Senegal: Seventh Review Under the Policy Support Instrument and Request for Modification of Assessment Criteria-Staff Report; and Press Release

KEY ISSUESContext. GDP growth was lower than expected in 2013 (an estimated 3.5 percent) but would increase to 4.9 percent in 2014 with a rebound in agriculture, mining, and industry. Inflation stood at 0.7 percent on average in 2013 and would remain subdued in 2014. Political tensions have increased, with local elections scheduled for end-June 2014 and the recent return to Senegal of former President Wade.Plan Sénégal Emergent (PSE). Senegal's new growth strategy offers a good diagnostic and a vision for Senegal. It is more focused than earlier strategies on key projects and reforms. Ownership of the plan at the highest level and strong support from the international community should also facilitate implementation. The authorities' reiterated strong commitment to preserving fiscal sustainability is welcome. In light of the poor total productivity performance in recent years, the focus should be on raising economic efficiency more than increasing the volume of investment. Accelerating reforms to improve the business environment and a deep reform of the state are critical for this purpose. Reforming the state is also required to finance the public investment effort without jeopardizing fiscal sustainability.Program implementation. All quantitative assessment criteria and indicative targets for end-2013 were met, including on the budget deficit despite a significant revenue shortfall. Structural reform implementation has been slow, with many benchmarks met after their respective deadlines. This partly reflects the focus on designing the PSE since the last review. A significant risk to program performance is insufficient progress in reform implementation combined with strong expenditure pressures.Fiscal outlook and reforms. Despite challenging prospects for 2014, the authorities intend to continue reducing the deficit. Strong efforts will be needed on the revenue side to offset part of the 2013 revenue shortfalls. The recent review of current and capital expenditures, with a view to identifying less productive spending to be streamlined, is welcome and a step towards increasing the efficiency of public spending and aligning the budget with PSE priorities. Efforts should be made to improve fiscal transparency and make fiscal accounts more meaningful. Accelerating the implementation of the WAEMU directives on public financial management and of the agency reform plan is highly desirable. Transparency also requires being more explicit about the cost of certain transfers and subsidies, including those in favor of the energy sector, andreporting on the implementation of the reform of public agencies.