SENEGAL'S DONORS GIVE IMF MISSION AN EARFUL

UNCLAS SECTION 01 OF 02 DAKAR 002614

SIPDIS

SIPDIS
SENSITIVE

STATE FOR EB/IFD, AF/EPS AND AF/W

E.O. 12958: N/A
TAGS: EAID ECON EFIN ETRD EINV SG
SUBJECT: SENEGAL'S DONORS GIVE IMF MISSION AN EARFUL

REF: DAKAR 2460

DAKAR 00002614 001.2 OF 002



1. (SBU) SUMMARY: On October 26, a visiting IMF Mission, on its
first day in Senegal for Article 4 consultations, invited key donors
to present their view of Senegal's economic situation and the policy
performance of the Wade Government. The donors highlighted many
issues of concern, a number of which have been noted in similar
discussions for more than a year. Underlying the frustrations
expressed regarding Senegal's economic situation was the consensus
that the Wade Administration will postpone difficult policy
decisions that might restrict the government's current fungible use
of budget allocations until after presidential and legislative
elections scheduled for February 25, 2007. This concern was
reinforced by President Wade's refusal to sign a long-awaited decree
reforming public procurement. Senegal's lack of an IMF program,
having completed its previous Poverty Reduction and Growth Facility
(PRGF) in April 2006 makes it difficult for some bilateral donors
extend new loans to the GOS, compounding Senegal's budgetary
difficulties. END SUMMARY.

OLD CONCERNS
--------------

2. (SBU) The IMF Chief of Mission, Mr Reza Vaez- Zadeh, opened the
session by highlighting the three major themes for the team to
examine over the two week consultation:

-- the Wade administration's commitment to policies of economic
stability, particularly in the face rapidly increasing budget
deficit (and the temptations for campaign-driven public
expenditures);

-- the government's program for accelerated economic growth,
particularly in light of recent projects that Senegal's 2006 GDP
growth could fall significantly below four percent;

-- the need for Senegal to improve its public finance management and
rationalize its budget allocations, while facing a budget deficit of
a minimum of seven percent of GDP. The final report will be
submitted to the IMF Board of Directors and posted in the IMF
website in January 2007.


3. (SBU) Vaez-Zadeh asked the assembled donor representatives for
their opinions on these and other matters that the IMF team should
consider and the donors did not disappoint. Among the issues raised
by the donors that have been on the agenda for at least one year
were:

-- the continued uncertainty about the GOS' "Accelerated Growth
Strategy," which has not yet been finalized, nor have final
consultations with donors been held;

-- the lack of progress between the Government and its Indian
partners on negotiations for recapitalizing and restarting
Industries Chimiques du Senegal (ICS),Senegal's huge phosphate
mining company, which, historically when fully operational, accounts
for more than two percent of Senegal's GNP;

-- an on-going lack of transparency on major public works projects,
including Dakar's proposed new international airport and the
expanded Dakar Corniche road, with the slow pace of construction
creating massive traffic problems while draining Senegal's budget;

-- the continued lack of implementation of public procurement
reform, and, with President Wade's refusal to sign the current
draft, the likelihood of this process restarting from scratch.

MORE RECENT ISSUES
--------------

4. (SBU) The donors also raised topics that, while perhaps not new,
are compounding Senegal's economic and investment woes. Topping
this list are Senegal's on-going energy difficulties, not only with
supply and distribution problems, but also the government's apparent
retreat to more state control of the sector (as reported in reftel).
Another dynamic that appears to be putting a drag on growth and
reform is the fact that public investment in grand projects, without
clear accountability, is absorbing much of the country's available
capital and diminishing private-sector confidence. The ability of
the GOS to create an effective AGS was also questioned, especially
given that many of the clusters considered under the AGS are not
performing well, including fish, textiles and garments, and tourism.
Finally, deep disappointment was voiced over the apparent total
lack of activity by Senegal's Anti-Corruption Commission, despite
being established and funded (meeting an important IMF program
condition).

AND A BIT OF GOOD NEWS

DAKAR 00002614 002.2 OF 002


--------------

5. (SBU) While the overall tone of the meeting was of concern about
Senegal's recent economic performance, a couple of positive items
were also offered, including Senegal's continued strong performance
in the ICT sector and the GOS' apparent commitment to fund
improvements at Dakar's Leopold Sedar Senghor International Airport
even as it raises funds and makes plans to build its replacement.
Another accomplishment under Senegals' last IMF program was the
privatization of Sonacos, the country's largest nut and vegetable
oil marketer. However, the actual performance of new Sonacos has
yet be determined.

NO IMF PROGRAM IS ALSO A PROBLEM
--------------

6. (SBU) The other overarching issue raised was Senegal's lack of
an IMF program, having completed its previous Poverty Reduction and
Growth Facility (PRGF) in April. A number of bilateral donors
explained that it is difficult for their governments to extend new
loans to the GOS in the absence of an IMF program, potentially
compounding Senegal's budgetary difficulties. The IMF Chief of
Mission responded that Senegal had not yet requested negotiations on
the possibility of a new PRGF or a non-financial Policy Support
Instrument (PSI). He noted that the IMF could provide a "letter of
support" to encourage bilateral donors to continue their budget
support. Vaez-Zadeh added that program negotiations are separate
from Article Four consultations, but that he would be willing to
discuss the process with the Ministry of Finance. In response to a
question on whether a new program could be in place before
February's elections, he responded that it is possible if the GOS
makes its request soon -- that is, within the next two weeks.

COMMENT
--------------

7. (SBU) We share the concerns raised by the donors. Economic
performance and reform are both slowing despite a coordinated effort
by the IMF, World Bank, and other donors to keep the GOS focused on
the steps necessary for positive economic news. While historically
economic issues have not played a major role in national election
campaigns, the convergence of so many economic encumbrances is
likely contributing to a growing sense of unease among the
Senegalese public in the run-up to what will no doubt be a very
heated campaign. END COMMENT.


8. (U) Visit Embassy Dakar's classified website at
http://www.state.sgov/gov/p/af/dakar/.

Jacobs