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Senegal and the IMF Country's Policy Intentions Documents
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Republic of Senegal—Letter
of Intent, Memorandum on Economic and Financial Policies for 2001, Technical
Memorandum of Understanding
Mr. Horst Köhler Dear Mr. Köhler, 1. The Executive Board of the International Monetary Fund approved the third annual arrangement under the Poverty Reduction and Growth Facility on February 16, 2001. A first tranche in an amount of SDR 14.268 million was disbursed in February 2001, and the government would like to draw the remaining amounts under the third annual arrangement, equivalent to SDR 28.536 million, in three tranches. The first tranche of SDR 9 million will be disbursed after the Executive Board completes the first review. A second tranche equivalent to SDR 9 million will be available on the basis of the observance of performance criteria established for September 30, 2001, and the last tranche equivalent to SDR 10.536 million will be available on the basis of the observance of performance criteria established for December 31, 2001. |
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2. The discussions on the economic outcomes through end-June and the 2001 program took place in Dakar during the period June 19-July 5, 2001 and in Washington during July 23-31, 2001. In particular, the discussions were concerned with policies and measures that would allow Senegal to intensify its efforts to reduce poverty and maintain stable economic growth, low inflation, and healthy budgetary policies. All the quantitative and structural performance criteria of the program have been met except for the May 1, 2001 structural criteria on the introduction of a single-rate VAT and the reintroduction of the pass-through mechanism for petroleum products. Given the corrective measures the government has taken in these areas, it requests the necessary waivers to complete the first review of the program. The attached memorandum on economic and financial policies presents the objectives of the government of Senegal for the second half of 2001 and the policies it will put in place to attain these objectives. The government of Senegal will provide the Fund with such information as the Fund requires to evaluate Senegal's progress in implementing its economic and financial policies and achieving the program objectives. 3. The government believes that the policies and measures set forth in the memorandum on economic and financial policies are adequate to achieve the objectives of the program but it will take further measures, if deemed necessary. During the period of the third annual arrangement, the government will continue to consult with the Managing Director on the adoption of any measure deemed appropriate, at its own initiative or whenever the Managing Director requests such a consultation. In addition, after the period covered by the third annual arrangement and while Senegal has financial obligations to the Fund arising from loans granted under this arrangement, the government will consult with the Fund periodically, at the government's initiative or whenever the Managing Director requests a consultation on Senegal's economic and financial policies. 4. The government of Senegal will conduct with the Fund a second review of the 2001 program supported by the third annual PRGF arrangement by December 15, 2001 and a third review by February 15, 2002. Sincerely yours, /s/ Cheikh Hadjibou Soumaré
Minister Delegate in charge of the Budget and Housing Memorandum on Economic and Financial Policies for 2001 Dakar, August 15, 2001 1. In its letter dated January 31, 2001 and its attached memorandum, addressed to the Managing Director of the International Monetary Fund, the government of Senegal outlined a strategy to promote strong and sustainable growth that would contribute to the reduction of poverty. In this context, the government defined economic and financial objectives for 2001, as well as the policies it would pursue in order to achieve these objectives. To support the government's policies, the Fund approved the third annual arrangement under the Poverty Reduction and Growth Facility (PRGF) in an amount equivalent to SDR 42.804 million on February 16, 2001 and extended the commitment period of the arrangement to April 19, 2002. This memorandum assesses the results achieved in 2000 and in the first quarter of 2001 and examines the slippages from program objectives that have occurred. It also describes the objectives and the policies to be implemented in the second half of the year to maintain macroeconomic stability and to strengthen the foundation for sustainable and lasting growth. I. Results Achieved in 2000 and in the First Quarter of 2001 2. Macroeconomic results in 2000 and in the first quarter of 2001 were broadly consistent with program targets. In 2000, Senegal recorded strong growth (estimated at 5.6 percent), particularly as a result of growth in the agricultural and telecommunications sectors. However, the volume of both exports and imports contracted slightly, owing to the decrease in the quantity of fish exported and the decline in food imports. The very good harvest of agricultural products and the freezing of retail prices for petroleum products helped to curb the increase in consumer prices and to hold the annual inflation rate at 0.7 percent. Despite the widening of the external current account deficit (to 8.1 percent of GDP excluding official current transfers), brought about by the deterioration in the terms of trade, international reserve losses were limited because of large inflows of private capital (including suppliers' credits). These broad trends continued in the first quarter of 2001. 3. As regards the program, the quantitative performance criteria and benchmarks set for December 31, 2000 and March 31, 2001 were observed, with the exception of the benchmarks pertaining to petroleum subsidies--which exceeded the ceiling set for December 31, 2000 by CFAF 4 billion--and the benchmarks for March 31, 2001 concerning the deficits of the National Retirement Fund (FNR) and the postal service (SN La Poste). As regards the structural performance criteria, the results are as follows:
Moreover, two structural benchmarks were implemented with delays:
4. Fiscal position in 2000. Government revenue in 2000, up 0.8 percentage point of GDP from 1999, slightly exceeded program targets and for the first time reached the WAEMU convergence criterion of 17 percent of GDP. At the same time, lower-than-programmed current expenditure contributed to a basic fiscal balance that exceeded program targets by CFAF 3 billion. The overall deficit (on a commitment basis and excluding grants) totaled CFAF 60.8 billion (2 percent of GDP), compared with CFAF 88.8 billion (2.9 percent of GDP) under the program, because of a significant shortfall in externally financed capital outlays. 5. Liquidity problems at the treasury. In the first quarter of 2001, the trends in fiscal revenue observed in 2000 continued and total expenditure remained below projections; as a result, the government met the program's target for the basic budgetary balance. However, the government has been unable to reduce the deficits of the special accounts of the treasury, notably those of the FNR, and of the correspondent account of the postal service at the treasury. In addition, two developments resulted in liquidity shortages at the treasury: (a) the use of government resources as guarantee deposits to enable certain public enterprises to obtain bank loans; and (b) the unexpectedly low amount of external budgetary assistance. 6. Heavily Indebted Poor Countries (HIPC) Initiative and priority expenditure. In 2000, the government received a total of CFAF 4.2 billion under the HIPC Initiative, which was used to finance the subsidy for butane gas used by the poor. In the first half of 2001, the netting out of debt relief prevented the government from depositing the full amount of available interim assistance into the HIPC account that was opened at the Central Bank of West African States (BCEAO). However, the government took the necessary steps to pay all the assistance already received in 2001 into the HIPC account on June 30, 2001. The National Assembly will discuss in August 2001 a supplementary budget authorizing the use of CFAF 23.4 billion available under the HIPC Initiative in 2001. 7. The money supply continued to expand rapidly in 2000 (10.7 percent) and during the first quarter of 2001. Credit to the economy increased sharply, despite the tightening of monetary policy by the BCEAO in June 2000. The financial problems of the state-owned groundnut company (SONACOS) and of the national power company (SENELEC) led these enterprises and some of their creditors to borrow heavily from banks. On March 31, 2001, the 12-month growth of credit to the economy reached 25 percent. Government borrowing from the banking system was down in 2000, owing to the sustained revenue collection, expenditure control, and the accumulation of deposits by certain public agencies in commercial banks. In line with the program, the government's repurchase of the SENELEC shares held by the Hydro-Québec/Elyo group in early 2001 resulted in a deterioration of the government's net bank credit position from December 2000. Because some of its deposits in commercial banks were frozen, the government had to use statutory advances amounting to approximately CFAF 15 billion. 8. Senegalese banks posted large profits in 2000 and observed the prudential ratios in a satisfactory manner. However, the share of nonperforming loans relative to credit to the economy rose from 5.8 percent to 6.1 percent of credit.1 II. Economic Policy and Measures to be Implemented in 2001/02 A. General Context of Economic Developments 9. In the coming months, the government will give priority to strengthening the financial position of certain public enterprises and the liquidity of the treasury. To achieve these objectives, the government will take decisive steps in several sectors--particularly the groundnut and energy sectors--to limit the possible repercussions of their difficulties on government finances and the banking system. Implementation of the measures envisaged will help to maintain a stable macroeconomic environment for the Senegalese economy, characterized by stable growth, moderate inflation (reflecting the introduction of the single-rate VAT), prudent expansion in credit to the economy, and a slight improvement in the external current account deficit. B. SONACOS and SENELEC 10. The financial problems of SONACOS. SONACOS is experiencing serious financial problems. As a result of good rains and an agricultural policy marked by a wider distribution of seeds and lower fertilizer prices, the production of groundnuts nearly doubled between 1999 and 2001. However, unfavorable world market conditions for groundnut oil prevented SONACOS from selling all the groundnut oil it had produced in 2000. Moreover, the increased supply of Senegal, which is one of the world's leading producers, contributed to a fall in international prices. Burdened with a sizable operating deficit, SONACOS found it impossible to repay most of the bank loans granted for the 1999/2000 season. Thus, in December 2000, crop credits totaling approximately CFAF 33 billion were converted into ordinary loans with higher interest rates. To finance the 2000/01 groundnut campaign, SONACOS raised CFAF 30 billion in new loans abroad and borrowed CFAF 40 billion from the local banking system. At end-May 2001, SONACOS's debt totaled CFAF 118 billion. Financing from local banks could only be secured with the support of the treasury, which assumed some of the risk through the guarantee deposits it placed at commercial banks (totaling CFAF 30 billion at June 30, 2001). Given an unchanged international environment, SONACOS will be unable to repay all its debts in 2001. According to the latest projections, which are based on the most recent information regarding export contracts and the assumption that SONACOS will increase sales on the local market, the remaining stock of bank debt will reach CFAF 65 billion at end-2001. 11. To ensure a smooth 2001/02 groundnut season, the government has decided to settle the debt of SONACOS that will be outstanding at end-2001 (CFAF 65 billion). This exceptional operation will be financed through the treasury's guarantee deposits at the commercial banks (associated with loans contracted by SONACOS--CFAF 30 billion at end-June 2001) and through external concessional resources. To keep the sector sustainable without future government financial support, the government, in agreement with the World Bank and the European Union, will adopt a series of measures aimed at liberalizing the sector and preparing the privatization of SONACOS. The privatization will be finalized well ahead of the first planting in 2003. These measures include (a) the fixing and public announcement by August 31, 2001 of producer prices based on the accord cadre for the sector; (b) the completion by end-December 2001 of a financial audit of SONACOS and its subsidiary SONAGRAINES covering 1999, 2000, and the first half of 2001; and (c) the withdrawal of SONAGRAINES from the collection and transport of groundnuts by end-2001 and from the distribution of seeds and fertilizer before the 2002/03 season, which will allow for a reduction in the operating costs of SONACOS. This set of measures, described in detail in Table 3, will help generate a surplus of about CFAF 20 billion in the 2001/02 season, which will be transferred to the government to reduce the stock of public debt. Before its privatization, SONACOS will not contract any nonconcessional external loans with the exception of short-term export related credits of less than one year maturity and will adhere to the program ceilings as regards its outstanding debt to the local banking system. 12. SENELEC's difficulties. On December 29, 2000, the government signed an agreement to buy back the equity shares of the strategic private investor in SENELEC. The cost of the repurchase was paid in full in two tranches of CFAF 22.6 billion each in the first quarter of 2001. SENELEC's overall position has deteriorated in 2001. Overused for several years, its production facilities are outdated and can neither generate electricity at competitive prices nor satisfy demand. This problem is exacerbated by an inefficient split between base load plants, using heavy fuel oil, and other turbines. The rise in fuel prices greatly increased SENELEC's operating deficit and prevented the self-financing of necessary investments. Owing to the cancellation of the management contract with private investors, local banks have reduced SENELEC's access to credit, and the company has been unable to meet its financial commitments to foreign and domestic suppliers. Arrears to distributors of petroleum products amounted to CFAF 17 billion on June 30, 2001, and the company owed approximately CFAF 23 billion in additional payments to other suppliers. Therefore, for the second half of 2001 financing estimated at CFAF 40 billion is required to settle the outstanding arrears, besides a fiscal subsidy of CFAF 7.5 billion to offset the return to market-based pricing for petroleum products. The government is determined to complete the SENELEC privatization process initiated in cooperation with the World Bank. To this end, an invitation for bids was published in early July 2001 that will allow completing the privatization by November 15, 2001, consistent with the terms of the World Bank energy sector loan. 13. In these circumstances, the government is committed to taking immediate action to resolve SENELEC's financial crisis and thus avert adverse repercussions for the economy as a whole, the company's main suppliers, and the banking system. Accordingly, the government will provide SENELEC with exceptional financial support amounting to CFAF 40 billion by issuing treasury bills, primarily to settle the company's payments arrears as of June 30, 2001. After the privatization of SENELEC, which the government expects by November 15, 2001, the private investor will have the freedom to adjust tariffs in agreement with the regulatory commission. In case the privatization is not finalized by November 15, 2001, the government will adjust electricity tariffs generating CFAF 6.5 billion in additional revenue on an annual basis. Together with the specific measures mentioned in Table 4, which have been established in collaboration with the World Bank, this measure will help eliminate SENELEC's operating deficit in the second half of 2001. Before its privatization, SENELEC will not contract any nonconcessional external loans and will observe the program ceilings concerning its arrears to domestic and foreign suppliers. C. Government Finances 14. The measures planned by the government to solve the problems faced by SENELEC and SONACOS will result in a deterioration of the fiscal balances compared with the program. Under the revised program for 2001, the basic fiscal deficit would reach CFAF 63.2 billion (1.9 percent of GDP) and the overall deficit (on a commitment basis, excluding grants) would reach CFAF 198.2 billion (5.8 percent of GDP). By contrast, the original program amounts are a basic fiscal surplus equivalent to 0.2 percent of GDP and an overall deficit equivalent to 3.8 percent of GDP. To offset some of the costs incurred in restructuring the two public enterprises, the government intends to increase fiscal revenue collection by CFAF 13 billion above programmed targets, of which CFAF 8 billion has already been realized in the first six months of 2001. As regards the VAT at the single rate of 18 percent, the government has submitted a detailed list of exempt products to Fund staff. The limited scope of these exemptions will facilitate the attainment of the program's fiscal revenue targets in 2001 and 2002. The government will also contain the wage bill at CFAF 181 billion in 2001, representing savings of CFAF 5 billion compared with program projections. The government will continue to give the highest priority to social outlays--particularly spending aimed at reducing poverty--and will limit to a minimum expenditure in nonpriority sectors. 15. Given the difficulties caused in 2000 and 2001 by placing government resources as guarantee deposits at commercial banks, the government has decided to discontinue providing this type of financial support to public enterprises. Such use of government resources entails several negative consequences: (a) liquidity problems at the treasury; (b) the destabilization of government finances; (c) a poor allocation of bank credit favoring enterprises in difficulty; and (d) the deterioration of the financial position of such enterprises because reforms are postponed. Consequently and from now on, such guarantees will be strictly limited to those specified by the procedures governing guarantees as described in the legal texts, and the ceilings set by the budget law on guarantees will be strictly enforced. 16. In the first six months of 2001, the postal service accumulated a deficit of roughly CFAF 13.1 billion in its correspondent accounts at the treasury, representing a serious drain on liquidity. Part of the reason for this deficit is the failure of the postal service to reimburse the treasury advances extended to it every ten days. In July 2001, the postal service contracted an external loan of €15 million secured by its future income. These resources enabled the postal service in July 2001 to reimburse the deficit in the correspondent accounts that it had accumulated since the beginning of the year and to repay treasury advances. The government believes that the structural measures undertaken by the management of the postal service will enable the company to reimburse over the next three years the external loan from its own resources. Moreover, the government will set up a committee including a representative of the Public Audit Office's Public Enterprise Audit and Control Commission to undertake a systematic reconciliation of financial flows in the first half of 2001 between the postal service and the treasury. This committee will issue recommendations to clarify the accounting procedures linking the two entities and, if deemed necessary, propose a new framework for the relations between the treasury and the postal service. At the request of the management of the postal service, the World Bank will provide technical assistance to analyze its structural difficulties and recommend steps to ensure its financial viability. 17. Given the financial difficulties faced by the public enterprises and the strain that these enterprises place on the government budget, the quantitative performance criteria for September 30, 2001 need to be revised. D. Structural Reforms 18. Privatization program. The privatization program has been delayed as a result of the government's desire to review the program's priorities and framework. Some progress has been made regarding the Dakar-Bamako rail link, a capital increase is under consideration for SODEFITEX (cotton company), and negotiations with investors interested in MSAD (tapestry company) are in the final phase. The government is continuing its consultations with the World Bank on the privatization of the other enterprises (2 have already been privatized), which will allow it to meet its objective to privatize 11 enterprises between the decision point and the completion point under the HIPC Initiative. 19. The structural problems caused by the aging of the civil service are contributing to a growing FNR deficit; the cost of the budget is currently projected at CFAF 9 billion for 2001. With a view to reforming the retirement system, the government will introduce a bill during the budgetary session of the National Assembly in October 2001 that will help achieve financial balance of the FNR by 2002. To this end, it will prepare draft legislation and regulations on the reform of the pension system in consultation with employers and unions. 20. Governance. The government has taken steps to improve governance and transparency in managing public funds, including audits of numerous public and semipublic enterprises and agencies, as well as the regular production and publication of treasury balances. The comptes de gestion and loi de règlement will be submitted to the Public Audit Office within the time limits indicated in WAEMU directives. The government has also accepted the visit of an ROSC mission in the area of government finance to take place at the beginning of 2002. A similar mission in the area of statistics is expected in Dakar in September 2001. E. Monetary and Banking Sector 21. The Senegalese banking system, restructured in the early 1990s, was weakened by the above-mentioned problems in the groundnut and energy sectors and by the resulting concentration of bank risk. On March 31, 2001, outstanding loans to the groundnut and energy sectors that were not backed by the government accounted for nearly 21 percent of total credit to the economy. Payment of this bank debt by the government will enable local banks to reduce their exposure in these two sectors, dispose of resources necessary to finance the next crop year, and diversify their loan portfolios. However, the next crop year must be financed in accordance with the relevant BCEAO guidelines, necessitating (a) a minimum of self-financing to be required by the banks; (b) where applicable, the coverage of projected deficits; (c) the reimbursement of bank loans and commercial paper at maturity; (d) an effective means of monitoring the physical stocks linked to the loans granted; and (e) the limiting of refinancing to no more than 90 percent of bank loans and issued commercial papers. 22. Monetary policy, which is conducted at the regional level, will aim at strengthening the economic and financial balances and the external position. The adjustment measures to be implemented in public enterprises and the ending of the use of guarantee deposits will help the government to contain credit expansion to the economy. However, the government will borrow an additional CFAF 46.9 billion from the banks over original program amounts to finance the deficits of SENELEC and SONACOS. The government will use privatization receipts up to the amount of treasury bills issued to clear SENELEC arrears and any budgetary assistance beyond programmed amounts to repay its domestic debt. To comply with the regional objective of eliminating the use of statutory advances on December 31, 2001, the government will give priority to repaying such advances. F. External Sector and Balance of Payments 23. External tariff and regional integration. To attain the regional objectives defined by the WAEMU, the government has implemented the Common External Tariff and adopted the procedures relating to the temporary protection tax (TDP) and the compensatory import levy (TCI). It has also abolished the surtaxes on several food products. The government will continue to support regional initiatives, particularly with respect to the regional investment and mining codes, as well as the directive on the taxation of petroleum products currently under consideration. 24. Balance of payments. In 2001, the external current account deficit (excluding current official transfers) is expected to decline from 8.1 percent of GDP in 2000 to 7.5 percent of GDP, owing to a larger increase in exports (mainly groundnuts and phosphates) than in imports. Based on a projection of sizable inflows of private capital and sustained external assistance, the Senegal's foreign assets held by the BCEAO are projected to rise by nearly CFAF 28 billion in 2001. G. HIPC and PRSP 25. The preparation of the full poverty reduction strategy paper (PRSP) has been delayed, primarily because of the difficulties experienced in funding a number of field surveys. However, the national seminar to launch the process was held in June 2001, and the government intends to make up for most of the delay in the coming months, so as to produce the final PRSP by December 31, 2001 as planned. Consequently, the schedule for preparation of the PRSP has been revised in order to meet this objective. 26. The documents prepared by the government for the launching of the consultative process provide a detailed picture of the extent of poverty in Senegal, particularly its incidence in rural areas.2 In the context of thematic groups, regional consultations, and a media campaign, the government will promote dialogue among the various social groups, which thus will be able to share their cumulative experience in the area of poverty reduction. These meetings will encourage active participation by members of government, civil society, and development partners involved in the process of preparing the PRSP. The final document will therefore benefit from a wide range of inputs and serve as a framework for government activity. 27. Use of HIPC resources. HIPC-related resources are deposited in a special account at the BCEAO, and their exclusive use in the priority sectors will be specified in a supplementary budget that will be discussed by the National Assembly in August 2001.3 Monitoring the expenditure is not expected to pose any particular problems, and the government's capacity to monitor HIPC-related expenditure will also be assessed during a forthcoming mission by the Fiscal Affairs Department of the IMF. This mission will identify any weaknesses and, where applicable, propose the most appropriate ways of correcting them. III. Program Monitoring 28. Implementation of the government's program will be monitored through the quantitative and structural performance criteria and benchmarks described in detail in the attached technical memorandum of understanding. To monitor the structural reform program until end-2001, the amount of SDR 28.536 million that was not disbursed under the third annual arrangement will be disbursed in three tranches. The first tranche of SDR 9 million will be disbursed after the completion of the first review of the third annual arrangement by the Fund's Executive Board. A second tranche of SDR 9 million will be disbursed based on the observance of the performance criteria for September 30, 2001, and the final tranche of SDR 10.536 million will be disbursed based on the observance of the performance criteria for December 31, 2001.
1 Outstanding 1999/2000 crop credits were converted into ordinary loans but not classified as nonperforming loans. 2 The document assessing poverty in Senegal was prepared with statistical data from the first household consumption budget survey (ESAM), conducted in 1994. ESAM II, which will be completed in April 2002, will be used to update the data on the characteristics of poverty. 3 The additional cost of CFAF 4.5 billion incurred in 2001 by freezing the prices of small bottles of butane will be financed with HIPC-related resources. Use the free Adobe Acrobat Reader to view the Tables (348 kb PDF file) Technical Memorandum of Understanding Dakar, August 15, 2001 1. This technical memorandum of understanding defines the quantitative and structural performance criteria and benchmarks to monitor the program supported by the third annual arrangement under the Poverty Reduction and Growth Facility. It also establishes the terms and time limits for transmitting the data that will enable Fund staff to monitor program implementation and provides numerical illustrations of these criteria and benchmarks based on past outcomes. 2. Unless otherwise specified below, the government is defined as the central administration of the Republic of Senegal and does not include any local administration, the central bank, or any government-owned entity with separate legal personality. II. Quantitative Performance Criteria 3. In the context of this program, quantitative performance criteria will be set for September 30, 2001 and December 31, 2001 for the basic fiscal balance, net bank credit to the government, the stock of debt of SONACOS, the stock of arrears of SENELEC, and the stock of guarantee deposits. The performance criteria pertaining to the ceiling on the contracting or guaranteeing of new nonconcessional external debt by the government, as well as domestic and external arrears, will be monitored on a continuous basis. A. Basic Fiscal Balance Definition 4. The basic fiscal balance is the difference between the government's budgetary revenue and total expenditure and net lending, excluding capital expenditure financed from abroad and gross lending. It includes the deficit of special and correspondent accounts at the treasury. Performance criteria 5. The performance criteria for the basic fiscal balance are floors of CFAF 5.8 billion on September 30, 2001 and CFAF -63.2 billion on December 31, 2001. 6. The floor for the basic fiscal surplus on September 30, 2001 will be raised (lowered) by the shortfall (excess) in expenditure financed with debt relief under the Heavily Indebted Poor Countries (HIPC) Initiative, compared with the program. The floor for the basic fiscal deficit on December 31, 2001 will be lowered (raised) by the shortfall (excess) in expenditure financed with debt relief under the HIPC Initiative, compared with the program. The same adjustment will be made in the event of lower-than-programmed spending for the reimbursement of arrears of SENELEC and the debt of SONACOS.
7. During the program period, the authorities will report monthly to Fund staff provisional data on the basic fiscal balance, with a lag of no more than 45 days. The data for revenues, expenditures, and special and correspondent accounts that are included in the calculation of the basic fiscal balance, the expenditure financed with HIPC Initiative resources, and the expenditures on reimbursing the arrears of SENELEC and the debt of SONACOS will be drawn from preliminary treasury account balances. Final data will be provided as soon as the final balances of the treasury accounts are available, but no more than two months after the reporting of provisional data. B. Net Bank Credit to the Government 8. The definition of government for the purpose of calculating net bank credit to the government is the one applied by the BCEAO and is consistent with common IMF practice. It is broader than the definition of government in paragraph 2. Net bank credit to the government reflects the net credit position of the government—including postal checking accounts (CCP)—vis-à-vis the central bank and commercial banks. Net bank credit to the government is the difference between the government's gross borrowing from the banking system and its claims against the banks. Government claims include treasury cash holdings, deposits (including earmarked privatization receipts and other resources such as loans and grants) at the central bank, deposits in commercial banks, and secured liabilities (obligations cautionnées). The government's debt to the banking system includes central bank credit (mainly statutory advances, IMF assistance, refinancing of secured liabilities, and the deposit by Kuwait), government securities held by the central bank, commercial bank credit (including government securities held by resident commercial banks), ex-ONCAD securities, and private deposits at the CCP. Government securities held outside the Senegalese banking system are not included in net bank credit to the government. The net bank credit to the government as calculated by the BCEAO serves as the basis for program monitoring.
9. The ceiling on net bank credit to the government will be lowered (raised) by the amount by which disbursements of external budgetary assistance (defined as grants, program disbursements, and debt relief, excluding Fund resources and HIPC Initiative debt relief) exceed (fall short of) program projections. The adjustment will be for the full amount of any excess disbursement but will be limited to CFAF 20 billion in the event of a shortfall. 10. The ceiling will be adjusted for the difference between the amount of programmed unspent HIPC-related resources and actual unspent HIPC-related resources. Unspent HIPC-related resources are defined as the difference between the debt relief received under the HIPC Initiative and the additional expenditures in priority sectors that have been financed with these resources. The ceiling will be lowered (raised) for unspent HIPC-related resources exceeding (falling short of) programmed amounts. 11. The ceiling on net credit to the government will be lowered by the amount of treasury bills issued in the second half of 2001 that are held by an entity or person outside the definition of government established by the BCEAO for the purpose of calculating net credit to the government (para. 8). In addition, the ceiling will be lowered for lower-than-programmed expenditures for the reimbursement of arrears of SENELEC and debt of SONACOS, as well as for higher-than-programmed privatization receipts, which have not been allocated under the program.
Performance criteria 12. The performance criteria for the stock of net bank credit to the government under the program are ceilings of CFAF 203.0 billion on September 30, 2001 and CFAF 190.2 billion on December 31, 2001. 13. The BCEAO will report to Fund staff the provisional data on the government's net credit position to Fund staff monthly, with a lag of no more than one month after the end of each observation period. Final data will be reported with a maximum lag of two months. C. Stock of Debt of SONACOS Definition 14. The stock of debt of SONACOS includes all loans contracted with local and foreign banks. It includes also discounted letters of credit for which the respective export contracts have not yet been executed. Performance criteria 15. The performance criteria for the stock of debt of SONACOS are ceilings of CFAF 98.0 billion on September 30, 2001 and CFAF 0.0 billion on December 31, 2001. Reporting requirements 16. The government and the BCEAO will report monthly to Fund staff the stock of debt of SONACOS, the new debt contracted, and the debt-service payments made with a lag of no more than one month after the end of each period of observation. D. Stock of Arrears of SENELEC Definition 17. The stock of arrears of SENELEC includes all payments due and unpaid. Performance criteria 18. The performance criteria for the stock of arrears of SENELEC are ceilings of CFAF 0.0 billion on September 30, 2001 and CFAF 0.0 billion on December 31, 2001. Reporting requirements 19. The government will report to Fund staff monthly, with a lag of no more than one month after the end of each period of observation, the stock of arrears of SENELEC, the newly contracted debt, any new accumulation of arrears, and the debt service and arrears payments made. E. Ceiling on Government Guarantee Deposits Definition 20. Government guarantee deposits are defined as government deposits in local and foreign banks used to guarantee bank loans. Performance criteria 21. The performance criteria for the stock of guarantee deposits are ceilings of CFAF 43.5 billion on September 30, 2001 and CFAF 4.0 billion on December 31, 2001. Under the program, the government will not place any new guarantee deposits. Reporting requirements 22. The government will report to Fund staff monthly, with a lag of no more than one month after the end of each period of observation, the stock of government guarantee deposits. F. Ceiling on the Contracting or Guaranteeing of New Nonconcessional External Debt by the Government 23. This performance criterion applies not only to debt as defined in Point No. 9 of the Guidelines on Performance Criteria with Respect to Foreign Debt (Executive Board Decision No. 6230-(79/140), last amended by Executive Board Decision No. 12274-(00/85) (08/24/2000), but also to commitments contracted or guaranteed for which value has not been received. 24. The definition of debt as specified in Point 9 of the Guidelines on Performance Criteria with Respect to Foreign Debt reads as follows: debt will be understood to mean a current, i.e., not contingent, liability, created under a contractual arrangement through the provision of value in the form of assets (including currency) or services, and which requires the obligor to make one or more payments in the form of assets (including currency) or services, at some future point(s) in time; these payments will discharge the principal and/or interest liabilities incurred under the contract. Debts can take a number of forms, the primary ones being as follows: (a) loans, i.e., advances of money to obligor by the lender made on the basis of an undertaking that the obligor will repay the funds in the future (including deposits, bonds, debentures, commercial loans, and buyers' credits), and temporary exchanges of assets that are equivalent to fully collateralized loans under which the obligor is required to repay the funds, and usually pay interest, by repurchasing the collateral from the buyer in the future (such as repurchase agreements and official swap arrangements); (b) suppliers' credits, i.e., contracts where the supplier permits the obligor to defer payments until some time after the date on which the goods are delivered or services are provided; and (c) leases, i.e., arrangements under which property is provided that the lessee has the right to use for one or more specified period(s) of time that are usually shorter than the total expected service life of the property, while the lessor retains the title to the property. For the purpose of the guideline, the debt is the present value (at the inception of the lease) of all lease payments expected to be made during the period of the agreement, excluding those payments that cover the operation, repair, or maintenance of the property. Under the definition of debt set out above, arrears, penalties, and judicially awarded damages arising from the failure to make payment under a contractual obligation that constitutes debt are debt. Failure to make payment on an obligation that is not considered debt under this definition (e.g., payment on delivery) will not give rise to debt. 25. Any debt with a grant element of less than 35 percent is considered nonconcessional. For debt with a maturity of more than 15 years, the ten-year reference market interest rate, published by the OECD, is used to calculate the grant element. The six-month reference market rate is used for debt with shorter maturities. 26. For purposes of this performance criterion, government is understood to include the government as defined in paragraph 2, as well as public administration of an industrial and commercial nature (EPIC), public administrative institutions (EPA), public institutions of a scientific and technical nature, public institutions of a professional nature, local administrations, public enterprises, and government-owned independent companies (sociétés nationales). 27. Within the context of the program, the government as defined in paragraph 26 will not contract or guarantee nonconcessional external debt. This performance criterion is monitored on a continuous basis and does not apply to debt rescheduling and restructuring operations, short-term import-related credit and short-term pre-export financing secured on export contracts. Short-term credit refers to maturities of less than one year. It does also not apply to government bonds held by residents of countries in the West African Economic and Monetary Union. 28. The government will report any new external borrowing and its terms to Fund staff as soon as external debt is contracted or guaranteed by the government. 29. External payments arrears are defined as the sum of external payments due but unpaid on outstanding external debt that has been contracted or guaranteed by the government. Debt is understood as defined in paragraph 24. 30. Under the program, the government will not accumulate any external payments arrears except for arrears arising from debt in the process of being renegotiated. This performance criterion will be monitored on a continuous basis. 31. The government will report to Fund staff any accumulation of external payments arrears as soon as the due date has been missed. 32. Domestic payments arrears are duly certified domestic expenditure commitments cleared for payment (dépenses ordonnancées) but not paid during a period of 90 days after the date the payment order (ordonnancement) was cleared. They include duly certified commitments cleared for payment but not paid to public enterprises 90 days following the clearance date. 33. Under the program, the government will not accumulate any domestic payments arrears. This performance criterion will be monitored on a continuous basis. 34. The authorities will report to Fund staff any accumulation of domestic payments arrears as soon as the 90 days period mentioned in paragraph 32 has elapsed. The government will also keep track of expenditure commitments (dépenses engagés) and commitments duly certified but not yet cleared for payment (dépenses liquidées non encore ordonnancées) in order to minimize delays in payments. The amounts of these payments will be provided for the discussions during the next review of the third annual PRGF arrangement.
35. Tax revenue is defined as the sum of government fiscal revenue included in the government financial operations table. 36. The quantitative benchmarks set for tax revenue are floors of CFAF 445.1 billion on September 30, 2001 and CFAF 592.1 billion on December 31, 2001. 37. The government will report to Fund staff preliminary tax revenue data monthly, with a lag of no more than one month, on the basis of actual collections as recorded in treasury accounts. Final data will be provided once the final balances of the treasury accounts are available, but no more than two months after the reporting of preliminary data. 38. The wage bill is defined as all government expenditure on wages, other compensation, bonuses, allowances, and social benefits granted to or paid for the benefit of civil servants and other public employees. 39. The quantitative benchmarks set for the wage bill are ceilings of CFAF 135.9 billion on September 30, 2000 and CFAF 181.0 billion on December 31, 2001. 40. The government will report monthly to Fund staff the wage bill data, with a lag of no more than 45 days. C. Floor on the Deficit of the SN La Poste (Postal Service) Treasury Account 41. The deficit on any date is defined as the difference between the cumulative withdrawals from the accounts of SN La Poste at the treasury and cumulative deposits into the same accounts during the year under consideration. 42. The deficit will either be zero or the account flows will show a surplus at September 30, 2001 and December 31, 2001. 43. The government will report to Fund staff the provisional deficit of the SN La Poste accounts on a monthly basis, with a lag of no more than 45 days. D. Floor on the Deficit of the National Retirement Fund Special Account 44. The special account of the National Retirement Fund is located at the treasury. The deficit on the indicated date is defined as the difference between the cumulative withdrawals and cumulative deposits during the year under consideration. 45. The deficit of the National Retirement Fund special account shall be limited to CFAF 6.6 billion at September 30, 2001 and CFAF 9 billion at December 31, 2001. 46. The government will report to Fund staff the deficit of the special account of the National Retirement Fund monthly, with a lag of no more than 45 days. IV. Structural Performance Criteria and Benchmarks A. Announcement of the Withdrawal of SONAGRAINES from the Collection and Transport of Groundnuts (Structural Performance Criterion) 47. The government will announce by September 30, 2001 the withdrawal of SONAGRAINES from the activity of collecting and transporting groundnuts from the 2001/02 groundnut campaign onward. The government's announcement will include that the collection of groundnuts will be undertaken by the private sector and the market will determine the costs of intermediation (financing, storing, and transportation) without reference to any official guideline. B. Submission of an Action Plan to Fund Staff on the Implementation of the Withdrawal of SONAGRAINES (Structural Benchmark) 48. The government will submit to Fund staff by September 30, 2001 an action plan to implement a system of private deliveries to the factories of SONACOS and to remove SONAGRAINES from the activity of collecting and transporting groundnuts. C. Submission to Fund Staff of a Report on the Accounts and the Accounting Procedures Linking the Postal Service and the Treasury (Structural Performance Criterion) 49. The government will submit to Fund staff by September 30, 2001 a report by an ad hoc committee that will include a representative of the Commission de Vérification des Comptes et de Contrôle des Entreprises Publiques de la Cour des Comptes. The report will clarify and verify the flows in the postal service's correspondent accounts at the treasury during the first half of 2001 and develop recommendations on how to simplify the accounting procedures linking the postal services and the treasury. D. Update of the Accord Cadre of the Groundnut
Sector 50. The government will finalize and submit to Fund staff by September 30, 2001 an update of the accord cadre on the groundnut sector. This update will ensure the consistency of the accord cadre with the measures the government will implement during the 2001/02 groundnut campaign and prepare the privatization of SONACOS well before the first planting of 2003. E. Adjustment of Electricity Tariffs (Structural Performance Criterion) 51. In case the privatization of SENELEC has not been finalized by November 15, 2001, the government will adjust electricity tariffs on November 15, 2001 in accordance with a decision by the regulatory commission based on the regulatory formula specified in Article 10 of SENELEC's Cahier des Charges. F. Submission of the Audit Report on SONACOS and SONAGRAINES to Fund Staff (Structural Performance Criterion) 52. The government will submit an audit report prepared by an internationally recognized auditing firm on the operations of SONACOS and SONAGRAINES in 1999, 2000, and the first half of 2001 to Fund staff by December 31, 2001. G. Complete Withdrawal of SONAGRAINES from the Collection and Transportation of Groundnuts (Structural Performance Criterion) 53. The government will ensure that SONAGRAINES will cease all activities in the area of transportation and collection of groundnuts by December 31, 2001. The collection of groundnuts will be undertaken by the private sector and the market will determine the costs of intermediation (financing, storing, and transportation) without reference to any official guideline. H. Application of the Pass-Through Mechanism for Retail Prices of Petroleum Products (Structural Performance Criterion) 54. The pass-though mechanism for the retail prices of petroleum products, with the exception of 2.7-kg and 6-kg bottles of butane gas, will be applied by the government without interruption throughout the remaining period of the third annual arrangement under the PRGF. This implies a zero ceiling on subsidies due to the freeze of the prices of petroleum products (excluding butane) from June 29, 2001, the date of reintroduction of the pass-through mechanism, onward. I. Submission to National Assembly of a Draft Law Modifying the National Retirement Fund (Structural Performance Criterion) 55. The government will submit to the National Assembly by December 31, 2001 a draft law modifying the National Retirement Fund (FNR); the proposed law will allow the accounts of the FNR to be balanced from 2002 onward. J. Replacement of the Levy on Imported Vegetable Oil (Structural Benchmark) 56. The government will replace by December 31, 2001 the levy on imported vegetable oil with a protection mechanism consistent with the respective WAEMU regulations as well as the updated accord cadre. V. Additional Information for Program Monitoring 57. The authorities will report to Fund staff the following:
58. The central bank will report to Fund staff the following:
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