Senegal: Sixth Review Under the Policy Support Instrument and Request for Modification of an Assessment Criterion—Staff Report; Informational Annex; Press Release and Executive Director’s Statement

KEY ISSUESContext. GDP growth is on track to reach 4 percent in 2013 and is projected to increase to4.6 percent in 2014. Inflation has been declining, following a good harvest, and should staybelow 1 percent in 2013 and below 2 percent in 2014. The cabinet was reshuffled in earlySeptember. This change was broadly viewed as a move to accelerate reforms ahead of localelections scheduled for the spring of 2014.Program implementation. While all quantitative program targets for mid-2013 were met,structural reform implementation slowed significantly during the summer and most structuralbenchmarks were not met by their respective deadlines. A number of critical reforms notcovered by benchmarks also experienced limited progress.Fiscal outlook. The 2013 deficit target of 5.4 percent of GDP is projected to be met. The deficitwould further decrease to 4.9 percent of GDP in 2014. This will require strengthening therevenue base, as recurrent revenue shortfalls have complicated fiscal management and requiredinefficient expenditure cuts in the past few years. The revenue mobilization efforts will hinge ontax administration reforms, as the tax system needs to stabilize after the introduction of the newtax code. Substantial current expenditure streamlining is also expected in 2014. It will contributeto the reduction of the deficit while allowing for higher public investment and the developmentof the social safety net.Reforming the State. The reform of agencies will improve transparency of public spending,expenditure control, fiscal management, and the efficiency of public spending. Beyond therestructuring of existing agencies, better supervision of remaining agencies and betterapplication of rules governing the creation of new ones will be critical. Other efforts to increasethe efficiency of public expenditure, such as generalizing cost-benefit analysis for the selectionof projects and better control over the wage bill, should continue.Energy sector. Slow reforms in this sector represent a major obstacle to economic growth andcarry substantial fiscal risks. Insufficient progress has been recorded in the implementation ofthe authorities' strategy to introduce more cost-effective production technologies and improvethe efficiency of SENELEC. It is critical to adopt a realistic timeline for the implementation of theinvestment plan and to focus efforts on a few large projects that are most critical. Bettercommunication with all stakeholders on the situation of the sector, the reform strategy and itsimplementation is also needed.Staff recommends completion of the sixth PSI review.