed action plan is needed for the public enterprise responsible for irrigation management in the Senegal River valley (SAED), which identifies roles and responsibilities and is properly funded. Progress on this action plan has been slow but should be finalized in December 2013. The MCC has developed performance indicators which will be used to assess results for the 2013-14 dry season. Among other benefits, a well-functioning maintenance system will be important for the proposed IDA Sustainable and Inclusive Agribusiness project.

Focus of the GGSC Series under Pillar 2 — Growth and Private Sector Development

4.46 The proposed GGSC II supports three policy actions that build on energy sector reforms implemented under GGSC I and broadens the focus to include other reforms critical to improving the investment climate and fostering private sector development: (i) Signature of a Performance Contract between the State and SENELEC; and (ii) Improve business climate by a) enacting a law simplifying property registration procedures and b) revising the tax code to reduce property taxes and reduce the time required for other tax payments.

4.47 The follow-on operation would support continued progress in private sector development. Three indicative triggers for GGSC III are: (i) approval by the Council of Ministers of the revised electricity investment plan for 2014-18; separation of SENELEC’s accounts between generation, transmission and distribution, and a publicly-available financial model; (ii) improve business climate in two areas, a) trading across borders (reduce days required for importing and exporting), and b) dealing with construction contracts (reduce days required) ; and (iii) preparation of a properly costed, funded and time-bound action plan for SAED which clearly defines roles and responsibilities, and to sign two multi-year maintenance contracts.

Expected Results of the GGSC series under Pillar 2

4.48 By the closing date of the proposed GGSC series, Senegal expects to achieve the following results related to the GGSC II prior actions:

• The undistributed energy due to load shedding decreases from 250 GWH in 2011 to 10 GWH in 2015.

• The Government subsidies to the electricity sector for tariff compensation decrease from CFAF105 billion (1.5 percent of GDP) in 2012 to CFAF50 billion (0.6 percent of GDP) in 2015.

• SENELEC’s debt to equity ratio decreases from 3 in 2011 to 1 in 2015.

14 The impact of these reforms has not shown up in the Doing Business 2014 report since implementation was required by end-June 2013. Also, in some cases the reform affects types of enterprises not covered by the Doing Business methodology.

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• The number of tax payments and time required is reduced from 59 and 666 hours, to 37 and 318 hours, respectively.

• Cost of registering a property is reduced from 20 percent to 12 percent, and the time required, from 122 days to 65.

Table 4.1: GGSC II Prior Actions and Analytical Underpinnings GGSC II Prior Actions Analytical Underpinnings

Pillar 1a: To improve economic governance by strengthening accountability systems.

Establish an Asset Declaration System by submitting to Parliament a draft law making asset declarations mandatory for all Ministers (Prior Action 1)

The Governance Charter of the Assises Nationales originally established the importance of such a system. A policy note produced by the World Bank subsequently laid out international experience and lessons for Senegal.

Publish the 2011 Annual Report on the Cour des Comptes website (Prior Action 2)

The Public Finance Review conducted by the World Bank in 2011 discussed weaknesses in the performance of the Audit Court.

Pillar 1b: To promote service delivery through better governance and efficiency in the education, health and agriculture sectors, rationalization of agencies and strengthening monitoring and evaluation.

Adopt 2013 budget for the two largest universities which are in compliance with the revised financial regime of the universities; and adopt new criteria for scholarships (Prior Action 3)

The Public Finance Review conducted by the World Bank in 2011 documented the high share and rising cost of tertiary education and hence the need for greater financial controls.

Evaluate existing performance contracts and sign performance contracts between 5 new public hospitals, the Ministry of Health and the Ministry of Economy and Finance (Prior Action 4)

The World Bank conducted an evaluation of hospital reform in Senegal in 2011 which underlined the need for better mechanisms to supervise hospital performance.

Finalize the evaluation of autonomous agencies; and approve an action plan including the closure and merger of some agencies (Prior Action 5)

The Public Finance Review conducted by the World Bank in 2011 identified the need for rationalization, and better monitoring, of agencies.

Establish an institutional mechanism for regular monitoring of strategic priorities linked with the budget cycle (Prior Action 6)

Consultations for the CPS consistently emphasized the problem of implementation of strategies and reforms in Senegal.

Pillar 2: To enhance private sector development through energy sector reforms, and improvements in the investment climate.

Signature of a Performance Contract between the State and SENELEC (Prior Action 7)

Preparation of the contract was informed by analytical work to review and update SENELEC’s financial model.

Improve business climate by i) enacting a law simplifying property registration procedures and ii) revising its tax code to reduce property taxes and reduce the time required for other tax payments (Prior Action 8)

The Doing Business annual report has documented Senegal’s poor performance in these areas, and the report of the Presidential Investment Council confirmed the need to make improvements.

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C. LINK TO CPS AND OTHER BANK OPERATIONS

4.49 The new Country Partnership Strategy (CPS) for FY13-17 was approved by the Board in March 2013. The new CPS has two main pillars: (a) accelerating inclusive growth and creating employment; and (b) improving Service Delivery, supported by a foundation of Strengthening Governance and Building resilience. In the CPS, policy-based lending is seen as a critical instrument in support of the SNDES agenda. The focus of policy-based lending operations is expected to be good governance, economic reforms for wealth creation, and support for policies that improve the delivery of basic social services.

4.50 The GGSC series provides an important complement to a variety of IDA investment projects. It supports reforms which are necessary for project success, while benefiting from technical assistance, studies and policy dialogue conducted within these operations. Strong linkages have been established with the Public Financial Management Technical Assistance project, which supported the evaluation of agencies, and the Electricity Sector Support Project, which is leading the dialogue on reform in this sector, as well as the proposed WBG Taiba Ndiaye Independent Power Producer project which aims to reduce generation costs. The Tertiary Education Governance and Financing for Results Project has been instrumental in developing performance contracts with the universities and conducting the policy dialogue on scholarships, while the EFA-FTI Catalytic Fund has supported reforms in basic education. Preparatory work for the forthcoming Results-based Financing for Health Project has supported the elaboration of performance contracts in hospitals. IFC is assisting the government to improve its Doing Business indicators. The irrigation component complements the new proposed project for Sustainable and Inclusive Agri-Business.

D. CONSULTATIONS, COLLABORATION WITH DEVELOPMENT PARTNERS

4.51 The design of the proposed GGSC has drawn on the SNDES which has benefited from broad stakeholder consultations. Additional consultative inputs were drawn from stakeholders’ participation in the preparation of the CPS and in the development of the monitoring and evaluation framework for key outcomes shared jointly by the SNDES and the CPS. The annual Presidential Investment Council meetings and the Competitiveness Fora have provided important opportunities to listen to the private sector. Under the preparation and the supervision of the Higher Education Governance and Financing for Results project and the Public Finance Management Technical Assistance project several consultations with stakeholders were organized to identify priorities, areas of reform and discuss instruments. A Presidential Council was held in May 2013 to agree on reforms in the higher education sector, and a seminar on hospital performance contracts was conducted in September 2013. In addition, the World Bank Country Office also conducts outreach activities and consultations with stakeholders on a routine basis.

4.52 The World Bank collaborates with a range of bilateral and multilateral development agencies in Senegal. Through the Framework Agreement on Budget Support (Accord Cadre pour les Appuis Budgétaires, ACAB), donors providing budget support have developed a joint policy matrix of prior actions and triggers and common monitoring mechanisms to improve harmonization and exchange of information, and enhance the predictability of budget support. The ACAB reflects the willingness of the Government and its development partners to maintain budget support as one of their financial cooperation modalities. It aims at achieving the following specific objectives: (i) increase the absorption rate of external resources available to the Government; (ii) increase aid effectiveness; (iii) improve the predictability of short-term resources and ensure disbursement in line with the budget cycle ; (iv) foster harmonization among partner including the definition of

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disbursement criteria; (v) improve coordination through joint and coordinated missions, studies, audits, and evaluations; (vi) support the implementation of the SNDES and other national strategies.

4.53 Sectoral collaboration occurs around twenty thematic working groups, including public financial management, energy, agriculture, education, health, and statistics. These groups generally comprise government officials, and sometimes include civil society and private sector representatives. They have been increasingly active, and played a catalytic role in the areas of budgetary reforms, education, and health. In the specific context of this DPO series, USAID has financed preparatory work on the new asset declaration law, and the Canadian aid program financed a consultant to develop the harmonized HR system for education.

5. OTHER DESIGN AND APPRAISAL ISSUES

A. POVERTY AND SOCIAL IMPACT

5.1 The proposed operation is expected to have a positive impact on medium-term poverty reduction. It will strengthen the government’s accountability system and institutional capabilities to ensure greater efficiency and effectiveness of public expenditure and improve the quality of basic services. The selected actions are expected to create fiscal space for primary and secondary education and basic health care. The government actions to restructure the universities and improve quality in the higher education sector and strengthen accountability in hospitals will impact student living conditions and patient care. Further improvements in quality and access will be supported by more targeted projects. Investments, institutional development and policy dialogue will continue through the Higher Education Governance project and new projects in primary education (Global Program for Education) and health (Financing for Results).

5.2 Policy reforms in energy, higher education, land management, and autonomous agencies may affect selected groups. The performance contract for SENELEC may eventually lead to some reduction in staffing, and the evaluation of agencies will result in the closure of some agencies. However, to the extent this happens, the persons concerned will be covered by the fairly generous provisions of Senegalese law. The rationalization of scholarships in higher education will focus on re-establishing the link between performance and funding, including the removal of students who enroll simply to obtain the scholarship and never actually come to class. In the case of land reform, the objective is to find a model which serves all parties, local communities and investors. The GGSC series supports policy reforms associated with Bank projects that are subject to Bank safeguards policies. Comprehensive analytical work, including a Poverty and Gender Report, and stakeholder consultations are ongoing and will continue as part of developing the policy program to ensure that any measures supported under future operations are implemented in a manner that is consistent with Bank policies. Preliminary results show that around 60 percent of electricity subsidies are captured by the 20 percent of households with the highest revenue, while the poorest 50 percent capture less than 20 percent of the subsidies. Targeting energy subsidies on the poor could protect them from the effects of an increase in energy prices, while generating significant revenues. The recently-approved Energy Sector Support Project will be supporting the authorities in the design of a new tariff structure, while Bank staff is also advising them on the establishment of a social safety net. This will be critical in assisting the government to reduce its fiscal deficit in line with targets laid out in its IMF-monitored program.

5.3 The proposed GGSC series is expected to have a positive impact on gender equality. Reforms promoted in basic and higher education as well as in health are expected to facilitate girls’

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and women’s access to social services. While the percentage of pregnant women receiving prenatal care reached 93 in 2011, the percentage of women giving birth in health clinics is 20 percentage points lower (73 percent). The hospital reform promoted by the GGSC series is expected to improve the quality of services and save resources for better financing of primary health clinics (centres de santé, cases de santé), particularly in rural areas, and thus improve access to services by women. The percentage of women giving birth in health clinics will be used to monitor this objective. Also, the improvement of the universities’ financial situation is expected to have a positive impact on the quality of education, reducing the drop-out rate and thus encouraging female completion rates. Improvements in the quality of student services such as the living conditions in university residences should also help. Gender equality exists already in primary education and improvements in secondary education are expected to reduce girls’ dropout rates at that level. The proposed series will monitor the impact on girls’ and women’s education.

B. ENVIRONMENTAL ASPECTS

5.4 The specific reforms supported by the proposed development policy credit are not likely to have significant negative impacts on the country’s environment, forests and other natural resources. The structural reforms supported by GGSC II aim generally at strengthening the government accountability system and institutional capabilities to ensure greater efficiency and effectiveness of public expenditure and improve the quality of basic services through a set of reforms that by themselves entail no specific impact on the environment. The energy sector reform – a performance contract with SENELEC – is designed, among other things, to improve the reliability of the electricity system, thereby reducing the need for private generators, with a positive effect on the environment.

C. PUBLIC FINANCIAL MANAGEMENT, DISBURSEMENT AND AUDITING ASPECTS

5.5 Progress has been made on some dimensions of Public Financial Management (PFM). Most recent PFM diagnoses,15 have identified mixed PFM performance. Strengths in Senegal’s PFM system include: (i) a coherent legal framework consistent with good international practices; (ii) a rational institutional organization; (iii) good capacity for economic forecasting; and (iv) a commitment to develop multi-year and performance based budgeting approaches. Conversely, some budget preparation modalities have a negative impact on budget quality and execution. The quality of expenditure estimates undermines the credibility of the budget and complicates budget execution. Additional measures are also needed to improve fiscal forecasts, such as developing adequate techniques for revising approved funding, estimated appropriations, personnel expenditure, and unforeseen expenditure. Finally, the parliamentary debate on the budget and budget execution could also be strengthened.

5.6 Performance of the public financial management reform program to date and Government commitment to its improvement is judged as satisfactory. The General Audit Office is required by law to produce its annual report on the public accounts to Parliament with the Budget execution laws (Loi de Règlement) by the end of the year following the execution of the budget. The delay in the preparation and the approval of the budget execution laws accumulated since the creation of the Audit Court in 1999 was eliminated in 2013. The GGSC series reinforces the Audit Court, shortens the delay in publication of its annual public report, and promotes follow-

15 In particular the 2007 and 2011 PEFA, a 2008 IMF technical assistance report, the World Bank PFM Technical Assistance and recent analytical work under the Bank’s PPFR.

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up of its recommendations. The budget law and monthly budget execution tables are published.

5.7 The Banque Centrale des Etats de l’Afrique de l’Ouest (BCEAO) is the common central bank of the West African States, which includes Senegal. The BCEAO publishes a full set of audited financial statements, and improvements have been made to move financial reporting closer to International Financial Reporting Standards (IFRS). The latest IMF Safeguards Assessment was conducted in 2010 and another one is being conducted in late 2013. IMF staff noted that the BCEAO had improved the explanatory notes to the financial statements and further changes are scheduled, with a view toward gradual alignment with International Accounting Standards (IAS), as adopted internationally by other central banks. Furthermore, an internal audit charter has been put in place, mechanisms have been established to improve risk management and risk prevention, and follow-up on internal and external audit recommendations has been strengthened. The assessment identified a number of areas where further steps would help solidify the progress made in recent years. The main recommendations relate to: (i) improving the external audit process by adopting a formal rotation policy and further enhancing the transparency of the financial statements by adopting IFRS in full; and (ii) enhancing the effectiveness of the internal audit function by further strengthening reporting to management of the BCEAO. Progress has been achieved in corporate governance and the strength and transparency of internal financial reports. The foreign exchange risk is considered to be at an acceptable level.

5.8 The credit will follow IDA’s disbursement procedures for development policy credits. Upon approval of the credit and effectiveness of the Financing Agreement, the proceeds of the credit would be disbursed by IDA into a dedicated account of the Government for budget support. The foreign currency dedicated account forms part of the country's foreign exchange reserve. The proceeds of the credit would not be used to finance expenditures excluded under the Agreement. The borrower shall ensure that upon the deposit of the credit into said account, an equivalent amount is credited in the borrower’s budget management system, in a manner acceptable to the Bank. Based on previous experience, the execution of such a transaction from the Central Bank (BCEAO) to the Treasury (Ministry of Economy and Finance) does not require more than four days. The borrower will report to the Bank on the amounts deposited in the foreign currency account and credited in local currency to the budget management system. Assuming that the withdrawal request is in foreign exchange, the equivalent amount in CFAF reported in the budgetary system will be based on the market rate at the date of the transfer. The borrower will promptly notify the Bank by fax or email that such transfer has taken place, and that proceeds have been credited in a manner satisfactory to the Bank.

5.9 Auditing. The administration of this credit will be the responsibility of the Ministry of Economy and Finance. Through this Ministry, the borrower will: (a) report the exact sum received into the Dedicated Account; (b) ensure that all withdrawals from the Dedicated Account are for budgeted public expenditures, except for purposes such as military expenditures or for other items on IDA’s negative list; and (c) provide to IDA evidence that the CFAF equivalent of the credit proceeds were credited to the Dedicated Account and disbursements from that account were for budgeted public expenditures. The Dedicated Account could be audited on terms of reference acceptable to IDA. If, after being deposited in this account, the proceeds of the credit are used for ineligible purposes as defined in the Financing Agreement, IDA will require the recipient to either: (a) apply the corresponding amount to eligible purposes, or (b) refund the amount directly to IDA. The budget execution law for 2012 is expected to be submitted to the Parliament before the end of 2013. A copy of this report and the public accounts attached should be submitted to IDA.

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D. MONITORING AND EVALUATION

5.10 Strengthening monitoring and evaluation is critical for the successful implementation of the Government’s priorities. The last presidential election brought high expectations for government accountability as well as enhanced performance of service delivery and policy implementation, and the Government responded with strong commitments while facing fiscal constraints and a new team with limited experience in government. M&E functions in the Senegalese public administration are characterized by the uneven performance of units in line ministries, and the need to consolidate and strengthen the entities at center of government. As a result, the current institutional link between the head of the executive and sector M&E units has not been clear. The Government has recently adopted a new framework developed jointly with the World Bank which covers six key programs in its pilot phase: agriculture, energy, investment climate, education, governance, and disaster management and flood control. Many of the reforms and outcomes supported by the GGSC series are covered by this framework. The M&E unit will be based in the Delegation for Reform of the State and Technical Assistance (DREAT), which is located in the Office of the President. An inter-ministerial committee has also been established specifically to monitor the GGSC series. This committee consists of senior government officials from the President Office (BOM), APIX, the Prime Minister’s Office, and the Ministries of Economy and Finance, Energy, Basic and Higher Education, Health, Agriculture, and Decentralization.

6. SUMMARY OF RISKS AND MITIGATION

6.1 Overall risk is judged to be moderate but several factors could jeopardize some of the expected outcomes and benefits. These include: (i) political pressures associated with the 2014 local elections and the need to maintain the ruling coalition; (ii) a recent legacy of deteriorating governance which will take some time to change; (iii) stalling recovery in the global economy, and renewed instability in neighboring countries which would undermine economic growth; and (iv) weaknesses in certain sector policies and institutions. The design of this operation, the strength of Senegalese institutions and the tradition of stability are important mitigating factors.

6.2 The political situation is broadly stable but subject to the pressures faced by a coalition in a lively democracy. The ruling party depends on the cooperation of numerous smaller parties, and there are signs of disagreement and an initial splintering. There will be pressure to increase spending ahead of the 2014 local elections and to satisfy different factions, which could weaken performance on fiscal consolidation. Political considerations also played a part in the recent change in government, including the Prime Minister and the Minister of Economy and Finance, with some loss in continuity. However, the new team has been given a clear mandate to accelerate priority programs and reforms, and political pressures are resulting in pro-poor and pro-governance actions. The recent extension of the IMF program to the end of 2014 will help maintain fiscal discipline, while the current series helps create fiscal space by supporting spending efficiency in the education and health sectors, and on agencies, as well as reductions in energy subsidies.

6.3 Governance deteriorated in the last years of the previous regime but the new regime is committed to reversing this trend. Vested interests will resist change but the GGSC series tackles some of the key sources of abuse, through the declaration of assets, the rationalization of agencies, and reforms in higher education, hospital management and agricultural subsidies. The choice of the new Prime Minister has probably reinforced the President’s governance agenda.

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6.4 Senegal’s short-term prospects continue to depend on developments in the global and regional economy. A slower normalization in the current global context represents a significant though declining risk, as does political unrest in Mali and Guinea Bissau. Instability in any of the neighboring countries continues to be a possibility. Increases in global energy prices would put further pressure on public spending by leading to higher subsidies for electricity and petroleum products in the absence of domestic price adjustments. The current series helps mitigate these risks by supporting reforms in the electricity sector, while reforms in the investment climate should eventually help diversify the economy and thereby reduce its vulnerability.

6.5 Bureaucratic inertia, poor coordination among sector ministries and the Ministry of Economy and Finance, bottlenecks at the decision-making level, and stakeholder pressure frequently result in delays in implementation. The higher education sector has recently suffered from inter-ministerial coordination problems, while various stakeholders resist change. The electricity sector and its institutions have a long history of failed reforms and their leadership has typically lacked a sense of urgency. However, the reforms promoted through this series are backed by TA in a parallel investment operation, continuous dialogue by a reinforced field-based team including IFC, and active involvement by management, along with regular, in-depth discussions with the IMF. More generally, the adoption by the authorities of a new monitoring framework, with quarterly meetings chaired by the President, should promote a gradual change in culture towards one more focused on results.

6.6 Fiduciary, environmental and social risks are low, as discussed above. Fiduciary systems in Senegal are relatively strong and improving. No negative environmental implications are expected, and the social impacts are considered to be positive, notably through better health and education services.

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Annex 1: Policy Matrix and Results Framework

Area/ Objective

Prior Actions Triggers Results Framework: Indicator

GGSC I (September 2012) GGSC II (September-

2013) GGSC III

(September2014) Baseline (2012 unless otherwise indicated)

Target (2015)

Pillar 1a: Government Accountability – Program Development Objective: Improve economic governance by strengthening accountability systems.

Foster Public Sector transparency, and accountability

Enhance Budget transparency by submitting to Parliament a draft

law consistent with the WAEMU guidelines for aCode of Transparency (Directive

No1/2009/CM/UEMOA portant Code de Transparence dans la

Gestion des Finances Publiques au Sein de l’UEMOA) (Prior

Action 1)

Establish an Asset Declaration System by

submitting to Parliament a draft law making asset

declarations mandatory for all Ministers

(Prior Action 1)

Implementation of the asset declaration law (Trigger 1)

Percentage of holders of public office defined in the asset declaration law that make a declaration of assets

3

100

Strengthen the independence of the Audit Court by submitting to Parliament a draft organic law (projet de loi organique sur la

Cour des Comptes) (Prior Action 2)

Publish the 2011 Annual Report of the Audit Court on the Cour des Comptes

website (Prior Action 2)

Develop effective follow-up of recommendations from the Annual Report of the Audit Court (Trigger 2)

Delay in the publication of the Audit Court annual report after submission to the President

1 year Less than 1 month

Pillar 1b: Public Sector Performance – Program Development Objective: to promote service delivery through better governance and efficiency in the education, health and agriculture sectors, rationalization of agencies and strengthening monitoring and evaluation.

Improve Human Resource Management effectiveness in Education

Improve personnel management of the education ministry by

adopting a decree reinforcing the deconcentration process (décret

abrogeant et remplaçant le décret n° 93-789 du 25 juin 1993)

(Prior Action 3)

Improve payroll and HR controls in education by a)

linking databases of the ministries of education, civil

service and finance; b) preparing the 2014/15 recruitment plan for

education in consultation with ministry of finance;

and c) eliminating ghost and double-counted teachers

(Trigger 3)

Budget Credibility for Basic Education wage and salaries (Ratio executed to approved budget)

>110 100

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Area/ Objective

Prior Actions Triggers Results Framework: Indicator

GGSC I (September 2012) GGSC II (September-

2013) GGSC III

(September2014) Baseline (2012 unless otherwise indicated)

Target (2015)

Improve oversight and efficiency of the public universities

Strengthen financial management of universities by amending the

financial regime, (adoption of the Décret portant régime financier

des universités)

(Prior Action 4)

Adopt 2013 budgets for the two largest universities

which are in compliance with the revised financial

regime; and adopt new criteria for allocation of

scholarships (Prior Action 3)

Implement the Presidential directives to improve the

utilization of own resources generated by universities by

a) adopting an arrêté defining the utilization of

these resources; b) preparing a manual of

procedures; and c) creating secondary accounting

offices in key faculties and schools (Trigger 4)

Budget Credibility for University Education (Ratio executed to approved budget)

133 (2011) <105

Share of girls in the total number of students receiving scholarships (percent)

35 (2011) 40

Improve Hospital efficiency

Sign a performance contract between the HOGGY hospital, the

Ministry of Health and the Ministry of Finance

(Prior Action 5)

Evaluate existing performance contracts and sign performance contracts

between 5 new public hospitals, the Ministry of

Health and the Ministry of Economy and Finance

(Prior Action 4)

Adopt a decree defining a new financial regime for

hospitals, along with necessary arrêtés

(Trigger 5)

Hospital efficiency index16

79.54% 85%

Percentage of assisted births

65 (2011) 70

Improve efficiency of agriculture

input subsidies

Adopt a new e-platform and have 1 million farmers

registered such that at least half of subsidized

agriculture inputs are allocated through it to reduce leakages and improve targeting

(Trigger 6)

Percentage of subsidized agriculture inputs allocated through new e-platform

0 75

16 *The hospital efficiency index is the distance between (i) each hospital's combination of outputs and inputs and (ii) an efficiency frontier estimated through a Data Envelopment Analysis (DEA). This technique is standard for assessing technical efficiency in data-poor environments

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Area/ Objective

Prior Actions Triggers Results Framework: Indicator

GGSC I (September 2012) GGSC II (September-

2013) GGSC III

(September2014) Baseline (2012 unless otherwise indicated)

Target (2015)

Improve financial and

technical oversight and transparency

of the autonomous

agencies

Finalize the evaluation of autonomous agencies; and

approve an action plan including the closure and merger of some agencies.

(Prior Action 5)

Close and merge some

agencies; and sign a Performance Agreement between all remaining

agencies with a budget over CFAF1 billion and the Oversight Institution,

(Trigger 7)

Percentage of agencies non-compliant (without performance contract) with the 2009 law

100 0

Strengthen M&E

Functions in the

Government

Establish an institutional mechanism for regular monitoring of strategic

priorities linked with the budget cycle

(Prior Action 6)

The number of government programs with results framework approved by the M&E Unit

0 10

Pillar 2: Private Sector Development – Program Development Objective: To enhance private sector development through energy sector reforms, and improvements in the investment climate.

Improve efficiency and sustainability of the energy

sector

Adoption by the Government (signed by the Minister in charge

of Finance and the Minister in charge of Energy) of a new Energy Sector Policy Letter (ESPL) and action plan 2012

2016 (Prior Action 6)

Undistributed energy due to load shedding

Government Subsidies to the electricity sector for tariff compensation (billions of CFA.F)**17

250GWH (2011)

10 GWH (2015) 105 (2012) 50 (2015)

Adoption by the SENELEC Board of directors of SENELEC’s

financial and operational restructuring plan including the

agreement of cross-debts

Signature of a Performance Contract between the State

and SENELEC (Prior Action 7)

Approval by the Council of Ministers of the revised

electricity investment plan for 2014-18; separation of

SENELEC’s accounts

SENELEC’s debt to equity ratio

17 ** Unexpected change in international prices for oil will be adjusted.

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Area/ Objective

Prior Actions Triggers Results Framework: Indicator

GGSC I (September 2012) GGSC II (September-

2013) GGSC III

(September2014) Baseline (2012 unless otherwise indicated)

Target (2015)

settlement as of July 31 2012 between SENELEC and State

signed by the Ministry in charge of Finance and SENELEC

(Prior Action 7)

between generation, transmission and

distribution: and a publicly-available financial model

(Trigger 8)

3 (2011) <1

Promote private sector development

Improve business climate by i) enacting a law simplifying property

registration procedures and ii) revising its tax code to reduce property taxes and

reduce the time required for other tax payments.

(Prior Action 8)

Improve business climate indicators in the two areas: 1) Trading across borders

(reduce the number of days for importing and exporting)

and 2) Dealing with construction permits (reduce number of days) (Trigger 9)

Time, cost, and number of procedures in the 4 selected Doing Business indicators

Paying taxes Payments: 59

Time required: 666 h

Registering Property Time required : 122 days Cost: 20% of

property value Trading across borders: Time required: 11 days

exports, 14 days imports

Construction permits: Time required: 210

days

Paying taxes Payments: 37 Time required: 318 h Registering Property Time required : 65 days Cost: 12% of property value Trading across borders: Time required: 9 days exports, and imports Construction permits: Time required 150 days

Preparation of a properly costed, funded and time-

bound action plan for SAED which clearly defines roles and responsibilities; sign 2

multi-year maintenance contracts (Trigger 10)

Rate of payment recovery from irrigation users

53 (2013) 75%

35

Annex 2: Letter of Development Policy

36

37

38

39

40

41

42

43

Unofficial Translation

REPUBLIC OF SENEGAL -------

One People – One Goal – One Faith -------

MINISTRY OF FINANCE AND THE ECONOMY

LETTER OF DEVELOPMENT POLICY

(November 2013)

I. Introduction

1. For several years, Senegal has through its Poverty Reduction Strategy (PRS) implemented integrated policies and programmes, based on an inclusive approach. The objective is to provide the conditions for strong and sustainable growth that would significantly reduce poverty and help achieve the Millennium Development Goals (MDG).

2. With the backing of its technical and financial partners, the Government prepared and adopted its National Strategy for Social and Economic Development (NSSED) for the 2013-2017 period. This strategy reflects the government’s political will to launch Senegal on the path to development, taking into account the concerns of the grassroots populations.

3. Senegal’s economic and social development calls for the implementation of a strategy that would lead to economic growth with a strong positive impact on the populations’ living conditions, but which takes into account the need to restore fiscal health and maintain public debt at sustainable levels. In this respect, the major challenge essentially concerns the recovery of the economy in a context of virtuous, effective and efficient governance. The NSSED focuses on three areas: (i) Growth, Productivity and Wealth Creation; (ii) Human Capital, Social Protection and Sustainable Development; and (iii) Governance, Institution, Peace and Security.

4. Besides, to strengthen dialogue on public policies with its development partners, and rationalize their interventions to ensure better alignment and enhanced predictability, the Government decided to reactivate the Budget Support Framework Arrangement (ACAB) for which the MOU was signed in April 2013.

5. This document summarizes the recent economic and social performances of Senegal.

II. Recent Economic and Social Developments

6. The Senegalese economy is expected to recover in 2013, despite an unfavourable international environment. The latest estimates show a growth rate of 4.0% compared to 3.5% in 2012. This economic growth should be backed by strong growth in the primary (+6.7%) and

44

tertiary sectors (+4.5%) In fact, in the primary sector, the activity is expected to remain strong after 2012, thanks to the projected performance of the agriculture sub-sector (8,4%), as well as the good performance of the animal breeding and fisheries sub-sectors which are expected to increase by 5% and 5.9% respectively. In the tertiary sector, the upturn in growth reflects the strong activities of the transport (+10%), post and telecommunications (7.9%), financial services (6.1%) and business services (4.5%) sectors. However, growth in the secondary sector is expected to be modest (+1.8%) due to poor performances of the extractive industry sectors (-1.7%), oils and fats (-5.4%), refinery (-10.7%) and the cement industry (-5.2%) following the decline in the Malian demand. Inflation, measured by the GDP deflator, is expected to reach 0.3% compared to 1.7% in 2012, in a context marked by a decline in the price of the crude oil barrel estimated to have dropped by 0.5% compared to 2012.

7. Fiscal management is characterized by a fairly satisfactory mobilization of budget resources combined with a steady increase in spending related to the consolidation of some development projects. Mobilized resources are projected to reach CFAF1770 billion, i.e. an increase of 6%. Total expenditure and net lending, estimated at CFAF2176 billion should increase by 4.1%. Overall, government deficit is expected to improve by 0.4% of GDP in 2013, dropping from 5.8% of GDP to 5.4% of GDP in 2013. With regard to external trade, the current account deficit excluding grants should reach 10.2% of GDP in 2013 compared to 11.3% in 2012.

8. For 2014, the external environment is expected to be resilient. The shy acceleration of the global economy expected in 2014, the improvement of the socio-economic situation in the sub-region, and the good rainfall recorded in 2013 are all factors conducive to the acceleration of exports and an increase in growth.

9. As a result of this international environment less hostile than it was in past years, GDP growth is expected to rise to 4.6 % in 2014, against 4% in 2013. This regain in activity would be sustained primarily by investments in agriculture, infrastructure (extension of the VDN, of the Diamniadio highway to AIBD and from AIBD to Mbour, continuation of AIBD works, etc.) and energy (improving electric energy distribution), as well as the implementation of the project for the exploitation of heavy minerals in the Grande Côte (zircon), gold mine projects, and the improvement of the business environment. Inflation is expected to remain subdued, reaching about 2% in 2014. The balance of payments current account deficit, though on the downtrend, is expected to rise due to imports in connection with investments in the energy and mining sectors.

10. This scenario continues to be subject to downside risks. A new external risk relates to the possibility of a sharper than expected slowdown in the growth of emerging countries and the continued harshening of financial conditions on the international markets. The rise in interest rates in the global markets has already affected the cost of budget funding. Internally, the main risks consist in the insufficient fiscal consolidation and delays in the implementation of reforms aimed at increasing the effectiveness of public spending and of the energy sector.

11. At the social level, the low and erratic economic growth is undermining the chances of achieving the objective of halving the poverty rate (34%) by 2015. According to the findings of the second Poverty Monitoring Survey in Senegal (ESPS II), the incidence of poverty did not drop significantly. In fact, the proportion of individuals living below the poverty line dropped from 48.3% in 2005 to 46.7% in 2011. Between 2005 and 2011, it slightly declined in Dakar and in the rural areas and stabilized in other urban centres. In 2011, the highest poverty

45

levels were found in the regions of Kolda (76.6%), Kedougou (71.3%), Sedhiou (68.3%), Fatick (67.8%) and Ziguinchor (66.8%).

12. The Government continued to invest in the education and health sectors. Sizeable efforts have been made to step up the populations’ level of education. Special emphasis was laid on human resources management. Thus, an audit of the Education personnel was commissioned. In the health sector, performance has not improved as much as the Government would have liked because of the difficulties encountered by the sector, notably hospitals. To gradually rectify the dysfunctions observed in the sector, performance contracts were signed with five hospitals in 2011 and another in 2012.

III. Macroeconomic Policies for 2014-2016

13. Despite a difficult international environment marked by persistent uncertainties, Senegal’s macroeconomic prospects for 2013-15 are generally favourable. GDP growth is expected to accelerate gradually to reach 5.1% in 2016. Inflation should decline and remain at less than 2 per cent in the medium term. The current external deficit is expected to improve, reaching less than 8 per cent of GDP, increasingly financed by Foreign Direct Investments (FDI) flows. Budget deficit should be kept below 5 per cent in 2014 and below 4 per cent in 2015, in order to slow down the rapid growth of total public debt (foreign and domestic), which should be kept below 50 per cent of GDP in 2015. To achieve the deficit targets, the Government intends to significantly improve the effectiveness of public spending in the social and infrastructure sectors and limit budget risks. Special attention will be paid to human resources management, in general, and that of teachers in particular, the financing of public universities and hospitals and the efficiency of implementing agencies. Subsidies in the energy sector will be limited to the amounts fixed in advance in the macroeconomic and budgetary framework. The sub-regional framework that regulates monetary and exchange policies will continue to help preserve low inflation, but a cautious budget policy will be a key instrument for the achievement of macroeconomic stability in Senegal and will contribute to UEMOA’s external stability.

A. Budget Policy

14. The government reiterates its commitment to limit overall budget deficit in the medium-term to 4 per cent of GDP, a level that will help preserve public debt sustainability. Thus, the Government will continue to support investment and growth, while maintaining domestic stability by containing pressures from domestic demand and avoiding crowding-out the private sector. Spending for priority sectors will continue to increase but their efficiency and equity should be improved. Spending for rural areas as well as those on infrastructure will also register an upturn.

15. Public debt management will be strengthened further. More specifically, the Government will continue to conduct a public debt sustainability analysis once every six months. This exercise will consist in analysing the risks posed by contingent liabilities linked to guarantees issued by the State, PPP and transactions by public enterprises. The Government prepared a Medium-Term Debt Management Strategy Paper (MTDMS) for 2013-2016 within the framework of the preparation of the 2013 Finance Act. The implementation of a Medium-Term Debt Management Strategy will enable the authorities to identify and manage the risks associated with the existing debt. The decision to limit the deficits in the medium-term will lead

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to a downtrend in financing needs and will thus stabilize the evolution of the debt over the period.

B. Structural Reforms

B.1. Budgetary and public procurement reforms

16. The Government will pursue its budget reform efforts to improve the productivity of public spending, step up budget transparency and enhance the assessment, monitoring and accounting of budgetary risks. The Government will continue to implement the reforms meant to improve budget planning and preparation, transparent budget implementation as well as its a posteriori control by the National Assembly. The Government intends to further strengthen the external control of budget implementation. To that end, the Government transmitted the 2011 Budget Review Act to the National Assembly and the 2012 management accounts to the Court of Auditors.

17. The completion of the interface between SIGFIP and ASTER made it possible to considerably reduce the deadlines in the production of management accounts and budget review bills. Besides, the Government strengthened the means and autonomy of the Court of Auditors and, to that end, submitted to the National Assembly for adoption in 2012, a new organic law on the Court of Auditors. The annual reports of the Court of Auditors for 2010 and 2011 will be published in the course of 2013.

18. To improve the transparency and integrity of the public finance system, the Government adopted a bill on the code of transparency in public finance management, which it intends to implement in the coming years. In this regard, the Government will submit to the National Assembly, a bill on the declaration of assets. Thus, public actors supervising and managing public funds, whether elected or public servants, will be required to display integrity and propriety to the extent of the trust placed in them. To promote transparency in the performance of public procurement contracts, the Government is determined to pursue the strict application of the public procurement code. The Public Procurement Regulatory Authority (ARMP) has presented to the Government, its annual report on the efficiency and reliability of the public contract award, implementation and control system and public service delegations, with recommendations meant to improve them. It launched the process for the auditing of public contracts awarded in 2012, and for which a provisional report is expected at the end of March 2014.

19. The third generation of public finance reforms established by the new harmonized fiscal framework of the regional economic community enabling Member States of the Union to break with traditional budget and accounting management practices, was adopted. Thus, the six new directives on public finance were effectively transposed. The Directives relating to stock records and the financial system of local governments is under way. A plan for the implementation of reforms resulting from the directives was prepared. It covers the 2013-2019 period and helps take into consideration the innovations introduced by the new harmonized public finance framework.

20. An in-depth reflection on the obstacles to the implementation of public decisions and policies is ongoing. This reflection has already led to the adoption of a new mechanism to monitor-evaluate the Government’s priority programmes with the technical support of the World

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Bank. The President of the Republic chaired the quarterly review for the second time on 30 October, 2013.

B.2. Addressing budgetary risks

21. Beyond the stabilization and control of Central Administration operations, the Government intends to restore the unity of the budget, improve its completeness and strengthen the control and monitoring of budget risks related to the activities of other public sector entities such as autonomous agencies and public institutions, including hospitals and public universities that increasingly benefit from State budget transfers. Performance contracts were signed with the five universities and five new hospitals. After the assessment of implementing agencies, the Government adopted an action plan to rationalize autonomous agencies. The plan envisions the merging or suppression of some agencies by June 2014 on the basis of relevant recommendations from this important study. Implementing a system of controls on the agencies will strengthen transparency in this sector and help provide complete information on the agencies in the Finance Acts, thus providing Parliament with a global view of the government action. Concerning implementation monitoring, reports on budget execution and quarterly cash positions are regularly submitted to the Ministry of Finance.

22. With regard to higher education, a new financial regime was adopted in 2012 and a new budget nomenclature adopted in 2013. The two biggest universities have prepared their 2013 budgets on the basis of this new regime and all five universities will do so in 2014. Moreover, the Government intends to rationalize its policy for the award of scholarships to students so as to contain the unsustainable increase in the budget devoted to it, and its application has been launched for the 2013/14 academic year.

23. With regard to primary and secondary education, the Government will continue to strengthen human resources management. The Government intends to strengthen decentralized education services by transferring more human resources management responsibilities to the regional and departmental levels. Besides, as indicated earlier, the audit of the entire personnel of the education sector should help clean up the database of the contractual teaching staff administered by the Directorate of Human Resources. There are also plans to enhance the coordination of human resources with the Pay Service of the Ministry of Finance and the Economy and the Public Service Ministry. An improved personnel management should make it possible to redeploy and better control budget funds allocated to the staff known as “corps émergents”. This should also help identify possible duplicates in the Pay database and the Public Service database.

B.3. Improving the business environment and the bases for long-term growth

24. The Government intends to accelerate the reforms aimed at improving the business environment in order to step up Senegal’s attractiveness to private investment. In the medium-term, the business environment is expected to improve significantly through the implementation of structural reforms, with the completion of the rationalization of business creation procedures, the transfer of ownership, tax payment, cross-border trade, facilitation of access to land and financing as well as the settlement of economic disputes. The Accelerated Growth Strategy (AGS) will be updated through a new study entitled ‘Emerging Senegal’ which will constitute the foundation of the plan of reforms and priority actions to increase the growth

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potential of the Senegalese economy. The Presidential Investors Council (PIC) will be consolidated as the high-level forum to develop the reform program and move it forward.

25. After the adoption and implementation of the reform of the general income tax code, the Government will submit the new customs code to the National Assembly. Furthermore, it will be possible to initiate on-line declaration and on-line payment procedures before the end of 2013 at both the Income Tax Directorate and the Customs Directorate. Such simplification will enable Senegal to substantially reduce the number of procedures and the time required for the payment of taxes.

26. In the energy sector, despite the numerous initiatives taken by the Government during the 2007-2012 period, the energy crisis has yet to be resolved. For this reason, the Government reviewed its objectives in a new Energy Sector Development Policy Letter (LPDSE) in line with a new energy policy, the basic guidelines of which were defined by the President of the Republic. The purpose of the LPDSE for the 2012-2017 period is to clarify the new guidelines namely: (i) diversify electricity production sources; (ii) promote rural and peri-urban electrification; (iii) rehabilitate and consolidate the transmission and distribution infrastructure; (iv) encourage and ensure the sustainability of the intervention of investors and private operators; (v) keep the energy demand under control; (vi) improve the governance of the sub-sector; (vii) reforming the institutional and regulation framework; (viii) operational and financial restructuring of SENELEC and (ix) regional and sub-regional cooperation.

27. The Government decided to technically and financially restructure and strengthen the State-owned electricity company (SENELEC). To that end, a cross-debt agreement was signed in July 2012 and a performance contract signed in June 2013.

28. In view of the untenable burden of the electricity subsidy on public finances, the Government decided to limit it at CFAF60 billion in 2014. This subsidy will follow a downward trend as the plan to invest in the energy sector during the 2013-2018 period unfolds.

29. In 2014, the authorities will monitor and implement reforms initiated during the two initial operations of this series of budget support measures. They will, among others, deal with the approval of all decrees or decisions required for the implementation of the new law on assets declaration, and for the closing or merging of agencies targeted in the related action plan. The Government will pursue the signing of performance contracts with hospitals, which have not yet had any, and prepare a new financial regime. In the higher education sector, all universities will have budgets approved on the basis of the new regime in 2014, and the new scholarships award policy will be effectively implemented. In the electricity sector, SENELEC's performance contract will be monitored closely with quarterly audits evaluated by a monitoring committee and a published summary to inform all stakeholders of the progress will be made.

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Annex 3: IMF Executive Board Completes Fifth PSI Review for Senegal

Press Release No. 13/224 June 21, 2013

The Executive Board of the International Monetary Fund (IMF) completed today the fifth review of Senegal’s economic performance under the program supported by the Policy Support Instrument (PSI). The Board’s decision was taken on a lapse of time basis.1

The PSI was approved by the Executive Board on December 3, 2010 (see Press Release No. 10/469). The IMF's framework for PSIs is designed for low-income countries that may not need, or want, IMF financial assistance, but still seek IMF advice, monitoring and endorsement of their policies. PSIs are voluntary and demand driven (see Public Information Notice No.05/145).

Senegal’s economic activity picked up in 2012 and the outlook is positive. Growth is estimated to have reached 3.5 percent, driven by a strong post-drought rebound in agriculture, and is projected to increase to 4 percent in 2013. Inflation declined to 1.4 percent and is expected to remain subdued.

Program implementation has been satisfactory. All assessment criteria for end-2012 were met. Despite a significant revenue shortfall, the fiscal deficit target of 5.9 percent of GDP was met, owing to tight expenditure control. The indicative ceiling on the share of the value of public sector contracts signed by single tender was missed by a relatively small margin in September and December 2012. Structural reforms implementation has recorded mixed progress. The evaluation guide for public investments was finalized and the new tax code was implemented in January 2013 as expected. Information on government land transactions in 2012 was published with a small delay. The survey of bank accounts‒a critical step to establishing a single treasury account‒was eventually completed but took longer than expected. The fiscal position is under strain because of exogenous factors (in particular the situation in Mali) and the high cost of energy subsidies. A slightly slower pace of fiscal consolidation is therefore envisaged for 2013 (a deficit of 5.3 percent of GDP rather than 4.9) to accommodate the impact of exogenous shocks. A new Eurobond is expected to be issued to close the financing gap and reduce recourse to short-term financing from the regional market. Looking further ahead, it is important to maintain the objective of reducing the fiscal deficit below 4 percent of GDP by 2015 to preserve long-term debt sustainability and restore margins for fiscal maneuver.

Raising potential growth and boosting job creation depend critically on the accelerated implementation of the government’s reform agenda. Reforming the state is critical to ensuring fiscal sustainability. Energy sector reform is a key component of fostering private sector development and improving the business environment. Direct and indirect support to SENELEC exceeded 2.5 percent of GDP in 2012. These poorly targeted subsidies are a very heavy burden on the budget, crowd out priority expenditures, and have been ineffective in putting the electricity sector on a sound financial footing. The situation is expected to improve in 2013 thanks to a better energy production mix, but the burden on the budget will remain heavy. Accelerating implementation of electricity sector reforms, including the reform of SENELEC, and the implementation of investment projects that are key to durably reducing production costs, electricity subsidies, and the fiscal deficit, is therefore critical.

1 The Executive Board takes decisions under its lapse of time procedure when it is agreed by the Board that a proposal can be considered without convening formal discussions.

Darou MoustiDarou Mousti

MbakéMbaké

DaraaDaraa

KokiKoki

MpalMpal

RufisqueRufisque

TivaouaneTivaouane

MékhéMékhé

KayarKayar

Fâs BoyeFâs Boye

Tioukougne PeulTioukougne Peul

LéonaLéonaNdiayeNdiaye

LagbarLagbar

Haïré LaoHaïré Lao

ThilogneThilogne

MamâriMamâriVélingaraVélingara

Darou KhoudosDarou Khoudos

NdanganeNdangane

SakoneSakone

MbourMbour

KébémèrKébémèr

Nioro du RipNioro du Rip

DiembérengDiembéreng

Keur MadiabelKeur Madiabel

KarangKarang

GuinguinéoGuinguinéo

GossasGossas

NgandaNgandaKoungheulKoungheul KoussanarKoussanar

MakaMaka

NiahNiahèneène

LinguèreLinguère

PayarPayar

Toubéré BafalToubéré Bafal

DialakotoDialakoto

MakoMako

RossoRossoDaganaDagana

NdiayèneNdiayèneRichard-TollRichard-Toll

PodorPodor

KaediKaedi

BakelBakel

NayéNayé

SarayaSaraya

VélingaraVélingara

MeedinaMeedinaGounasGounas

BounkilingBounkiling

BignonaBignonaTanafTanaf

GoudompGoudomp

DianaDianaMalariMalari

DiouloulouDiouloulou

OussouyeOussouye

DiourbelDiourbel

FatickFatick

ThièsThiès

LougaLouga

KaolackKaolack

MatamMatam

TambacoundaTambacounda

KoldaKolda

ZiguinchorZiguinchor

Saint-LouisSaint-Louis

KaffrineKaffrine

KédougouKédougouSédhiouSédhiou

DAKARDAKAR

T A M B A C O U N DT A M B A C O U N D A

K É D O U G O UK É D O U G O U

L O U G AL O U G A

KAOLACKKAOLACK

K A F F R I N EK A F F R I N E

K O L D AK O L D ASÉDHIOUSÉDHIOU

ZIGUINCHORZIGUINCHOR

CAP-CAP-VEVERT

T H I È ST H I È S

D I O U R B E LD I O U R B E L

F A T I CF A T I C K

S A I NS A I N T -T -L O U I SL O U I S

M ATA MM ATA M

THETHEGAMBIAGAMBIA

M A U R I T A N I AM A U R I T A N I A

M A L IM A L I

THETHEGAMBIAGAMBIA

G U I N E A B I S S A UG U I N E A B I S S A UG U I N E AG U I N E A

To To NouakchottNouakchott

To To MboutMbout

To To BarraBarra

To To BanjulBanjul

To To KayesKayes

To To BalakeBalake

To To KoundaraKoundara

To To BafataBafata

To To FarimFarim

To To IngoreIngore

Darou Mousti

Mbaké

Daraa

Koki

Mpal

Rufisque

Tivaouane

Mékhé

Kayar

Fâs Boye

Tioukougne Peul

LéonaNdiaye

Lagbar

Haïré Lao

Thilogne

MamâriVélingara

Darou Khoudos

Ndangane

Sakone

Mbour

Kébémèr

Nioro du Rip

Diembéreng

Keur Madiabel

Karang

Guinguinéo

Gossas

NgandaKoungheul Koussanar

Maka

Niahène

Linguère

Payar

Toubéré Bafal

Dialakoto

Mako

RossoDagana

NdiayèneRichard-Toll

Podor

Kaedi

Bakel

Nayé

Saraya

Vélingara

MeedinaGounas

Bounkiling

BignonaTanaf

Goudomp

DianaMalari

Diouloulou

Oussouye

Diourbel

Fatick

Thiès

Louga

Kaolack

Matam

Tambacounda

Kolda

Ziguinchor

Saint-Louis

Kaffrine

KédougouSédhiou

DAKAR

T A M B A C O U N D A

K É D O U G O U

L O U G A

KAOLACK

K A F F R I N E

K O L D ASÉDHIOU

ZIGUINCHOR

CAP-VERT

T H I È S

D I O U R B E L

F A T I C K

S A I N T -L O U I S

M ATA M

M A U R I T A N I A

M A L I

THEGAMBIA

G U I N E A - B I S S A UG U I N E A

Lac deGuier

Vallée du Ferlo

Vallée du Ferlo Vallée du Mboun

Saloum

Salou

m

Casamance

Gambia

Kayanga

Koulountou

Sandougou

Gambie

Sénégal

Doue

Sénégal

Falémé

ATLANTICOCEAN

To Nouakchott

To Mbout

To Barra

To Banjul

To Kayes

To Balake

To Koundara

To Bafata

To Farim

To Ingore

Casamance

La Ferdo

Mal inke

419 m

18°W 16°W 14°W

18°W 16°W 14°W 12°W

12°N

14°N

16°N 16°N

12°N

14°N

SENEGAL

This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other informationshown on this map do not imply, on the part of The World BankGroup, any judgment on the legal status of any territory, or anyendorsement or acceptance of such boundaries.

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