SENEGAL ASKS DONORS TO SPEED BUDGET SUPPORT AND TAXES

UNCLAS SECTION 01 OF 02 DAKAR 000852 SIPDIS SENSITIVE DEPARTMENT FOR EBB/IFD/ODF, A/EPS, AND AF/W ABU DHABI FOR TREASURY/GRIFFERTY TREASURY FOR RHALL AND DPETERS E.O. 12958: N/A TAGS: EFIN EAID EAIR ECON PGOV SG SUBJECT: SENEGAL ASKS DONORS TO SPEED BUDGET SUPPORT AND TAXES INTERNATIONAL AIRLINES REF: A. DAKAR 813 (notal) ¶B. DAKAR 661 (notal) ¶C. DAKAR 601 (notal) DAKAR 00000852 001.2 OF 002 ¶1. (SBU) SUMMARY: The Government of Senegal (GOS) appears increasingly desperate to find the means to cover its current accounts deficit. At the request of the Minister of Finance, on July 10 the IMF Resrep sent an email to a number of donors imploring them to accelerate their disbursements of direct budget assistance. The IMF states that without this money, Senegal must make swift and serious budget cuts with "disastrous" consequences. Following Senegal's recent undersubscribed bond issuance (Ref A),the government's scramble for money is also impacting the prolonged fight between the GOS and ASECNA regarding the rights to aviation overflight fees. Delta Airlines is also facing new taxes. President Wade has yet to admit that his country is facing a financial crisis. END SUMMARY SENEGAL GOES TO INTERNATIONAL COMMUNITY FOR FUNDING -------------- -------------- ¶2. (SBU) On July 10th, the IMF representative to Senegal, Alex Segura, wrote an email to representatives of the donor community imploring them, on behalf of the GOS, to accelerate their direct budget support to the government citing a drastic fiscal deficit without such funds. In particular, the GOS hopes that Canada, the Netherlands, and the European Union will quickly provide their pledged contribution. In his message, Segura asked donors to provide their timetable for providing the funds. [Note: The USG does not provide budget support to Senegal. End note.] As outlined in Ref. B, Segura has been quite public in expressing his concerns about the GOS' current accounts deficit and has pushed for some immediate budget cuts. In his current message, Segura claimed that without the funds from the international community the GOS would face a financial crisis and be forced to cut funding to programs beyond the IMF's requests. ¶3. (SBU) Segura assured donors that the IMF would strictly oversee the budget contributions to ensure that the money was not used to subsidize commodities but rather to support the most desperate of the population directly. He also said that the GOS would shortly make difficult decisions regarding its subsidies program. To date, however, no sign of such a tough decision has emerged from the government. Rather, the Minister of Commerce publicly stated the government plans to maintain its subsidies on staple commodities. Segura has highlighted for donors and the government that the food and energy subsidies are generalized, and are not targeted to relieve the poorest segments of society, and are more aligned to assuage possible urban discontentment. ¶4. (SBU) We have heard from a number of contacts, both in and out of government that the GOS's budget situation is indeed grave. Subsidies have actually increased lately, and new unpaid bills are being added to the government's stock of arrears. One contact stated that the near term deficit could be as much as CFA 100 billion (USD 238 million). If the budget deficit is not brought under control, it could derail Senegal's Policy Support Instrument (PSI) program with the IMF when the next review takes place in September. SQUEEZING INTERNATIONAL AVIATION FOR REVENUE -------------- ¶5. (SBU) With the government's recent bond issuances falling USD 83 million short of expectations, the government appears to be targeting civil aviation for additional revenue. It continues to collect overflight fees over the objections of the regional civil aviation Agency for Navigation Security in Africa and Madagascar (ASECNA) that Senegal has no right to those fees since it remains a member of the organization (Ref. C). We have also recently learned that the government is imposing a new and unannounced tax on passengers transiting Dakar's LLS airport, and the most implicated flights are Delta Airlines routes between South Africa and the U.S., which include service to Dakar. COMMENT -------------- ¶6. (SBU) The pledged budget support by certain donors is clearly needed to head off significant budget cuts. The IMF's Segura has played a positive role in publically raising the alarm about Senegal's weakening public finances, but even under the PSI, the IMF has not yet been able to adequately monitor budget payments or DAKAR 00000852 002.2 OF 002 convince the GOS to rationalize its massive food and energy subsidies. In its scramble for money, the government is facing a threatened lawsuit by ASECNA, and perhaps a reassessment by Delta Airlines of its Dakar stops. ¶7. (SBU) Although the nitty-gritty of the GOS's potential budget crisis has largely been kept out of the public eye, discontent is growing as suppliers are not being paid for subsidies, companies are still awaiting payments for arrears owed them, and many government services are in stopgap mode awaiting funds. Increasingly, Senegalese are asking why President Wade continues to circle the globe to promote his personal diplomatic and development agendas rather than remain in Dakar to deal with the difficult realities facing the government. SMITH