AFRICAN DEVELOPMENT FUND SENEGAL LOCAL DEVELOPMENT REFORM SUPPORT PROGRAMME - PHASE I (PARDL-I)

Transcription

1 Public Disclosure Authorized Public Disclosure Authorized AFRICAN DEVELOPMENT FUND SENEGAL LOCAL DEVELOPMENT REFORM SUPPORT PROGRAMME - PHASE I (PARDL-I) OSGE DEPARTMENT August 2016 Translated document

2 TABLE OF CONTENTS LOAN INFORMATION... iii PROGRAMME SUMMARY...iv I. INTRODUCTION... 1 II. COUNTRY CONTEXT Political Situation and Governance Context Recent Economic Trends, Macroeconomic and Budgetary Analysis Competitiveness of the Economy Public Finance Management Inclusive Growth, Poverty Situation and Social Context... 5 III. GOVERNMENT DEVELOPMENT PROGRAMME Government s Overall Development Strategy and Medium-Term Reform Priorities Weaknesses and Challenges in the Implementation of the National Development Programme Consultation and Participatory Process... 7 IV. BANK SUPPORT FOR GOVERNMENT STRATEGY Linkages with the Bank Strategy Compliance with Eligibility Criteria for General Budget Support Collaboration and Coordination with other Partners Linkages with Other Bank Operations Analytical Work Underpinning the Operation V. PROPOSED PROGRAMME Programme Goal and Objective Programme Components Policy Dialogue Loan Conditions Application of Good Practice Principles on Conditionality Financing Needs and Modalities Application of Bank Group Policy on the Accumulation of Non-concessional Loans VI. IMPLEMENTATION, MONITORING AND EVALUATION Programme Beneficiaries Impact on Gender Issues, the Poor and Vulnerable Groups Impact on the Environment and Climate Change Implementation, Monitoring and Evaluation Financial Management and Disbursement VII. LEGAL INSTRUMENT AND AUTHORITY Legal Instrument Conditions Associated with the Bank s Intervention Compliance with Bank Group Policies VIII. RISK MANAGEMENT IX. RECOMMENDATION... 19

3 LIST OF TABLES Table 1 Table 2 Table 3 Table 4 Table 5 Table 6 Key Economic Indicators (% Gross Domestic Product - GDP), unless otherwise stated Doing Business 2015 and 2016 Indicators (rank) Linkages between the Emerging Senegal Plan (PSE) , the Country Strategy Paper (CSP) and PARDL Lessons Learned from Past Budget Support Operations and Reflected in PARDL-I Design Prior PARDL-I Measures and PARDL-II Triggers Financing Needs (in CFAF billion) LIST OF GRAPHS /TEXT BOXES Graph 1 Governance Indicators (Percentile ranking; high value = positive) Graph 2 Comparison of Doing Business Rankings (2016) Graph 3 Incidence of Poverty in Senegal LIST OF ANNEXES Annex 1 Government s Letter of Economic Policy Annex 2 Matrix of Programme Reforms Annex 3 Note on Relations with the International Monetary Fund (IMF) Annex 4 Key Macroeconomic Indicators Annex 5 Map of Senegal

4 CURRENCY EQUIVALENTS August 2016 Currency = CFA Franc (XOF) UA 1 = CFAF 822,46 EUR 1 = CFAF USD 1 = CFAF 590,26 FISCAL YEAR 1 January 31 December WEIGHTS AND MEASURES 1 tonne = 2204 pounds (lbs) 1 kilogramme (kg) = lbs 1 metre (m) = 3.28 feet (ft.) 1 millimetre (mm) = inch ( ) 1 kilometre (km) = 0.62 mile 1 hectare (ha) = acres i

5 ACRONYMS AND ABBREVIATIONS Acronym ADF AfDB ANSD ASER BCEAO BSFAACAB CSP EPSI EU FDI GAP GDP GoS IDA IIAG IMF MDGs MEFP OFOR PACICE PAPSP PARDL PARE PPC/PNDL PPIP DSPCSP PSE PUDC PSEA SEOH SIGFIP SNFO TA TFP UA USAID VAT WAEMU XOF African Development Fund African Development Bank National Agency for Statistics and Demography Rural Electrification Agency of Senegal Central Bank of West African States Budget Support Framework Arrangement Country Strategy Paper Economic Policy Support Instrument European Union Foreign Direct Investment Strategic Framework and Governance Action Plan Gross domestic product Government of Senegal International Development Association Mo Ibrahim Index of African Governance International Monetary Fund Millennium Development Goal Ministry of Economy, Finance and Planning Rural Boreholes Authority Inclusive Growth and Economic Competitiveness Support Programme Private Sector Promotion Support Project Local Development Reform Support Programme Economic Reform Support Programme Community Roads Project/National Local Development Programme Portfolio Performance Improvement Plan Public Service Delegation Emerging Senegal Plan Emergency Program for Community Development Drinking Water and Sanitation Sector Project Société d Exploitation d Ouvrages Hydrauliques (Water Infrastructure Management Company) Integrated System for Public Finance Management AfDB Field Office in Senegal Technical Annex Technical and Financial Partners Unit of Account United States Agency for International Development Value-added tax West African Economic and Monetary Union CFA Franc (BCEAO) ii

6 LOAN INFORMATION Client Information BENEFICIARY : Republic of Senegal SECTOR : Multi-sector EXECUTING AGENCY: Ministry of Economy, Finance and Planning (MEFP) LOAN AMOUNT : UA million Financing Plan Source Amount (2016) Amount (2017)* ADF loan UA million UA 10 million (XOF 28.6 billion) (XOF 8.3 billion) World Bank IDA loan XOF 36 billion XOF 36 billion Japan - JICA XOF 24 billion XOF 24 billion European Union XOF 12.5 billion XOF 12.5 billion Luxemburg XOF 3.8 billion XOF 3.8 billion Canada XOF 14.2 billion XOF 14.2 billion Spain XOF 0.7 billion XOF 0.7 billion *The amounts for 2017 are indicative. Key ADF Financial Information * related to ADF loans Loan/Grant currency Interest* Type Interest Rate Margin* Commitment Charge* Other Charges* Maturity Grace period NPV (baseline scenario) ERR (baseline scenario) Timeframe Main Milestones (projected) Activities Dates Appraisal March 2016 PARDL-I negotiation August 2016 PARDL-I approval September 2016 Effectiveness October 2016 Disbursement - Phase I October 2016 Supervisions January 2017 / April 2017 PARDL-II appraisal July 2017 PARDL-II negotiation August 2017 PARDL-II approval September 2017 Disbursement - Phase II September 2017 Completion report December 2017 iii UA Not Applicable Not Applicable 0.5% (5 basis points) 0.75% (service charge) 40 years 10 years Not applicable (NA) NA

7 Programme Overview Programme Outcomes Alignment on Bank Priorities Needs Assessment and Rationale Harmonization Bank s Valueadded Contribution to Gender Equality and Women s Empowerment Policy Dialogue and Attendant Technical Assistance PROGRAMME SUMMARY Programme Title: Local Development Reform Support Programme - Phase I (PARDL-I). Geographic and Sectoral Scope: Nationwide and multi-sector. General Time Frame: September December Operational/Financing Instrument: General budget support, UA 34,78 million PARDL-I, which is the first phase of a series of 2 (two) programme-based support operations, aims to contribute towards meeting the following outcomes: (i) improvement in fiscal decentralization in favour of local councils from 1.5% in 2015 to 2% of total expenditure in 2017; (ii) improvement in the rural electrification rate from 31.5% in 2015 to 60% in 2017 and in the rural drinking water access rate from 87.2% in 2015 to 91% in 2017; and (iii) improvement in the rural access index (transport) from 10% in 2015 to 15% in PARDL-I is consistent with 3 (three) operational priorities of the Bank's Ten-Year Strategy (infrastructure development, private sector development; strengthening of governance) and contributes to 3 (three) of the High 5 priorities (light up and power Africa, feed Africa, and improve the quality of life for the people of Africa). PARDL is aligned with Pillar I of Senegal s CSP , namely: Support to agricultural transformation This operation is also consistent with Pillar II of the Governance Action Plan (GAP II) and the Strategy for Agricultural Transformation in Africa ( ). Access to basic social services remains a problem in rural areas (56.6% of the total population in 2014), a situation which highlights the lack of inclusive growth in Senegal. In order to address this the Government of Senegal (GoS) will have to tackle several challenges, including: (i) the need to create conditions conducive to better rural development; (ii) improving governance of rural water supply, electrification and rural roads sub-sectors; and (iii) promoting rural entrepreneurship to develop the economic potential of rural areas. As regards budget support, coordination and dialogue are conducted under the Budget Support Framework Arrangement (BSFA) comprising: AfDB, the World Bank, the European Union, France, Canada, Japan and Spain. The Bank chairs the BFSA, which coordinates budget support through a common, dynamic performance assessment framework covering three years. The Bank has experience in supporting reforms in Senegal, through previous operations (PARE in 2011 and PACICE in 2013). Its added value is assured through: (i) complementarity of proposed reforms with those underway in various sectors where the Bank already operates; (ii) complementarity of proposed reforms with those supported by other partners under BSFA; and (iii) adoption of a synergistic and integrated approach through the implementation of PARDL in parallel with ongoing projects in targeted sectors. The reforms will create conditions conducive to the development of income-generating activities in rural areas predominantly for women. This would improve living conditions in rural communities that account for approximately 56.6% of the total population, thus helping to reduce inequalities between urban and rural areas, and curbing rural exodus. Access to basic social infrastructure will contribute to the processing of agricultural products, thereby generating income for rural communities and women in particular. Reform dialogue under this operation began in October 2015 and will continue in the following areas: (i) strengthening of decentralization; (ii) improvement of sector governance (water, electrification and rural roads); and (iii) rural entrepreneurship. iv

8 Results-based Logical Framework Country and Programme Title: Senegal - Local Development Reform Support Programme (PARDL). Programme Goal: Contribute to the creation of conditions conducive to inclusive, robust and sustained economic growth through increased decentralization, improved multi-sector governance and the promotion of local entrepreneurship. IMPACT OUTCOMES OUTPUTS RESULTS CHAIN Accelerated, inclusive and sustainable growth Outcome 1 - Decentralization is strengthened to enhance community development Outcome 2 - Sector governance is strengthened to enhance community development Outcome 3 - Rural entrepreneurship is promoted Indicators (including ISCs) Real GDP growth Gender equality index Rural poverty rate (%) Rate of fiscal devolution to local governments (% of total expenditure) Rural electrification rate Rural drinking water access rate Rural access index (transport) Number of new rural microenterprises established or supervised (proportion belonging to women) PERFORMANCE INDICATORS Baseline Situation 6.5% in in % (2014) 1.5% in % in % in % in in COMPONENT I STRENGTHEN DECENTRALIZATION Improvement of the institutional and regulatory framework Creation of the Supreme Council for Local Governments Revision of the General Local Government Code (LG) Development and adoption of the Decentralization Charter Evaluation of the status of implementation of powers transferred to local governments Bill to create the Supreme Council for Local Governments Draft General LG Code revised Decentralization Charter Report on the evaluation of the status of powers transferred Strengthening of the mechanisms for financing decentralization Transposition into Senegalese Decree on the WAEMU directive national law of the WAEMU on the financial regime of local directive related to the financial governments regime of local authorities Clarification of the distribution criteria for the Decentralization Allocations Fund (FDD) and the Local Government Infrastructure Fund (FECL) Decree on the distribution of FDD and FECL No Supreme Council in 2015 Former Code 2013 of No charter in 2015 Assessment launched in 2016 No decree in 2015 Draft decree available in 2015 Target 7% in in % in % in % in % in % in enterprises (including 150 by women) in 2017 Bill to create the Supreme Council adopted by the Council of Ministers in 2016 Draft revised LG Code is approved by the Council of Ministers in 2017 Decree on the Charter signed in 2017 Assessment report forwarded to the Steering Committee of Act 3 in 2017 Decree signed in 2017 Decree on clarification of the distribution criteria signed by the Government in 2017 COMPONENT II PROMOTE INFRASTRUCTURE DEVELOPMENT AND LOCAL ENTREPRENEURSHIP Improvement of governance in the rural water supply sub-sector MEANS OF VERIFI- CATION MEFP/IMF/ Global Gender Gap Report MEFP/DCL/ PUDC/ANSD MEFP/DCL /PUDC MEFP/DCL /PUDC RISKS/ MITIGATION MEASURES R1: Risk related to limited human capacity to carry out reforms in various sectors. M1: Senegal already has good experience as well as adequate human resources to implement reforms. Furthermore, the various forms of technical support from development partners will also mitigate this risk. R2: Risk related to the implementation of proposed reforms within the prescribed timeframe. M2: Most of the proposed actions and reforms have already been scheduled and some are even being implemented. R3: Macroeconomic risk related to the country's high economic 1 This indicator on the number of businesses in rural areas relates to the activities of the integrated Emergency Community Development Programme (PUDC), which PARDL intends to facilitate through sustained reforms. v

9 Conduct of the technical and financial audit of the first lease contract between OFOR and the Water Infrastructure Management Company (SEOH) in 2014 and 2015 Elaboration and adoption of a Strategic Plan for the Rural Boreholes Authority (OFOR) Preparation of studies for the establishment of a public service delegation (DSP) for the management of public water supply in the North Zone Institution of public service delegations (DSPs) for the management of the public drinking water supply in the South Zone and North Zone Establishment of a performance contract between the Ministry of Economy and Finance and OFOR Technical and financial audit report of the first lease contract Strategic Plan for OFOR Study report on the establishment of DSP for drinking water supply in the North Zone DSP contract for the North and South Zones OFOR performance contract Improvement of governance in the rural electrification sub-sector Operationalization of the action plan for ASER s technical and financial audit Revision of the performance contract between ASER and MEFP Resolution of the administrative council on new organizational structure for ASER; (ii) Decree on ASER s compliance with the law on agencies ASER s revised performance contract Harmonization of rural Decree on the harmonization of electrification rates rural electrification rates Improvement of governance in the rural transport sub-sector Preparation and adoption of the new Transport Transport Sector Policy Letter Sector Policy Letter Preparation and adoption of a maintenance strategy tailored to rural roads Operationalization of the Rural Transport Strategy Promotion of local entrepreneurship Adoption of the bill on SME development and modernization of the economy Preparation and adoption of the Land Tenure Policy (including strengthening of women's land ownership rights) Establishment of a Procurement Fund Rural Road Maintenance Strategy Order appointing the Secretary tasked with implementing the strategy. Bill on SME development and modernization of the economy New Land Tenure Policy Circular on the establishment of a Procurement Fund vi No report in 2015 No plan available in 2015 Studies for the North Zone launched in 2015 No contracts signed in 2015 No performance contract in 2016 No resolution and no decrees in contract ongoing in 2016 No decree in 2016 Draft letter available in 2015 No strategy in 2015 No secretary in 2015 Not adopted in Land Tenure Action Plan No procurement fund in 2016 Programme Activities: Implementation of agreed reforms and the Bank s quarterly performance and supervision reports The technical and financial audit report is prepared and validated in 2016 Strategic Plan approved by the Ministry concerned by 2016 Final report on the studies for North Zone approved by GoS in 2016 DSP contracts for the North and South Zones signed in 2017 Performance contract signed between OFOR and MEFP in 2017 Resolution of the council adopting the new organisational structure of ASER and Decree signed by the Government in 2016 Performance contract signed between ASER and MEFP in 2017 Decrees signed by the Government in 2017 Letter adopted by the Ministers concerned in 2016 Strategy prepared and adopted by the concerned Ministry (in CM) in 2017 Order of appointment signed in 2016 Bill adopted by the CM in 2017 New Land Tenure Policy adopted (in CM) in 2017 Circular issued establishing the procurement fund in 2017 Financing Resources: UA million MEFP/DCL /PUDC MEFP/DCL / PUDC MEFP/DCL / PUDC MEFP/DPE M/ PUDC vulnerability to external shocks including oil price volatility. M3: The Government of Senegal is committed to pursuing economic diversification under the ESP and implementing the necessary reforms with the support of its partners. R4: The rise of insecurity and jihadist groups in West African could slow down the momentum of implementing backbone investments under the ESP. M4: This risk can be mitigated through joint initiatives at the regional and international levels.

10 I. INTRODUCTION 1.1. Management hereby submits the following proposal to grant a loan of UA 34,78 million from African Development Fund (ADF) resources to the Republic of Senegal to finance Phase I of the Local Development Reform Support Programme (PARDL-I). PARDL-I is the first phase of a series of two programme-based budget support operations covering the 2016 and 2017 fiscal years, with an overall indicative financing envelop of UA million. PARDL-I presents the programme s multi-year framework and provides a list of reforms considered to be the indicative triggers for Phase II (PARDL-II). PARDL-I is aligned on the Emerging Senegal Plan and its priority action plan ( ) The programme is consistent with previous budget support operations, whose outcomes have improved public finance management and boosted Senegal's economic competitiveness. Previous operations, including the Economic Reform Support Programme (PARE) approved in 2011 and the Inclusive Growth and Economic Competitiveness Support Programme (PACICE) approved in 2013, helped to create the initial conditions for inclusive economic development. Among others, the reforms supported by these programmes led to: (i) definition of the rules governing allocations transferred from the central government to local governments; (ii) the adoption of the new Organic Law on Public Finances; and (iii) streamlining of the various support funds for the development of private sector development initiatives (see Technical Annex - TA 5 for the main outcomes of previous operations) These economic management outcomes notwithstanding, Senegal's growth has been less inclusive ( 2.5.1) in recent years due to a number of major challenges relating to: (i) strengthening decentralization to ensure greater local stakeholder participation in wealth creation, thus building territorial cohesion and ensuring the emergence of development hubs for social and spatial equity; (ii) facilitating access to basic social services (education, health, water, electricity) through improved sector governance to promote structural investments and ensure the sustainability of this infrastructure; and (iii) creating conditions conducive to the emergence of rural entrepreneurship Hence, PARDL-I seeks to support effort towards the implementation of the Emerging Senegal Plan to address the above-mentioned challenges through major structural reforms aimed at making growth more inclusive. The programme components are: (i) strengthening of decentralization; and (ii) promoting infrastructure development (irrigation, electricity and water) and local entrepreneurship. II. COUNTRY CONTEXT 2.1 Political Situation and Governance Context Senegal is not only an example of democracy in the West African sub-region, but also a country that has performed satisfactorily in the area of governance. Since achieving independence in 1960, it has consistently changed its governments democratically and peacefully. The free and fair presidential elections of March 2012 brought a new president to power. In the parliamentary elections of July 2012, the coalition of the presidential majority won 119 seats out of 150 (79%). Thanks to the parity law (2010), women s representation has almost doubled from 22% in the former legislature to approximately 43% in the new parliament. The constitutional referendum of March 2016 introduced 15 amendment points into the Constitution, which included: (i) modernization of the role of political parties; (ii) consolidation of the rights of the opposition and its leader; (iii) reversion to a five-year presidential term of office; (iv) promotion of local governance and territorial development through the creation of the Supreme Council for Local Governments and recognition of their right to a healthy environment on their lands and to their natural resources. The next presidential elections are scheduled for 2019, because the contraction of the presidential term of office, approved by referendum from seven to five years, cannot be applied to the current term according to the Constitutional Court. The regional context is characterized by the emergence of many security risks (jihadist attacks in Mali, Burkina Faso and Côte d Ivoire). 1

11 According to the Mo Ibrahim Index of African Governance (IIAG) 2015, Senegal ranked 9 th out of 52 countries in Africa in 2014 with a score of 62.4 out of 100, Graph 1: Governance Indicators (Percentile ranking; well above the continental average of 50.1 out of 100. high value = positive) Regarding corruption, Senegal has made significant progress in recent years. According to Transparency International s 2015 Corruption Perceptions Index, Senegal improved its ranking from 94 th out of 174 countries in 2012 to 61 st out of 168 countries, representing a leap of 33 places in three years. This progress is borne out by the improvement of Senegal's ranking in the Worldwide Governance Indicators of the World Bank since 2012 (Graph 1). Thanks to the Economic Reform Support Programme (PARE) funded by the Bank in 2011, Source: World Bank, September 2015 version. the Court of Auditors has become more efficient and autonomous with a new organic law. 2.2 Recent Economic Trends, Macroeconomic and Budgetary Analysis Recent Trends In 2015, economic activity held strong following the recovery in 2014, despite a difficult international context characterized by a general collapse in commodity prices. Senegal s growth rate under the Emerging Senegal Plan (PSE) is beginning to rise from its historical average of 3-3.5% recorded over the last Table 1: Key Economic Indicators (% of GDP, unless otherwise indicated) 20 years to 4.3% in The gross domestic product (GDP) improved beyond expectations in 2015, rising for the first time in a decade to 6.5% compared to a projection of 5.1% early in the year. This represents a growth rate of over 2% relative to 2014 (Table 1). Such actual projection GDP growth (%) including: Non-agricultural GDP Inflation, CPI (end of period) (as %) Total revenue including: Tax revenue Total expenditure and lending minus repayments including: Current expenditure Primary balance Overall balance (including grants) Overall balance (net of grants) External public debt Domestic public debt Current balance (incl. official transfers) Gross domestic investment NB: Nominal GDP (in CFAF billion) 7,583 8,078 8,764 9,528 10,363 Source: Senegalese authorities, and Report of the International Monetary Fund (IMF) No. 16/144 of June 2016 robust economic performance stems partly from commencement of implementation of projects under the Emerging Senegal Plan (PSE), which has boosted domestic demand by increasing investments in energy and infrastructure, and by improving agricultural sector output thanks to good rainfall and excellent secondary sector performance. The primary sector growth rose sharply by over 16% between 2014 (2.4%) and 2015 (18.2%), reflecting the dynamism of the agricultural and livestock sub-sectors. Secondary sector activities surged from a growth rate of 5.3% in 2014 to 7.1% in 2015, thanks to the buoyancy of the building materials, construction and oil refinery sub-sectors. Tertiary sector activities have remained bullish, despite a slight dip in 2015 (3.8%) relative to 2014 (4.1%), essentially driven by trade, transport, financial services and real estate. The robust recovery noted in 2015 occurred in a context of low-inflation, owing to the decline in the prices of key commodities worldwide. On average, the annual inflation rate was 0.4% at the end of 2015, driven mainly by food prices. 2 Externally, trade improved the current account balance in The current account deficit (including official transfers) was estimated at 7.6% in 2015, compared to 8.9% of GDP in 2014, primarily due to a significant strengthening of the trade balance (-16% in 2015 compared to -18.3% of GDP in 2014), thanks to a 2 The fall in oil prices led to a revision of the GDP deflator from 0.2% of GDP to 0.0% in 2015, resulting in a downward revision of the nominal GDP in 2015 from CFAF 8,157 billion to 8,078 billion. 2

12 higher increase in exports vis-à-vis imports and lower oil prices. Hence, the terms of trade improved by over 4 percentage points, increasing from 1.9% in 2014 to 6.1% in Budget management in 2015 was characterized by satisfactory revenue collection and improved control of public spending. In 2015, the budget was executed in a context of PSE implementation, in agreement with the technical and financial partners (TFPs). Total revenue increased from CFAF 1,877 billion (24.8% of GDP) in 2014 to 2,026 billion (25.1% of GDP) in This increase essentially reflects strong tax revenue performance in 2015 (19.8% of GDP) compared to 2014 (19.6% of GDP), thanks to a favourable economic environment and effective strategies formulated by the financial authorities (strengthening of fiscal control). Total public expenditure rose slightly from CFAF 2,258 billion (29.8% of GDP) to CFAF 2,413 billion (29.9% of GDP). This moderate increase reflects recurrent expenditure control which generated fiscal space for infrastructure investments under the PSE. Domestic investments amounted to 25.3% of GDP in 2015 compared to 25.1% in In short, the budget deficit (including grants) deteriorated by 0.2% of GDP, expanding from CFAF 381 billion (5% of GDP) in 2014 to CFAF 387 billion (4.8% GDP) in As regards the debt situation, the authorities adopted a cautious strategy in 2015 in order to preserve macroeconomic stability, by giving preference to medium- and long-term loans. According to the latest debt sustainability analysis (DSA), Senegal s debt distress risk remains low. The total public debt to GDP ratio was 56.8% in 2015 compared to 54.2% in 2014, which is below the community standard of 70% of GDP retained in the convergence pact of the West African Economic and Monetary Union (WAEMU). This slight increase is apparently attributable to the external debt which rose from 37.3% in 2014 to 40.2% of GDP in 2015, while the domestic debt dropped marginally by 0.3% between 2014 (16. 9%) and 2015 (16.6%). Overall, the macroeconomic framework was kept under control in 2015, thanks essentially to cautious fiscal management and the implementation of key public finance reforms to promote economic growth and combat poverty efficiently and sustainably. Outlook The medium-term economic outlook is favourable for Senegal with a growth forecast of 6.6% and 6.8% in 2016 and 2017, respectively. Given the international outlook, which is more favourable for Senegal, economic activity is expected to maintain the trend that started in 2014, thanks to key investments implemented as part of PSE implementation. Hence, the growth rate is expected to be 6.6% in 2016 and 6.8% in This resurgence of activity would be driven by a robust secondary sector (9.1% and 8.8% growth in 2016 and 2017, respectively), as well as strong performance from the primary sector (9% and 7.6% growth in 2016 and 2017, respectively) and, to a lesser extent, the tertiary sector (5.3% and 6.2% growth in 2016 and 2017, respectively). Regarding inflation, prices should remain under control and stay below 2% in the medium term in 2016 and 1.3% in Budget management, focused on PSE priorities, should remain cautious in 2016 and 2017 in order to preserve public finance sustainability and macroeconomic stability, thus generating greater fiscal space to fund backbone projects under the PSE. Hence, the gradual reduction of the budget deficit (including grants) should continue at levels of 4.2% and 3.7% of GDP in 2016 and 2017, respectively. The outstanding public debt (i.e. the debt-to-gdp ratio) is projected at 57.3% and 56.2% in 2016 and Moreover, the current account deficit should continue to contract in the medium term: 6.2% and 5.8% of GDP in 2016 and

13 2.3 Competitiveness of the Economy Progress was made, thanks to major structural reforms targeting the business climate, but bolder measures are needed to ensure private sector contribution to PSE financing. In recent years, reforms have been conducted to improve the business environment in Senegal. The effectiveness of these measures helped to improve the country s ranking in the World Bank's Doing Business report by 3 points between 2014 and 2015: from 156 th out of 189 countries in 2014 to 153 rd out of 189 countries in 2015 (Table 2). This performance stems mainly from the improvement of indicators on: (i) getting electricity, mainly by reducing the time needed to connect to the grid from 113 days in 2014 to 81 days in 2015; and (ii) registering property, mainly by reducing the registration period from 122 days in 2014 to 71 days in These achievements were made under the Triennial Programme to Reform the Business Environment and Competitiveness (PREAC). The efforts of the authorities to attract more foreign investors have had an impact on the volume of foreign direct investments (FDI), which rose from 2% in 2014 to 2.3% of GDP in In the rankings of the World Economic Forum s Global Competitiveness Report, Senegal slightly improved its position from 112 nd to 110 th, with a score of 3.7 on 7. This progress notwithstanding, the country remains stuck at the bottom of the rankings, and several competitiveness indicators show that much remains to be done to improve the business climate which remains an obstacle to the sustainable development of the private sector (expected to contribute 60% of PSE funding). Hence, according to the 2016 Doing Business report, the elements that adversely affect the business climate are insufficient protection of investors (deterioration of the ranking from 154 th in 2014 to 155 th in 2015), cumbersome tax procedures (183 rd out of 189 countries), and difficulties in obtaining loans for private companies (loss of 5 places between 2014 (128 th ) and 2015 (133 rd ).) 2.4 Public Finance Management Table 2: Doing Business 2015 and 2016 Indicators (rank) Indicators DB DB Change in ranking Starting a business Dealing with construction permits Getting electricity Registering property Getting credit Protecting investors Paying taxes Trading across borders Enforcing contracts Resolving insolvency OVERALL RANKING Source: Doing Business, Graph 2: Comparison of the Doing Business ranking (2016) Starting a Business Resolving Insolvency Enforcing Contracts Trading Accross Borders Paying Taxes Source: Doing Business, Senegal has made progress in public finance management. The country has transposed the WAEMU directive on finance laws into national law. Hence, under that law, Multi-year Expenditure Programming Documents (DPPD) were generalized to all ministries in Since 2013, quarterly budget execution reports have been produced, transmitted to the National Assembly and published regularly on the MEFP website. As concerns public finance management control, the Office of the Auditor General has made progress in recent years with the production of public audit reports in line with finance laws. As regards economic and fiscal transparency, the measures taken recently include the adoption of Law No to define the public finance management transparency code, Law No governing asset declaration and Decree No to define a list of individuals subject to asset declaration. 3 Regarding the procurement and use of the national system, the Bank has been using the national procurement system in national competitive bidding for new projects since The public procurement code was revised in 2014, in an effort to increase the effectiveness and efficiency of procurement procedures, including raising the procurement and ex ante control Protecting Minority Investors Dealing with Construction Getting Electricity Registering Property Getting Credit Senegal Rwanda Maurice 3 This means that the Speaker of the National Assembly, the Prime Minister, Ministers, the President of the Economic, Social and Environmental Council, the 1 st Quaestor of the National Assembly, credit administrators, revenue and expenditure authorizing officers and public accountants conduct operations worth an annual total of CFAF 1 billion or more. 4

14 thresholds. Apart from internal and external controls which need to be further improved, public finance management reform in Senegal is tending towards greater transparency and efficiency, and resultsbased management. 2.5 Inclusive Growth, Poverty Situation and Social Context In recent years, economic growth has hardly been inclusive in Senegal due to glaring inequalities between urban and rural areas. Following the adoption of the post-2015 development agenda in September 2015, Senegal started reflecting on monitoring the sustainable development goals, while ensuring their integration into national development plans and programmes. Socially, poverty incidence trends show that Senegal has made some progress in this area (Graph 3). For instance, poverty prevalence declined from 55.2% in 2001 to 46.7% in 2011 at the national level. Despite this decline at the national level, prevalence remains high in rural areas at 65.1% and 57.1% in 2001 and 2011, respectively. Rural poverty is exacerbated by a shortage of infrastructure and basic social services. Access to basic social services remains very limited in rural areas: the electricity access rate was 86.9% in urban areas compared to 24.2% in rural areas in 2013; the drinking water access rate was 55.48% in urban areas compared to 19.54% in rural areas in 2013; the education access rate (final year of primary school) was 17.52% in urban areas relative to 14.71% in rural areas in Moreover, underemployment and unemployment remain high nationally. According to data from the national survey on employment in Senegal, published in November 2015, the Graph 3: Incidence of Poverty in Senegal Source: World Bank, January 2013 unemployment rate for persons aged 15 years and above, was estimated at 13.4%, with 40% of the unemployed having no certificate. Unemployment affects women (16.7%) more than men (9.5%). The combined underemployment rate, related to the time of work and unemployment, was estimated at 39%, comprising 54.5% for women and 29.8% for men With regard to gender, despite some progress on the institutional, statutory and legislative fronts, efforts still need to be made to ensure the greater empowerment of women. Several legislative and statutory provisions have been adopted to punish violence against women, including sexual harassment and female genital mutilation, with the aggravation of penalties in case of rape. These provisions also seek to ensure full fiscal autonomy and equality for wives and equality between spouses when calculating the tax ratio. Senegal is ranked 30 th out of 54 African countries in the Gender Equality Index (GEI) classification published for the first time by AfDB in As regards the Gender Index of the Global Gender Gap Report, Senegal is ranked 72 nd out of 145 countries in 2015 compared to 77 th out of 142 countries in The political and economic empowerment of women remains a fundamental issue of sustainable and equitable development. The legislative elections of July 2012 doubled female representation in the National Assembly from 22% (33 seats) in 2007 to 43% (64 out of 150 seats). These gains were strengthened during the local elections of June 2014, marking a new term under Decentralization Act 3: female representation in local councils tripled from 15.9% in 2009 to 47.2% in 2015, representing 13,103 women out of 27,760 elected representatives. The country has also made progress in the domain of women's rights, although progress margins exist in the application of the laws. Thus, the number of women (mayors) remains very low. Only 13 local councils out of the current 571, are headed by women (mayors), representing 2.3%. The fact that few women apply to head local councils despite their election as councillors stems from socio-cultural factors, a lack of self-confidence and limited capacity. Outreach and training programmes for women, including leadership, are needed to reverse this trend. The female-male ratio of labour force participation in Senegal (74.2% in 2012) is lower than the average in Sub-Saharan Africa (84.3% in 2012): 67.2% of women aged between 15 and 64 years are economically active relative to 89.5% of women. Regarding access to factors of production, including land, customary law, 5

15 unlike the Constitution, limits women's access to land. Senegalese authorities have begun a review of the 1964 land reform by strengthening the conditions of access to land for women. This important reform is supported under this new AfDB budget support operation. Furthermore, the reforms under this operation will facilitate the execution of Government s Emergency Community Development Programme whose objectives include improving women s empowerment by enhancing the productivity of rural communities and boosting agricultural production through access to financial services as well as production and processing equipment. III. GOVERNMENT DEVELOPMENT PROGRAMME 3.1. Government s Overall Development Strategy and Medium-Term Reform Priorities The strategic guidelines for Senegal's development are set out in the Emerging Senegal Plan (PSE) Adopted in February 2014, the PSE is the reference framework for Senegal's economic and social policy. The PSE Vision is that of an emerging Senegal in 2035 with an inclusive society and the rule of law. This Plan should enable the country to break free from the cycle of low growth and high poverty that it has encountered in recent years, while maintaining macroeconomic stability and debt sustainability. The PSE focuses on the following three strategic pillars: (i) Pillar 1 - Structural transformation of the economy and growth; (ii) Pillar 2 - Human capital, social protection and sustainable development; and (iii) Pillar 3 - Governance, institutions, peace and security. At the very heart of the PSE is the five-year Priority Action Plan (PAP) underpinned by fiveyear strategic thrusts and strategic lines of action. The first PAP has 17 major reforms and 27 major projects to be implemented over the period, with a total cost of about USD 19 billion Promoting inclusive growth under the PSE will require the expeditious implementation of major structural reforms. Between 1995 and 2005, a relatively robust growth rate of 4.5% was recorded. This significantly decreased poverty from 68% to 48.3% over the same period (Graph 3). However, over the period, the average growth rate was 3.3%, mainly because of reforms that were not strong enough or fast enough to further improve the business climate, poor energy sector performance, limited infrastructure deficit and limited efficiency of public investments. Over this period, poverty fell slightly down to 46.7%, i.e. less than 2 percentage points (Graph 3). Growth targets of over 7% to 8% under the PSE are achievable, provided that the authorities speed up implementation of the structural reforms recommended in the Plan PARDL is consistent with Senegal s overall development strategy. This programme-based support operation is consistent with two of the three strategic PSE pillars, namely: (i) Pillar 1 - Structural transformation of the economy and growth; and (ii) Pillar 2 - Human capital, social protection and sustainable development. The Bank is fully in line with the PSE to accelerate the implementation of structural reforms for more inclusive and sustainable growth. These reforms will create the conditions for better implementation of community development projects and programmes, including the one being prepared by the Bank, namely the "Integrated Community Development Project" to be presented to the Board in 2017, and will also promote the emergence of a local private sector for more inclusive growth Weaknesses and Challenges in Implementing the National Development Programme Senegal faces several challenges in moving towards more inclusive growth as advocated by the PSE. According to the 2013 population census results, the urbanization rate was 45.2% in 2013 compared to 41% in 2002, and is projected to rise to 47% in Rural exodus features prominently among the determinants of urbanization. Rural areas which hold the majority of the population (60%) are plagued by the massive exodus of the youth to cities in search of employment. In recent years (2001 to 2011), Senegal has made progress in reducing poverty, although inequality remains high. The prevalence of poverty remains higher in rural areas (Graph 3) where access to basic social services and shortage of infrastructure are problematic ( 2.5.1). Economic growth has not been able to significantly reduce poverty reduction and ensure geographically-balanced development. Given this situation and 6

16 in an effort to achieve an economic growth target that is steady, sustainable and inclusive, GoS will have to address several challenges including: (i) ensuring the creation of conditions conducive to the greater development of local government areas by strengthening the decentralization process, such that it leads to better devolution of jurisdictional authority and budgetary resources to the territories; (ii) improving governance in the rural water supply and electrification sectors, thus ensuring the continuity of investments in these sectors and sustainable access to such infrastructure; (iii) enhancing the sustainability of rural transport infrastructure to facilitate access to health and education services in particular and contribute to the conveyance of agricultural produce from farm to market; and (iv) promoting rural entrepreneurship to stave off rural exodus and build the economic potential of rural communities to engage in shared and sustainable growth. Hence, to help GoS create conditions for inclusive growth, this programme-based budget support operation (PARDL) was prepared after the PACICE project of 2013 (PACICE focused on mainstreaming gender into public resource management and private sector development). This new operation intends to focus on community development, which has long been side-lined from Senegal's economic development Consultation and Participatory Process During the PSE preparation, Senegalese authorities engaged in broad consultations with all stakeholders to ensure greater ownership of the vision and its strategic pillars. The PSE, which is a unifying framework for public operations and policies, was designed through an inclusive process with the participation of stakeholders in the country. The consultations were held at the national level and were decentralized. Parliamentarians, elected local officials, representatives of civil society and the private sector, the media and development partners, were all consulted As with the PSE, the PARDL reform programme was designed through broad consultations to ensure ownership by the structures tasked with monitoring the various reforms. The consultations, which began in October 2015 at the International Conference on Agriculture in Africa held in Dakar, involved all stakeholders, especially the Ministry of Economy, Finance and Planning (MEFP); the Ministry of Agriculture and Rural Infrastructure; and the Emergency Community Development Programme (PUDC) whose main operations are fully consistent with PARDL. Development partners were also consulted to ensure better synergy in our operations. They included the European Union (EU), the World Bank (WB), the French Development Agency (AFD), the United States Agency for International Development (USAID), and the Canadian International Development Agency (CIDA). IV. BANK SUPPORT FOR THE GOVERNMENT STRATEGY 4.1 Linkage with the Bank Strategy PARGE is aligned on the Bank s Ten-Year Strategy (LTS) and on the Interim Country Strategy Paper (I-CSP) At the Bank, PARDL is consistent with Pillar I (inclusive growth) and is aligned on operation priorities 3 and 5 of the LTS , namely: (i) infrastructure development; (ii) private sector development; and (iii) strengthening governance. Furthermore, the structural reforms of PARDL contribute to the achievement of 3 of the Bank's High 5s, namely: "Light up and power Africa", "Feed Africa" and "Improve the quality of life for the people of Africa". PARDL, which falls under CSP , is fully aligned on CSP Pillar I: Support to agricultural transformation. By aligning on Senegal's CSP, it seeks to contribute to agricultural sector transformation by improving access to basic community services and promoting agricultural entrepreneurship, thus creating ideal conditions for inclusive and sustainable growth. PARDL is aligned on Pillar 2 (Sector Governance) of the Bank's Governance Action Plan (GAP II). This operation is consistent with the Bank's new strategy for transforming African agriculture ( ). Lastly, it is consistent with the Private Sector Development Strategy through two of these three pillars, namely: (i) access to social and economic infrastructure; and (ii) business development. Table 3 below summaries the linkages between PSE , CSP , and PARDL

17 Table 3 Linkages between PSE , CSP and PARDL PSE CSP PARDL Vision: An emerging Senegal in 2035 with an inclusive society and the rule of law. Pillar 1 - Structural transformation of the economy and growth; Pillar 2 - Human capital, social protection and sustainable development Strategic Objective "Contribute to the achievement of inclusive, robust, green and sustainable growth" Pillar 1 - Agricultural transformation Outcome 1: Contribute to the development of agricultural value chains and agribusiness Outcome 2: Promote employment and agricultural entrepreneurship Outcome 3: Improve the living conditions of rural communities Development Goal - "Contribute to the creation of conditions conducive to inclusive economic growth" Component I Strengthen decentralization Component 2 Promote infrastructure development and local entrepreneurship 4.2 Compliance with Eligibility Criteria for General Budget Support Senegal meets the eligibility criteria for general budget support operations. In accordance with Bank policy for programme-based support operations (PSOs), the design of PARDL took into account good practice principles for the application of conditionality particularly as regards country ownership of reforms ( 3.3). A detailed analysis of eligibility criteria is presented in TA 1. As regards government commitment to poverty reduction, Senegal's priority under the PSE is to build an emerging economy driven essentially by strong growth, whose dividends are better distributed all over the entire national territory. As concerns macroeconomic stability, in March 2016, the Triennial Agreement with the IMF under the Economic Policy Support Instrument (EPSI) approved in June 2015 was deemed to be satisfactory with all the quantitative criteria satisfied and most of the indicative targets for 2015 achieved, including the budget deficit target. On political stability, Senegal remains a very stable African country, which has always successfully changed its governments democratically. As regards fiduciary review, the Bank's assessment indicated that there is an initial moderate overall risk. GoS agreed with the Bank on the effective implementation of mitigation measures to improve on the fiduciary framework (TA2). Lastly, harmonization efforts, which are fully consistent with the Paris and Busan principles on aid effectiveness, have been maintained under the Budget Support Framework Arrangement (BSFA) group led by the Bank. 4.3 Collaboration and Coordination with other Partners The Bank is particularly active in aid coordination in Senegal. In an attempt to improve the coordination of their operations and promote in-depth and inclusive dialogue with GoS, Senegal s development partners set up a 50-member mechanism called 'Group 50'. Coordination and dialogue on budget support are conducted under the BFSA (African Development Bank, WB, EU, France, Canada, Japan, and Spain) which is chaired by the Bank. The BFSA is a dynamic framework for coordinating the operations of TFPs based on a common, dynamic three-year policy matrix. This common matrix makes it possible to promote permanent dialogue with GoS on major structural reforms, and to harmonize disbursement criteria aimed at improving the predictability of resources needed to fund the PSE. 4.4 Linkage with Other Bank Operations As at end-july 2016, the portfolio of active national public projects comprised eleven (11) operations for net total commitments of UA million. The overall disbursement rate stands at 14.8%, due to rejuvenation of the portfolio (2 years). The regional public sector portfolio includes 6 (six) operations worth a total of UA 89.5 million; and an overall disbursement rate of 19%. These regional projects concern Senegal and other countries of the sub-region, including the Gambia, Guinea-Bissau, Guinea and Mali. The score awarded to Senegal's portfolio in 2015 based on the implementation progress and results (IPR) system is 3 (satisfactory). This good performance stemmed in part from the: (i) reduction of the processing timeframe for procurement documents from 15 days in 2011 to 3 days in 2016; and (ii) reduction of the proportion of projects-at-risk from 47% in 2009 to 0% in 2015, as well as the disappearance, in 2011, of problematic projects (PP) which were two in number in 2009 (TA 4). With regard to the private sector window, total commitments amount to 8

18 approximately UA million and focus on seven (7) operations. The total disbursement rate is 76% for the private sector The last joint portfolio review between the Bank and the Government took place in June It served as a formal framework for discussions on issues related to portfolio performance and challenges faced in implementing Bank operations in Senegal. These challenges include: (i) delays in signing contracts by sector ministries; and (ii) weaknesses in project financial management and in implementing audit report recommendations. This review allowed an adoption of a new country portfolio performance plan (PAPP) which is under implementation. The 2016 PAPP contains a set of actions to be implemented with a precise calendar aiming at reinforcing the portfolio performance. The PAPP s main measures are relating to: (i) projects execution and management especially signature of performance contracts with PIUs staff; (ii) financial management, disbursements, and audits; (iii) results-based monitoring and evaluation systems PARDL complements other Bank operations that are ongoing or under preparation in Senegal. Spread over two years (2016 and 2017), this programme-based operation is complementary with ongoing projects in areas covered by the programme (water, electricity, transport and private sector development). It is particularly complementary with a major investment project being studied by the Bank, namely the "Community Development Project" worth USD 113 million. This integrated project scheduled for Board presentation in 2017 is intended to support Senegalese authorities in their quest for better community development through backbone investments in sectors like water management, electricity, rural transport and agricultural value chains. Furthermore, this integrated project is complementary with the ongoing Emergency Community Development Programme (PUDC) financed by GoS. Hence, PARDL reforms will facilitate investments under this integrated project and the sustainability of the infrastructure to be constructed Lessons learned from previous Bank operations in Senegal have been reflected in the design of this programme-based operation. The Bank has financed several reform operations in recent years, namely: PARE worth USD 27 million approved in July 2011 and PACICE worth UA million approved in Among others, these operations led to: (i) the improvement of public finance management through review of the public procurement code, reform of the Court of Auditors, transposition of WAEMU directives on the harmonized framework for public finance management, and the adoption of a new General Tax Code; (ii) improvement of State efficiency in public management mainly through implementation of an assessment framework for government-funded projects that include indicators on employment and gender; (iii) adoption of the law on declaration of assets by Ministers, and satisfaction of the conditions for Senegal's accession to the EITI; and (iv) improvement of the governance of corporations and the business climate mainly through the conduct of the study for establishing a procurement fund for SMEs. This significant progress (TA 5) justifies the provision of further assistance to the authorities to undertake structural reforms, in agreement with the other TFPs involved in PSE implementation. The performance of budget support operations in Senegal has always been satisfactory and disbursement conditions have been met on time. Hence, the formulation of PARDL-I through a programme-based approach spread over two fiscal years (2016 and 2017) was informed by key lessons from these operations, as summarized in Table 4. Table 4 Lessons Learned from Past Budget Support Operations and Reflected in PARDL-I Design Key Lessons Reflected in PARDL-I There has often been a time lag between the design of public investment projects and the implementation of budget support programmes. The need to take account of the political dimension of certain reforms by retaining only measures that are under the effective control of the Government During the design of programme-based general budget support, several investment projects were in the studies phase in areas targeted by the reforms, including electrification and rural water management, transport infrastructure, the agricultural sector, employment for the poor, and the promotion of private sector development. Meetings with the technical directorates during the preparation and appraisal mission made it possible to ensure that programme reforms are technically feasible and that their implementation conditions are determined solely by the executive branch of government. 9

19 4.4.5 In recent years, the Bank has garnered significant regional experience through its operations in support of major structural reforms in Africa. That experience gives the Bank a comparative advantage in Senegal. The Bank's holistic approach, which combines reform support operations with backbone investment projects, is a comparative advantage relative to more stand-alone approaches. The Bank s added value is demonstrated by: (i) the complementarity of proposed reforms with those underway in various sectors where the Bank already operates; (ii) the complementarity of proposed reforms with those supported by other partners in energy and decentralization; and (iii) the adoption of an integrated approach based on the implementation of PARDL while preparing better implementation of projects under study in the same areas. 4.5 Analytical Work Underpinning this Operation The review of PARDL-I was informed by the results of analytical work conducted by the Bank, Senegal and other TFPs, including: (i) the organizational audit of the electricity sector; (ii) IMF reports on the EPSI-supported programme; (iii) the reform report of Decentralization Act 3; and (iv) the African Economic Outlook for This analytical work ultimately helped to improve the design and formulation of the Programme. The studies reveal the need to: (i) strengthen decentralization by building on the achievements of Phase I and drawing lessons from weaknesses noted during its implementation to launch Phase II, which is intended to be coherent in its principles, and effective in its implementation to ensure the enhanced development of local communities; (ii) sustainably improve sector governance in order to ensure the inclusive management of backbone infrastructure in the water, electricity and rural roads sectors; and (iii) speed up the implementation of policies that further promote the local private sector, particularly through the emergence of rural entrepreneurship. V. PROPOSED PROGRAMME 5.1 Programme Goal and Objective PARDL is essentially aimed at supporting PSE implementation by helping to create conditions conducive to inclusive and sustainable growth. Hence, PARDL will help to address the abovementioned challenges (Section 3.2.1) faced by Senegal in PSE implementation to ensure more inclusive development, especially in rural areas. In this regard, it is important to strengthen decentralization and construct basic infrastructure that gives people greater access to drinking water and electricity as well as rural access infrastructure. Hence, among other things, PSE will help to reduce social inequalities by correcting local disparities in access to basic services. Consequently, the Bank's intervention is justified by the need to support the efforts of the Senegalese authorities as they strive to generate growth that is dynamic, endogenous, integrated, sustained and aimed at reducing inequalities between urban and rural areas; and by the need to create conditions conducive to greater grassroots development. The effective implementation of the reforms under this programme, together with support from other development partners, will boost efforts to develop the local economy, open up access to marginalized rural areas and increase ownership and empowerment for rural communities in the construction and maintenance of local socio-economic infrastructure. 5.2 Programme Components PARDL has two complementary components: (i) strengthen decentralization; and (ii) promote infrastructure development and local entrepreneurship. Decentralization is an important prerequisite to ensuring social and geographic equity, as defined under the PSE, through greater accountability for local stakeholders in the development process, in line with Decentralization Act 3 reform launched by the authorities since Furthermore, support for the implementation of the decentralization process will focus on improving governance in sectors where jurisdictional authority has effectively been transferred to local governments, especially in the rural water management, rural electrification, and rural roads sectors, to ensure more effective management and the sustainability of grassroots infrastructure as well as continuous access to basic social services such as education and health. Lastly, the strengthening of local governance and access to basic infrastructure will be 10

20 accompanied by an improvement of the business environment in local government areas, thus creating conditions conducive to the development of more dynamic rural entrepreneurship. Component I Strengthen Decentralization This component aims at supporting the efforts of the Senegalese authorities to strengthen decentralization through two operational objectives: (i) improvement of the institutional and regulatory framework for decentralization reform; and (ii) strengthening of the financing mechanisms of decentralization to ensure better management of delegated areas of jurisdiction and sustainable development for local government areas Context and Challenges: Senegal has a longstanding tradition of decentralization. Decentralization Act 1 was formulated in 1972, creating rural councils. In 1996, Decentralization Act 2 introduced regionalization and created district councils. Nine areas of jurisdiction were transferred to local governments. Act 2 fundamentally amended relations between the State and local governments by endowing the latter with broader managerial autonomy, administrative freedom and greater independence. Implementation of this reform met with difficulties, including: (i) objective weaknesses in the decentralization organizational framework for promoting territorial development; (ii) inconsistent territorial development financing mechanisms; (iii) a weak land-use planning policy constrained by an overly rigid architecture; and (iv) inconsistent and inefficient local development financing mechanisms. Given these limitations, Decentralization Act 3 was launched in GoS is aware that successful decentralization is crucial to greater local democracy and inclusive economic development. Decentralization Act 3 is multidimensional reform at three levels: (i) complete municipalisation (abolition of the denomination rural council ); (ii) departmentalization (departments become local government areas in replacement of regions); and (iii) regions are organized into economic development centres. Its concerns are territorial equity, the redefinition of subsidiarity, the empowerment of local governments, as well as greater accountability for such bodies in the provision of basic social services. The main purpose of Decentralization Act 3 reform is to organize Senegal into territories that are viable, competitive, and ready for sustainable development. This reform can be broken down into four specific objectives as follows: (i) consolidation of territorial coherence to achieve a renovated administrative structure; (ii) clarification of jurisdictional authority between the State and local governments; (iii) development of contractualization between these two levels of decision-making; and (iv) modernization of territorial public governance, with local finance reform and regular promotion of the quality of human resources. Phase I ( ) of Decentralization Act 3 implementation led, among others, to: (i) improvement of the legislative and regulatory framework through the adoption of Law No of 28 December 2013 on the General Code for Local Governments; (ii) improvement of the administrative architecture through full municipalisation by upgrading rural and district councils into full-fledged municipalities and upgrading departments into local government areas - the simplified architecture consists of two levels of decentralization with 557 municipalities, including 5 city councils and 42 departments; (iii) clarification of the levels of governance through strengthening of the organizational framework of municipalities and departments, and the effective devolution of powers as regards civil status management, thus making it possible to increase the responsibilities of former rural councils that have been upgraded into municipalities Implementation of the first phase of Act 3 revealed the challenges that must be subsequently addressed to ensure that reform objectives are attained. As regards the devolution of assets, the municipalities are unable to defray the additional costs of staff brought in from the city and regional councils, who are now under their responsibility. Concerning territorial coherence, there is no linkage between the decentralization and devolution processes. This leads to duplication between planning mechanisms at the local level and programming by sector ministries, as well as compartmentalization of sector operations which remain vertical and top-down for most sectors. In terms of governance, difficulties persist in clarifying relations between territorial development 11

21 stakeholders and in matching skills to resources. As regards the organizational framework, local government management poses a problem because the local government public service has not yet been established and local governments do not yet have standard organization charts. Furthermore, the financing of regional development is a major challenge that should be addressed by the reform of Decentralization Act 3. Local tax reform is progressing slowly mainly due to inadequate support provided to the new municipalities by taxation and treasury services in the areas of tax enrolment and collection. The resource transfer mechanism, defined in the Local Government Code to improve the management of the newly devolved powers, is constrained by the inadequate funds and assistance provided to local governments and the lack explicit criteria to ensure the equitable distribution of Decentralization Allocations Fund and the Local Government Infrastructure Fund Recent Government Action: The problems encountered in implementing the reform of Decentralization Act 3 do not undermine the merits of the reform whose main objective is to strengthen decentralization in order to improve the development of local communities. The authorities carried out a fiscal adjustment of local councils so that these councils, which were upgraded into municipalities, would be able to exercise the authority delegated to them. They have also launched a study to clarify the distribution criteria for Decentralization Allocations Funds (FDD) and the Local Government Infrastructure Fund (FECL). A training strategy for new local stakeholders was initiated and its implementation will improve understanding of the various tools established under Act 3. To ensure the effective implementation of the reform of Decentralization Act 3, GoS conducted an evaluation of Phase I of the reform. The evaluation helped to highlight the achievements, constraints and challenges of the new decentralization policy and the results obtained will be used as inputs for preparing Phase II of Act 3, which will lead to a revision of the General Code for Local Governments to ensure better application of the vision for Decentralization Act 3. The authorities also undertook to set up a Supreme Council for Local Governments with the aim of bringing administrative services closer to the grassroots and ensuring more inclusive participation of all stakeholders in the economic and social development of their territory. This Council will facilitate supervision of the regional development process under Decentralization Act 3, thus leading to greater sustainable economic emergence, as desired by the population in general, and rural areas in particular Reforms Scheduled under the Programme: In a bid to support the Senegalese authorities to strengthen decentralization ( 5.1.7) for better local development, PARDL-I intends to focus on structural reforms aimed at improving the institutional and regulatory framework of Decentralization Act 3, and strengthening territorial development financing mechanisms. Firstly, to improve implementation of the reform of Decentralization Act 3, the Bank plans to use PARDL-I to support reforms pertaining to: (i) establishment of the Supreme Council for Local Governments to oversee the implementation of the reform of Decentralization Act 3 during Phase II [Prior Action 1 of PARDL-I] which will complete the reform by moving towards economic development centres, delegation of powers in the areas of agriculture, livestock, water management and fisheries; (ii) revision of the General Code for Local Governments [Trigger 1 of PARDL-II ]; (iii) development and adoption of the Decentralization Charter; and (iv) assessment of the implementation status of the powers delegated to local authorities in an attempt to rationalize the distribution of the powers that the State will delegate to local councils. Secondly, the strengthening of territorial development financing mechanisms is supported by PARDL-I through the following reforms: (a) transposition of the WAEMU directive on the financial regime of local authorities; and (b) clarification of the criteria for distributing the Decentralization Endowment Fund (FDD) and the Local Government Infrastructure Fund (FECL) Expected Outcomes: The effective implementation of these reforms is expected to consolidate decentralization with a view to enhancing community development by increasing local government budget allocations from 1.5% (% of total expenditure) in 2015 to 2% in

22 Component II Promote Infrastructure Development and Local Entrepreneurship This component, which complements the first, aims at creating conditions conducive to the inclusive and harmonious development of local government areas with a view to improving living conditions for local communities. To that end, it seeks to: (i) improve the institutional framework for managing water and electricity infrastructure as well as rural roads to facilitate community access to such infrastructure; and (ii) facilitate the emergence of local entrepreneurship for more territorial inclusiveness Context and Challenges: Improving governance in the rural water management subsector. Backed by its development partners, the State of Senegal initiated a reform process from 1996 on rural drinking water supply management to improve the quality of services provided to the population. Under the Millennium Drinking Water Supply and Sanitation Programme (PEPAM) initiated in 2005, GoS undertook to continue and complete the rural water sub-sector reform process through the REGEFOR project, which seeks to improve the quality of rural drinking water services through: (i) delegation of maintenance and production services to the private sector; (ii) professionalization of drinking water supply management in large supply systems using public service delegations (DSPs); (iii) definition and operationalization of a regulatory mechanism to build a framework for monitoring/evaluation and governance relationships with stakeholders; and (iv) establishment of a public entity tasked with organizing the maintenance of rural water infrastructure using qualified private maintenance operators. In this regard, GoS established the Rural Boreholes Authority (OFOR) in The results obtained in the rural drinking water supply sub-sector are substantial but still insufficient because over 15% of rural households have had no "reasonable" access to drinking water since Improvement of Governance in the Rural Electrification Sub-sector: The principles underpinning the Senegalese rural electrification model, adopted since 2000, are: (i) mobilization of international investors through concession contracts; (ii) promotion of partnerships between national companies and local councils to support development initiatives that provide services to less profitable areas and thus ensure universal access to electricity; (iii) restricting the rural electrification operations of the current operator (SENELEC) to the villages in which it operated prior to introduction of the model (December 2000), in order to avoid competition with private initiatives; (iv) ASER is delegated contractor for rural electrification; (V) the Electricity Sector Regulatory Board (SREC) monitors compliance with contractual obligations and ensures equitable access to electricity. The organizational, technical and financial audit of the sub-sector conducted in 2015 revealed major weaknesses within this model. None of these principles could prevail against a learning process whose duration (over ten years) is indicative of the constraints ASER faces. ASER also experienced managerial weaknesses that prevented it from efficiently eliminating regulatory, fiscal, contractual or political constraints. Analysis of the constraints and mechanisms that led to noncompliance with the abovementioned principles as well as their impact on the institutional and financial sustainability of the sub-sector, led to the recommendation of some necessary reforms to ensure compliance with these principles, to which all stakeholders remain strongly attached Improvement of Governance in the Rural Roads Sub-sector: Transport infrastructure and services are among the sub-sectors that boost wealth creation for poverty reduction in Senegal. State management of the maintenance of unpaved roads is mostly targeted to the classified road network with very few unclassified rural roads prioritised. The delegation of powers to destitute local authorities under Decentralization Act 3 greatly contributed to the accelerated deterioration of rural roads, thus limiting community access to basic social services and markets. The current institutional road maintenance system is based on the Autonomous Road Maintenance Fund (FERA), which is a public entity endowed with financial and managerial autonomy and operating in accordance with the rules of private law. 13

23 The role of the private sector should be further promoted to ensure inclusive development by boosting local entrepreneurship. Through certain actions in the agro-pastoral sector, the PSE seeks to implement an integrated approach to value chain development, sector structuring and support to the local processing industry and other commercially-traded services. The annual average growth rate of the agricultural sector value added would reach 7.6% between 2013 and 2020 and create more jobs in the productive sector. Phase II of Decentralization Act 3 will consolidate this trend by delegating jurisdictional authority in certain economic sectors such as agriculture, in order to substantially reduce rural poverty. In this regard, there are plans to regionalize national policies and especially to establish territorial development centres. These measures are part of an effort to develop the country s resources and its agro-ecological and pastoral potential. In this context, the PSE clearly states that the development of agriculture and the rural economy must be accompanied by the promotion of SME/SMIs. However, the development of rural entrepreneurship is still plagued by three main challenges, namely: (i) the legal and fiscal status of small entrepreneurs, especially on family farms; (ii) uncertainties in land ownership and land-use planning in rural areas; and (iii) the financial constraints undermining SME access to public procurements. Consequently, support is necessary for both smallholders and SMEs in rural areas Recent Government Action: As regards rural water management, GoS signed a public service delegation contract with the contractor SEOH (Société d Exploitation d Ouvrage Hydraulique) amounting to approximately USD 150 million. Studies on DSPs have been launched for the North zone (Louga, Saint-Louis and Matam) and will be finalized by end Furthermore, GoS revised the Sector Policy Letter, giving priority to: (i) the development of drinking water quality; (ii) water management through public service delegations; and (iii) finalization of billing studies and the establishment of a pricing system that is adapted and gradually harmonized based on a suitable equalization model. This revision will facilitate the drafting of the new Policy Letter. With regard to rural electrification and given the community development challenges facing this sub-sector: (a) GoS adopted a National Rural Electrification Programme (PNER) aimed at achieving universal access to energy by 2025 in rural areas; (b) a study to harmonize rates between SENELEC and rural private operators has been launched and will help to establish a uniform price mechanism for local government areas; and (iii) GoS is committed to reforming ASER following the 2015 organizational audit. As concerns rural roads, GoS has undertaken to draft a Sector Policy Letter , including all modes of transport, with a focus on implementing the national rural transport strategy and developing a rural roads maintenance strategy. The main objective of the national rural transport strategy is to improve goods transport conditions and community access to a series of basic social services such as education, health, water, energy, and the supply of agricultural inputs. Operationalization of this strategy will contribute to the structural transformation of the Senegalese economy in accordance with the PSE On local entrepreneurship: (i) the authorities finalized a study in 2015 on the establishment of procurement funds for all SMEs. Although the law governing SMEs reserves a certain quota of government contracts for SMEs, the latter hardly take advantage of this privilege because they are often unable to afford the guarantees currently offered by commercial banks; (ii) an action plan was adopted to improve the rationalization of various support funds set up to boost private initiative; (iii) efforts were made to adapt TELEDAC (building permit) under Decentralization Act 3: this reform entails facilitating the procedures for delegation of powers to local governments; and (iv) GoS has exempted irrigation equipment from VAT in order to facilitate investments in agriculture. GoS also intends to support local private sector development by improving the institutional and regulatory framework, and facilitating access to financing through reforms that focus essentially on land tenure and public procurement funds Reforms Scheduled under the Programme: Firstly, to further boost infrastructure development, the programme supports the following reforms: For rural water management, (i) Preparation of studies for the establishment of a public service delegation for drinking water in the 14

24 North Zone (regions of Louga, Saint Louis and Matam) [Prior action 2 of PARDL - I]; (ii) Elaboration and adoption of a strategic plan for the Rural Boreholes Authority (OFOR) [Prior Action 3 of PARDL - I]; (iii) institution of public service delegation for water supply management in the North Zone [Trigger 3 of PARDL-II]; (iv) conduct of the technical and financial audit of the first leasing contract between OFOR and Société d Exploitation d Ouvrage Hydraulique (SEOH) for the 2015 and 2016 fiscal years [Trigger 4 of PARDL - II]; (v) establishment of a performance contract between the Ministry of Economy, Finance and Planning (MEFP) and the Rural Boreholes Authority; For rural electrification - (vi) operationalization of the action plan for the organizational, technical and financial audit of ASER; (vii) revision of the performance contract between ASER and MEFP; (viii) harmonization of rural electrification rates [Trigger 5 of PARDL-II]; for rural roads - (ix) drafting and adoption of a new Transport Sector Policy Letter ; (x) operationalization of the national rural transport strategy [Prior action 4 of PARDL - I]; and (xi) formulation and adoption of a rural roads maintenance strategy [Trigger 6 of PARDL-II] Secondly, as regards support to local entrepreneurship, the programme backs reforms on contractor status, land policy reforms and access to public procurement through: (i) adoption of the new law on SMEs and modernization of the economy. This new law defines the status of SMEs, covering all the meanings that have hitherto been in use, as well as the status of the contractor and attendant benefits, including for rural SMEs. To develop agribusiness and rural entrepreneurship, it is essential to finalize (ii) the development of the new land tenure policy. To facilitate access to public contracts (national and local) for SMEs, the programme will support (iii) the establishment of the Procurement Fund [Trigger 7 of PARDC II]. Although the law governing SMEs reserves a quota of government contracts for national SMEs, these enterprises often have difficulties honouring the contracts because of the high cost of bank guarantees. This constraint is stronger for SMEs wishing to work with the State and local governments in rural areas. The establishment of this Fund will help to mitigate this difficulty Expected Results: The effective implementation of these reforms is expected to further boost infrastructure development and rural entrepreneurship by: (i) increasing the rural electrification rate from 31.5% in 2015 to 60% in 2017; (ii) improving the rural drinking water access rate from 87.2% in 2015 to 91% in 2017; (iii) improving the rural access index by 5% between 2015 (10%) and 2017 (15%); and (iv) increasing the number of new businesses created or supervised in rural areas. 5.3 Policy Dialogue PARDL is a programme-based operation intended to guide the authorities in the implementation of major structural reforms to create conditions conducive to sustained and inclusive growth in accordance with the PSE. The reform dialogue held under this operation started in October 2015 and will continue until end-2017, with emphasis on the following three points: (i) full empowerment (devolution of authority and transfer of financial resources) for local stakeholders to ensure the effective development of local government areas; (ii) sustainability of public investments in rural areas; and (iii) conditions conducive to better private sector development in rural areas. This dialogue conducted with the Senegalese authorities is transparent, consultative and complementary with the areas of intervention under the BSFA, based on the common matrix of reforms. This dialogue will be technically supported by the Bank s various ongoing and future projects. 5.4 Loan Conditions PARDL-I is the first phase of a series of two programme-based budget support operations. This first phase is conditional on the execution of certain prior actions before the programme is presented to the Board. The preparation of Phase II will be conditional on a series of reforms which are triggers that need to be assessed by June Continuous dialogue will facilitate the monitoring of programme implementation and pave the way for a new series of reforms with the same instrument. 15

25 Prior Actions and Triggers: Based on the dialogue with Senegalese authorities, the measures precedent to Board submission of PARDL-I as well as the triggers of PARDL-II are summarized in Table 5 below: Table 5: Prior PARDL-I Actiona and PARDL-II Triggers Prior PARDL-I Actions Indicative PARDL-II Triggers General Prior Condition: Maintenance of a stable macroeconomic framework, demonstrated by IMF reports or assessments. Proof: True copy of the press release on the conclusion of the last IMF mission (under six months). Trigger 1: PARDL-I performance: Satisfactory evaluation of PARDL-I implementation. Proof: Bank report on the implementation of PARDL-I reforms Component I Strengthen decentralization Prior Action 1: Creation of the Supreme Council for Local Governments. Proof: Press release of the Council of Ministers adopting the bill to establish Trigger 2: Revision of the General Code for Local Governments. Proof: Draft revised Code adopted by CM the Supreme Council for Local Governments Component II Promote Infrastructure Development and Local Entrepreneurship Prior Action 2: Prepare studies for the establishment of a public service delegation for the management of public drinking water in the North Zone. (Regions of Louga, Saint Louis and Matam) for public services. Proof: Final study report approved by the Government. Prior Action 3: Adoption of strategic plan for OFOR Proof: Strategic Plan for OFOR approved by the Ministry responsible for water and sanitation. Prior Action 4: Operationalization of the rural transport strategy. Proof: Order appointing the Executive Secretary for rural transport 5.5 Good Practice Principles for the Application of Conditionality Trigger 3: Institution of the public service delegation for the management of the public drinking water supply in North Zone. Proof: Contracts signed between OFOR and the company for DSPs. Trigger 4: Conduct of the technical and financial audit of the first lease contract between OFOR and Société d Exploitation d Ouvrages Hydrauliques (SEOH) in 2014 and Proof: Provisional technical and financial audit report of the first contract signed by auditors Trigger 5: Adoption of an order on the harmonization of rural electrification rates. Proof: Ministerial order on the harmonization of electricity rates in rural areas. Trigger 6: Preparation and adoption of a maintenance strategy tailored to rural roads. Proof: Strategy adopted by the Council of Ministers. Trigger 7: Establishment of a Procurement Fund. Proof: Circular on the establishment of the Procurement Fund The programme was designed in accordance with the five good practice principles for the application of conditionality. The programme-based approach adopted in this operation is intended to create a flexible and inclusive dialogue framework to enhance the predictability of budgetary resources in order to ensure the successful implementation of structural reforms crucial to Senegal's progress towards emergence. Hence, to better accompany the Senegalese authorities during this programme, the following good practice principles were observed: (i) GoS took ownership of the operation because the programme was designed with the active cooperation of State structures ( 3.3.2), the private sector, and civil society; (ii) there was coordination between development partners to enhance the complementarity of operations executed to support the country s policies under the BSFA; (iii) the programme is fully aligned on the PSE and contributes in supporting the country's efforts to create conditions conducive to robust, sustainable and inclusive economic growth; (iv) the conditions precedent to Board presentation ( 5.4) and triggers for Phase II of the program are realistic and achievable, and were adopted by the Senegalese authorities during the appraisal. Furthermore, (v) PARDL-I is aligned on the budget cycle, thus enabling GoS to include it in its budget forecasts for 2016 and

26 5.6 Financing Needs and Modalities This programme-based budget support operation is part and parcel of the external sources of financing that will be used to close the financing gap of the 2016 and 2017 fiscal years. Over the programme implementation period, Senegal's financing needs for the 2016 and 2017 fiscal years stand at CFAF 372 billion and CFAF 349 billion, respectively (Table 7). In 2016, the budget deficit is scheduled to be financed through recourse to domestic financing amounting to CFAF 54 billion and external financing amounting to CFAF 318 billion (including CFAF 75 billion, or approximately 24%, in the form of budget support loans). In 2017, the budget deficit is scheduled to be financed through external resources to the tune of CFAF 453 billion, including budget support loans worth CFAF 81 billion, or approximately 18%, as well as domestic Table 7: Financing Needs (in CFAF billion) Total revenue, including: 2,176 2,325 Tax revenue 1,779 1,876 Other revenue Total expenditure, including 2,548 2,674 Current expenditure 1,504 1,516 Overall deficit Financing, including Domestic financing External financing including loans including budget support including AfDB FINANCING GAP 0 0 Source: IMF Report No. 16/144 of June 2016 resources amounting to CFAF 104 billion. The Bank contributes up to 8.9% and 1.8% of external financing for 2016 and 2017, respectively. 5.7 Application of Bank Group Policy on Non-Concessional Loans Accumulation The principles governing the Bank s policy on non-concessional loans are applied and respected under this operation. The latest debt sustainability analysis of December 2015 found that the debt was sustainable, with a low debt distress risk. At the Bank s level, Senegal is eligible to ADF window and ADB public sector and private sector window resources on a case by case basis. The resources of this programme-based operation will come from ADF-13 (Phase I) and ADF-14 (Phase II). VI. IMPLEMENTATION, MONITORING AND EVALUATION 6.1. Programme Beneficiaries PARDL-I will benefit the entire Senegalese population. The indirect and direct beneficiaries of the programme are rural communities within Senegal s various local government areas. The programme reforms will improve the management of local councils through better management of the devolution of powers under Decentralization Act 3. They will also facilitate access to basic social services such as education, health, water and electricity through improved sector governance, thereby ensuring the quality and sustainability of key infrastructure. Furthermore, efforts to promote local entrepreneurship will facilitate the development of commercial and productive agriculture. These reforms will improve the institutional framework to enhance the implementation of development projects in the same areas, such as the PUDC financed by GoS and the Bank s "Integrated Project" which is being studied. The majority of the programme's direct beneficiaries are women and the youth whose income will be improved Impact on Gender Issues, the Poor and Vulnerable Groups The implementation of PARDL reforms will boost community development and consequently improve living conditions for vulnerable groups in general, and women in particular. Such improved decentralization will essentially increase the effectiveness of government action in promoting inclusion as well as territorial and social equity. Rural community access to basic infrastructure will be improved through better governance of infrastructure financing and management Impact on Gender: Overall, the programme will reduce gender inequalities in Senegal. The economic empowerment of women remains fundamental to the promotion of sustainable and equitable development in local government areas. Hence, the effective implementation of reforms will create conditions conducive to the development of income-generating activities mainly for women in rural areas, by improving the living conditions of rural communities. Supporting land reform will improve 17

27 access to land ownership for women. This major programme will contribute to the creation of new rural businesses by women, reduce inequality between urban and rural areas, and curb rural exodus Impact on the Environment and Climate Change The programme is a general budget support whose reforms have no impact on the environment and climate change. It was classified under Category III Implementation, Monitoring and Evaluation PARDL will be implemented by the Ministry of Economy, Finance and Planning (MEFP). Overall responsibility for programme implementation lies with MEFP. Within MEFP, routine programme management is ensured by the budget support monitoring committee, chaired by a technical advisor responsible for budget support and macroeconomic policy, as well as the Economic Policy Coordination and Monitoring Unit (UCSPE) at the Directorate for Planning and Economic Policy (DGPPE) is secretariat. This unit is the BSFA focal point for GoS. Thus, it has already successfully managed and coordinated previous programmes financed by the Bank and other TFPs. Furthermore, PARDL will also be monitored in accordance with BSFA provisions. Through BSFA, the Government and TFPs that signed the Arrangement agreed on a matrix that brings coherence and complementarity to the structural reforms of all TFPs and to the joint periodic reviews that involve representatives of structures tasked with implementing these reforms Financial Management and Disbursement Country Fiduciary Risk Assessment (CFRA): The fiduciary risk assessment conducted by the Bank in 2016 found that the fiduciary risk is moderate. Fiduciary risk assessment analyses public finance management components through the budget preparation and implementation process, cash management, accounting and reporting, internal audit, external audit and corruption (TA 2). On the whole, apart from internal and external controls that still need further improvement, public finance management reform in Senegal is tending towards greater transparency and efficiency, with resultsbased management. However, significant efforts are needed to meet the deadline of 1 January 2017, set for the complete implementation of WAEMU guidelines on the harmonized framework for public finance management. Since the country's overall initial fiduciary risk is moderate, the Bank has adopted a strategy based on the comprehensive use of public finance management systems, on condition that the mitigation measures identified during appraisal of CSP (see TA 2) are implemented Financial Management, Audit, Disbursement and Procurement Mechanism: As concerns financial management and in accordance with the strategy defined for the CSP period, PARDL will be managed entirely within the national public finance management system. Disbursement forecasts for the 2016 and 2017 fiscal years should be included separately in the (initial or amending) budget act under external funding. This has so far been the case under the 2016 budget act as regards PARDL-I. Thus, with regard to audit, the general compliance report prepared by the Court of Auditors for the accounts of 2016 and 2017 will serve as the programme s audit report. It would be communicated to the Bank for each fiscal year whenever it is transmitted to the National Assembly. In terms of disbursement, the Phase 1 loan (PARDL-I) will be disbursed as a single tranche of UA million into a Treasury account opened in the books of the national branch of BCEAO in Senegal, to finance budget execution for the 2016 fiscal year. Lastly, concerning procurements, since this is a budget support operation, its implementation does not directly involve the procurement of goods and services. The Bank's assessment of the public procurement system in Senegal in 2015 found that it was largely consistent with the AfDB procurement policy, albeit with moderate risk due to a number of challenges that need to be addressed (TA 3). 18

28 VII. LEGAL INSTRUMENT AND AUTHORITY 7.1. Legal Instrument The legal instrument to be used under the programme is the Loan Agreement between the Republic of Senegal (Borrower) and the African Development Fund (the Fund) Conditions Associated with Bank Intervention Conditions Precedent to Loan Effectiveness: The loan agreement shall become effective subject to the Borrower s fulfilment of the conditions provided for in Section of the Bank s General Conditions for Loan Agreements and Guarantee Agreements Conditions Precedent to Disbursement of Resources: Apart from the effectiveness conditions stipulated in paragraph above, disbursement of the loan resources, amounting to UA million, shall be subject to the submission of details of the Public Treasury account opened at the Central Bank of West African States (BCEAO) in Dakar, to receive loan resources A simplified appraisal report will be prepared for PARDL Phase II in 2017 and presented to the Boards for approval. This report will include the relevant prior actions taken by the Senegalese authorities prior to Board submission. A separate loan agreement will be prepared for PARDL Phase II in Compliance with Bank Group Policies PARDL-I complies with Bank Group policies and guidelines on programme-based support. It tallies with the operational priorities of the Bank's Ten-Year Strategy , the five operational priorities of the Bank High 5s and CSP No exemption from Bank Guidelines is requested under this operation. VIII. RISK MANAGEMENT 8.1. The main risks that could affect programme implementation are: (i) Risk 1 - The technical capacity to conduct major structural reforms (low); (ii) Risk 2 - Compliance with the implementation schedule of proposed reforms (low); (iii) Risk 3 - Stability of the macroeconomic environment which is sensitive to oil price trends (low); and (iv) Risk 4 - The security situation in West Africa (medium). The attendant mitigation measures are: (i) Measure 1 - Senegal already has longstanding experience in reform formulation and adequate human resources to implement reform. Moreover, the various forms of technical support from development partners will also mitigate the risk; (ii) Measure 2 - Most of the proposed actions and reforms have already been scheduled and some are already underway; (iii) Measure 3 - GoS is committed to carrying on with economic diversification under the PSE and implementing the necessary reforms with support from partners; and (iv) Measure 4 - This risk can be mitigated through a pooling of initiatives at the regional and international level. IX. RECOMMENDATION 9.1. This programme-based reform support operation is intended to accompany Senegalese authorities in creating conditions conducive to more inclusive and sustainable growth in line with the Emerging Senegal Plan. Therefore, it is recommended that the Board of Directors of the African Development Fund approve a loan of UA million, as general budget support within a programme-based framework for the Republic of Senegal, to finance Phase I of the Local Development Reform Support Programme (PARDL-I). 19

29 Annex 1 Government s Letter of Economic Policy REPUBLIC OF SENEGAL One People - One Goal - One Faith MINISTRY OF ECONOMY, FINANCE AND PLANNING LETTER OF DEVELOPMENT POLICY I. Introduction Senegal has drafted and adopted its economic and social development strategy, the Emerging Senegal Plan (PSE), with the support of technical and financial partners. These are integrated policies and programmes that reflect the Government's political will to place Senegal on the path to development and to address the people's basic concerns. The objective is to guarantee the conditions for sustained, inclusive and sustainable growth that is conducive to substantial poverty reduction and achievement of the Sustainable Development Goals (SDGs). Senegal s economic and social development requires the implementation of a strategy that yields economic growth enough to generate a strong positive impact on the living conditions of the people, while addressing the need to streamline public finances and maintain the public debt at sustainable levels. In this regard, the major challenge focuses on economic recovery in a context of virtuous effective and efficient governance. The PSE focuses on the three strategic pillars, namely: (i) growth, productivity and wealth creation; (ii) human capital, social protection and sustainable development; and (iii) governance, institutions, peace and security. Furthermore, to strengthen public policy dialogue with its development partners, and streamline their operations to achieve better alignment and predictability, the Government holds periodic meetings with the G50 group of technical and financial partners as well as a joint annual review. This Letter summarizes recent economic and social performance as well as Senegal's prospects. II. Preliminary Results for 2015 Internally, implementation of the Emerging Senegal Plan has been beneficial to the national economy. Economic activity clearly picked up again in 2015, with real GDP growth estimated at 6.5% compared to 4.7% in This positive trend stems essentially from the combined performance of the agricultural sub-sector and the renewed dynamism of the secondary sector. The agricultural sector benefitted from several factors including: (i) implementation of the agricultural programme characterized by the introduction of inputs and the mastery of technical means of production; and (ii) abundant rainfall that is well distributed over time and space. The dynamism of the secondary sector stems from the good performance of the refining, chemical, cement, energy and construction sectors. Meanwhile, the services sector has turned out to be less effective, due to the slowdown in the posts and telecommunications sector and challenges in the tourism sector. With regard to inflation, the consumer price level has remained weak (- 0.1 percent), reflecting the decline in world prices. The current account deficit improved thanks to the robust performance of exports and weak oil prices. I

30 The budget deficit target of CFAF 389 billion (4.8% of the revised GDP) was respected. The Government continued to streamline public spending to promote investments in human capital, public infrastructure and community development. III. Macroeconomic Policy and Structural Reforms for The main objective is to establish conditions conducive to a more robust and shared growth that leads to significant poverty reduction. In 2016, the GDP growth rate was projected to be 6.6%. To achieve this goal, the Government must step up the pace of implementation of projects and PES reforms, especially in the energy, agriculture (rice and market gardening sub-sectors), tourism, mining and infrastructure sectors. Moreover, the implementation of major projects announced in Diamniadio (exhibition park, 5-star hotel, knowledge city, Moctar Amadou Mbow University, etc.) should be accelerated. There is also need to create conditions that open up economic space for SMEs and FDI. The objective is to promote a regulatory environment conducive to business, including an appropriate tax regime. A. Macroeconomic Policy Senegal s macroeconomic outlook over the period is generally well-oriented. Real GDP growth should gradually pick up to reach 6.6% in Inflation should remain within the range of 1% to 2%. The current account deficit (as a percentage of GDP) should stand at 6.2% of GDP in 2016 and decline thereafter, and above all, be increasingly financed by foreign direct investments (FDI). The budget deficit target is set at CFAF 372 billion in 2016 or 4.2% of GDP. It should be maintained at approximately 3%, starting from The debt ratio (total external and domestic public debt) should stand at approximately 50% of GDP in To meet its public deficit targets, the Government intends to boost revenue collection by broadening the tax base, significantly improving public spending efficiency in the social and infrastructure sectors, and containing fiscal risks. However, capital expenditure must specifically be increased to support inclusive growth through various community development programmes. This will entail creating a favourable environment for income-generating activities and improving community living conditions in rural areas. B. Structural Reforms B.1. Budget and Procurement Reforms The Government will continue with its fiscal reform efforts to improve public spending productivity, increase budget transparency and strengthen the appraisal, monitoring and accounting of fiscal risks. It will continue to implement reforms aimed at improving budget planning and preparation, transparent budget execution and ex poste control by the National Assembly. It will further strengthen the external control of budget implementation. In this regard, the Government submitted the 2013 Audited Budget to the National Assembly and the 2014 management accounts to the Court of Auditors. Completion of the interface between the Integrated Public Finance Management System (SIGFIP) and ASTER (the Public Treasury accounting software) has significantly reduced the timeframe for preparing management accounts and draft audited budgets. Furthermore, the Government has increased the resources and independence of the Court of Auditors and, to that end, has had the National Assembly adopt a new organic law on the Court of Auditors in 2012 and a law on the status of the judges of the said Court. The annual reports of the Court are regularly published and the accounts of public accountants are audited. II

31 The Government plans to increase the effectiveness of investments. To this end, it will develop strict criteria for the selection and prioritization of projects. All project proposals will be registered in a project data bank and rigorous analysis conducted before a project is included in the budget. Projects that have been studied will henceforth be given priority in the Consolidated Investment Budget (BCI). Improving the effectiveness of investments in financial and nonfinancial assets is also a major concern. The State portfolio certainly has many strategic assets but it is not managed through a comprehensive approach. To remedy this situation, the strategy for managing the State portfolio and public enterprises, accompanied by an action plan, will be finalized later in the year. The Government will conduct a preliminary appraisal of all projects funded through publicprivate partnerships (PPP), pursuant to the law on partnership contracts and its implementing decree. The Government will use the best criteria for analysing the budgetary implications of all such projects and to ensure their fiscal sustainability. MEFP will take the necessary measures to determine the financing arrangements for PPPs and ensure that the operational risks of these projects are supported by private operators who win contracts. Fiscal policy debate between the Government and the National Assembly always precedes presentation of the budget. All WAEMU directives have now been incorporated and their effective implementation will begin in B2. Other Structural Reforms The Government intends to promote the private sector, which is the vector of value-added and emergence by: (i) creating an economic area under the PSE with regulations that are favourable to business, including a tax system with moderate tax rates and minimum tax expenditures; (ii) continuing the dematerialization of administrative procedures and ensuring facilitation to speed up traffic in the industrial area; reviewing constraints related to the registration of new vehicles and to the drafting of legal instruments for the security sector, etc.; (iii) ensuring that the guidance or contribution of customs services to the improvement of the business environment continues through finalization of the discharge tax ticket (ticket libératoire) project which has two components, namely: signature of the Ministerial Order; and installation of the IT platform for its implementation. Hence, as concerns access to credit, credit information bureaus (BIC) have been operational since 1 February A public communication strategy is being prepared to facilitate securing the consent of clients from reporting institutions. Furthermore, to facilitate access to financial services, the Government undertakes to: (i) fully implement the financial education programme for SMEs; (ii) continue discussions with the private sector and labour unions for payment of salaries higher than CFAF 100,000 through bank accounts or by any electronic means; (iii) work with technical and financial partners and BCEAO to continue promoting financial inclusion through the development of a national financial inclusion strategy and digitalization of some Government payments. The Government will further consolidate the financial sector by finalizing procedures for the effective intervention of 6 (six) accredited treasury stock experts (TSE). These new financial market stakeholders should help to facilitate the issuance of Government securities by the Treasury and to stimulate the secondary stock market. III

32 A national committee was established to enhance the stability of the financial system. The Committee's work in 2015 focused on the quality of bank portfolios and decentralized finance systems (SFD); for 2016, the issues would relate to concentration risk and the development of electronic money. The Government will set up a Fund known as the Hotels and Tourism Fund to support the revival of the tourism sector. This Fund will be operational from The relevant institutional framework was finalized through the signature of the ministerial order setting up the mechanism and the ministerial order setting up the Technical Committee tasked with determining the admissibility of requests for financing prior to review by the Credit Committee. Implementation of the Business Environment and Competitiveness Reform Programme (PREAC) is continuing. Senegal renovated and harmonized the main codes governing its legal framework (Customs Code, General Tax Code, and Civil Procedure Code) and the law governing public-private partnerships to comply with best practices. Apart from the simplification of texts and streamlining of administrative procedures, the Government has worked on lowering transaction costs. Sector reforms were also carried out in the tourism sector (extension of the reduced VAT to all activities of the sector; halving of State levies on airline tickets) and the agricultural sector (suspension of VAT to facilitate the installation of reference investors). The second phase of PREAC, scheduled for the period, will be the opportunity to complete reforms aimed at reducing factor and intermediation costs in the sector, including port and electricity services. It will also make it possible to finalize the structural measures in the field of land tenure, commercial law and labour law, and to further dematerialize procedures by popularizing electronic filing and payment of taxes with a view to enhancing the efficiency of a renovated public service. C. Sector Support Policies for Grassroots Communities The Emerging Senegal Plan (PSE) seeks to reduce social inequalities by correcting local disparities in access to basic services. Since poverty is multidimensional in character, access to socio-economic infrastructure, health, education, water and sanitation, as well as funding, will have a direct leverage effect on the quality of life. Access also determines the range of economic opportunities available to grassroots communities. The PSE places emphasis on a policy of decentralization and increased good governance. To address all the challenges related to the sustainable improvement of living conditions of its people, Senegal has mapped out an economic and social transformation agenda built on bold sector policies that partly concern grassroots communities. (a) RURAL ELECTRIFICATION For rural electrification, within the context of universal access to energy defined in the Emerging Senegal Plan (PSE), the Government undertook to achieve an intermediate rural electrification rate target of 60% in 2017, with at least 30% per département. This target is based on three pillars: (i) implementation of the six rural electrification concessions already awarded; (ii) implementation of "Local Initiative Rural Electrification Projects"; and (iii) the National Emergency Rural Electrification Programme. The Rural Electrification Concessions (CER) are implemented under the Priority Rural Electrification Programme (PPER) monitored by the Senegalese Rural Electrification Agency (ASER). Six (6) of the 10 (ten) CERs in the country have already been awarded to private operators selected through international competitive bidding. For the 4 remaining concessions, IV

33 namely Matam-Kanel-Bakel- Ranérou; Rufisque-Thiès-Tivaouane-Bambey-Diourbel-Mbacké; Foundiougne; and Ziguinchor-Oussouye-Bignona-Sédhiou, studies have already been conducted and the necessary financing sought from technical and financial partners. As regards "Local Initiative Rural Electrification Projects", four of them are being implemented, namely: ERSEN 2, Ouwens, SolarKa and Inensus. The ERSEN 2 Project remains the largest, with 193 communities expected to be electrified in the long-term at the cost of CFAF 5.6 billion. The National Emergency Rural Electrification Programme (PNUER) seeks to achieve universal access to electricity by 2025 with an intermediate target of 60% in rural areas by It should also be noted that an organizational, technical and financial audit of ASER will be conducted. Its compliance with the law on agencies will be ensured by decree and a new organizational structure will be also adopted by its deliberative bodies. (b) DECENTRALIZATION In the area of decentralization, the option adopted is to engage in consensual and forwardlooking dialogue to revive the modernization of the State through decentralization that is consistent in its principles and robust in its implementation. Moreover, the Government plans a major overhaul of the State's territorial organization through the proposed decentralization reform. The general objective of this reform, termed Decentralization Act 3, is to organize Senegal into territories that are viable, competitive, and conducive to sustainable development. This reform is rooted in real land-use planning policy and based on realization of the aspirations and hopes of territorial stakeholders to develop the territory. It offers adequate space to lay the foundation for territorialisation of public policy. It has four basic objectives: ensure territorial coherence within the renovated administrative architecture; clarify areas of jurisdiction between the State and local governments; develop contractualization between these two decision-making levels; and modernize territorial governance, with the reform of local finance and steady development of the quality of human resources. Given its complexity and crucial content for the future of our country, Decentralization Act 3 will be implemented gradually and in two phases. The first phase will entail: abolishing the region as a local government entity; upgrading départements into local government areas; engaging in full municipalization by upgrading rural and district councils into municipalities; creating city councils in order to pool the resources of the constituent municipalities; and V

34 distributing the nine areas of delegated jurisdictional authority between the two types of local governments, namely the département and the municipality. A second phase of the reform will focus on the delegation of new jurisdictional authority that is essentially economic, and increased funding through promotion of the local tax system and an increase in State budget allocations to decentralization. The implementation of such reform justifies the adoption of a new Local Authorities Code and the establishment of a Supreme Council for Local Governments. (c) RURAL ROADS The State of Senegal has focused its development strategies on the construction of socioeconomic infrastructure aimed at improving access to basic social services for rural communities. This initiative is supported at the level of the Ministry of Infrastructure through the construction and maintenance of farm-to-market roads. Construction work is programmed in accordance with the National Rural Roads Programme (PNRR) and the planning of national action is based on: the recommendations of Decentralized Councils of Ministers; the requests of local governments, the people and/or their representatives; the work programmes submitted by the Regional Directorates of AGEROUTE; and the state of the road network as established from summary inspection. The ultimate goal of the National Rural Roads Programme (PNRR) is to promote the balanced economic and social development of rural areas by opening up access to rural communities and improving the circulation of goods and people as well as access to basic infrastructure and social services. The specific objective of the programme is to significantly increase access to the rural areas of Senegal. A strategic framework for rural transport has been set up and an Executive Secretary appointed. (d) Rural Water Management This policy is based mainly on the development of water services to guarantee universal access to drinking water, while reducing precarious water sources and striving to improve service quality, including enhancing water quality and promoting better sector governance. In this regard, the Government of Senegal saw the need to ensure the sustainability of investments in the rural water management sub-sector and opted for greater private sector involvement (publicprivate partnerships) in the process. Hence, Law No created the Rural Boreholes Authority (OFOR) and paves the way for private sector participation in rural water supply management through public service delegations (DSPs). Accordingly, a technical and financial audit of the first outsourcing contract between OFOR and Société d Exploitation d Ouvrages Hydrauliques (SEOH) will be conducted in 2014 and VI

35 Hence, to achieve its mission, the Ministry of Water Supply and Sanitation (MHA), responsible for implementing the regulatory framework for the water management sector, has distributed roles in the rural water supply sub-sector as follows: The definition of sector policy, the allocation of water resources, and the development of investments have been entrusted to the Directorate for Water Management (DH); and Facilities management, infrastructure renewal and expansion, control and monitoring of the quality of operations are the responsibility of OFOR, with which the MHA has signed a performance contract. Lastly, in an effort to satisfy growing social demand and ensure overall coherence, the Government of Senegal, with the technical support of the UNDP, decided to develop and implement an Emergency Community Development Programme in rural areas. The purpose of this programme is to promote endogenous, integrated and sustained economic growth in order to reduce inequalities in access to social services between urban and rural areas. The project has four components: (i) development of basic socio-economic infrastructure; (ii) improvement of rural, agricultural and livestock production; (iii) strengthening of the institutional capacity of local stakeholders; and (iv) development of a geo-referenced information system. VII

36 Annex 2 Republic of Senegal - Local Development Reform Support Programme (PARDL) Matrix of Programme Reforms Objectives 2016 Reforms 2017 Reforms Output Indicators Impact Indicators Component I Strengthen Decentralization Prior action - Creation of the Supreme Council for Local Governments to supervise the implementation of the reform of Decentralization Act 3 in its second phase Minutes of the Council of Ministers adopting the bill to establish the Supreme Council for Local Governments before end-august 2016 Improvement of the institutional and regulatory framework Strengthening of the mechanisms for financing decentralization Development and adoption of the Decentralization Charter with a view to ensuring the territorialisation of public policy Trigger - Revise the General Local Authorities Code Assess the status of implementation of the powers devolved to the LAs Transposition of the WAEMU directive on the financial regime of local authorities Clarification of the distribution criteria for Decentralization Allocations Fund (FDD) and the Local Authorities Equipment Fund (FECL) Component II Promote Infrastructure Development and Local Entrepreneurship Preparation and adoption of the Improvement of 2030 Water and Sanitation Sector governance in the Policy Letter Minutes of the Council of Ministers adopting the revised draft General Code before end-june 2017 Report of the study examined by the National Steering Committee of Decentralization Act 3 before end-june 2017 Decree defining the Decentralization Charter before the end December 2016 Decree defining the transposition of the Directive signed before end of June 2017 Decree to determine the distribution criteria of the FDD and FECL criteria before end-june 2017 Letter signed by the Ministers concerned before end-december 2016 Rate of fiscal devolution to local councils (% of expenditure) Reference - 1.5% in 2015; Target - 2% in 2017 Rural electrification rate VIII

37 water management sub-sector Improvement of governance in the rural electrification sub-sector Prior action - Adoption of strategic plan for OFOR Prior action - Prepare studies for the establishment of a public service delegation for the management of public drinking water in the North Zone Operationalization of the action plan for the technical and financial audit of ASER Preparation and adoption of a Strategic Development Plan for ASER, that will accompany the performance contract Trigger - Conduct of the technical and financial audit of the first lease contract between OFOR and Société d Exploitation d Ouvrages Hydrauliques (SEOH) in 2015 and 2016 Trigger - Institution of public service delegations for the management of the public drinking water supply in the South Zone and North Zone Revision of the performance contract between ASER and MEFP Strategic Plan for OFOR approved by the Ministry responsible for water and sanitation before end August 2016 Final technical and financial audit report of the first contract approved by OFOR before end-june 2017 Final studies report approved by the Government before end August 2016 Contracts signed between OFOR and companies for the DSP before end-june 2017 (i) Adoption of the decree to ensure compliance between ASER and the Law on Agencies; and (ii) adoption of ASER s new organization chart by the deliberative organ before end December 2016 Strategic plan approved by the Ministers concerned (Minister in charge of Energy and Development of Renewable Energies, Minister of Economy, Finance and Planning) before end-december 2016 Reference: 31.5% in 2015; Targets: 60% in Rural drinking water access rate Reference: 87.2% in 2015; Target: 91% in 2017 Number of new rural microenterprises established or supervised (proportion belonging to women): 4 Reference: 0 in 2015 ; Target: 500 companies including 150 by women. Performance contract signed between ASER and MEFP before end-june This indicator on the number of businesses in rural areas is linked to the activities of the Integrated Emergency Community Development Programme (PUDC) whose implementation this reform operation intends to facilitate through sustained reforms. IX

38 Study on the harmonization of rural electrification rates Trigger - Adoption of an order on the harmonization of rural electrification rates Report of the study on the harmonization of rural electricity rates signed by consultants and approved by the Government before end-december 2016 Improvement of governance in the rural roads subsector Promotion of local entrepreneurship Preparation and adoption of the new Transport Sector Policy Letter Prior action - Operationalization of the rural transport strategy. Preparation and submission to the Government of the new land policy Trigger - Preparation and adoption of a maintenance strategy tailored to rural roads Adoption of the bill on SME development and modernization of the economy Adoption of the new land policy Trigger - Establishment of a Procurement Fund. Ministerial order on the harmonization of electricity rates in rural areas before end-june 2017 Letter signed by the Ministers concerned before end-december 2016 Strategy adopted by the Council of Ministers before end-june 2017 Order appointing the Executive Secretary for rural transport before end- August 2016 Bill adopted by the Council of Ministers and sent to Parliament before end-june 2017 Signed Act of transmission of the draft document on the new land policy to the Government before end-december 2016 Adoption of the policy before end-june 2017 Circular on the establishment of the Procurement Fund before end-june 2017 Rural access index (transport) Reference: 10% in 2015 Target: 15% in 2017 X

39 Annex 3 NOTE ON RELATIONS WITH THE IMF Press Release: IMF Executive Board Completes Second Review Under the Policy Support Instrument (PSI) for Senegal May 27, 2016 Press Release No. 16/247 of 26 March 2012 The Executive Board of the International Monetary Fund (IMF) completed the second review of Senegal s economic performance under a programme supported by the Policy Support Instrument (PSI). 1 The PSI for Senegal was approved on June 24, 2015 (see Press Release No. 16/247). Following the Executive Board discussion, Mr. Mitsuhiro Furusawa, Deputy Managing Director and Acting Chair, made the following statement: The Policy Support Instrument has buttressed strong macroeconomic performance, with growth increasing from 4.3 percent in 2014 to 6.5 percent in 2015 and Inflation remains low, and maintaining the 2016 fiscal deficit target of 4.2 percent of GDP will support reaching the West African Economic and Monetary Union s convergence criteria of 3 percent of GDP one year earlier than the mandated The authorities recognize that raising growth rates to 7 to 8 percent over the 20-year period of the Plan Sénégal Emergent requires steadfast action to reduce patronage and rent-seeking so as to open economic space to small and medium enterprises (SMEs) and foreign direct investment (FDI). Accordingly, they have cancelled Senegal Airlines flying rights, closed five public agencies with no formal existence, taken steps to improve the business environment, promoted agricultural development, and reformed university scholarships. The elimination of energy subsidies in the 2016 budget should become the norm as reforms to boost electricity generation and lower costs accelerate. These reforms signal improving economic governance while positively impacting public finances. The authorities are also rebalancing public expenditure towards investment in human capital and public infrastructure, accelerating efforts to curtail tax expenditures, and strengthening the efficiency of public expenditure, including by controlling subsidies and the wage bill. The authorities are establishing a special economic zone to promote good economic governance where SMEs and FDI could thrive. They are exploring the appropriate governance structure to ensure the required business-friendly regulatory framework and a tax regime that is easy to comply with and has reasonable tax rates as well as limited and rules-based tax expenditures. Risks remain to the planned fiscal consolidation, together with external risks of slow growth in partner countries, continued volatility in oil prices, and potential spillovers from regional shocks. These risks are mitigated with a planned strengthening of fiscal anchors and expansion of the precautionary reserve envelope.» XI

40 % Annex 4: Key Economic Indicators Senegal Selected Macroeconomic Indicators Indicators Unit (e) 2016 (p) National Accounts GNI at Current Prices Million US $ GNI per Capita US$ GDP at Current Prices Million US $ GDP at 2000 Constant prices Million US $ Real GDP Growth Rate % 3,2 1,8 4,4 3,5 4,3 5,1 6,0 Real per Capita GDP Growth Rate % 0,7-1,3 1,2 0,3 1,1 1,9 2,9 Gross Domestic Investment % GDP 20,5 25,6 29,2 27,6 24,9 24,7 24,9 Public Investment % GDP 4,5 6,1 6,2 6,2 6,8 6,8 6,9 Private Investment % GDP 16,0 19,6 23,0 21,4 18,1 17,9 18,0 Gross National Savings % GDP 14,6 17,8 18,7 16,8 17,8 20,2 20,4 Prices and Money Inflation (CPI) % 0,7 3,4 1,4 0,7-0,5 0,0-0,4 Exchange Rate (Annual Average) local currency/us$ 712,0 471,9 510,5 494,0 494,4 591,4 603,1 Monetary Growth (M2) % 56,5 6,9 6,3 6,3 13,5 5,9... Money and Quasi Money as % of GDP % 33,5 55,6 55,3 58,3 64,0 65,6... Government Finance Total Revenue and Grants % GDP 18,7 22,5 23,3 22,7 26,8 25,3 25,9 Total Expenditure and Net Lending % GDP 18,2 29,2 29,2 28,2 32,3 29,9 29,9 Overall Deficit (-) / Surplus (+) % GDP 0,5-6,7-5,8-5,5-5,2-4,6-4,1 External Sector Exports Volume Growth (Goods) % -12,1 32,1 2,1 13,1 3,7-11,4 7,3 Imports Volume Growth (Goods) % -4,5 14,0 4,8 5,2 3,9-10,4 5,8 Terms of Trade Growth % -1,4 2,9 2,5-7,3-1,8-4,0-1,2 Current Account Balance Million US $ Current Account Balance % GDP -7,0-8,0-10,7-10,5-9,0-8,1-6,0 External Reserves months of imports 2,7 3,6 3,6 3,7 3,4 4,0... Debt and Financial Flows Debt Service % exports 19,3 13,7 7,6 6,9 10,7 9,0 10,7 External Debt % GDP 81,0 53,0 62,3 70,0 79,4 78,5 77,9 Net Total Financial Flows Million US $ Net Official Development Assistance Million US $ Net Foreign Direct Investment Million US $ ,0 6,0 5,0 4,0 3,0 2,0 1,0 Real GDP Growth Rate, Inflation (CPI), ,0-2,0-4,0-6,0-8,0-10,0-12,0-14,0 Current Account Balance as % of GDP, , , Source : AfDB Statistics Department; IMF: World Economic Outlook, October 2015 and International Financial Statistics, October 2015; AfDB Statistics Department: Development Data Portal Database, March United Nations: OECD, Reporting System Division. Notes: Data Not Available ( e ) Estimations ( p ) Projections Last Update: April 2016 XII

41 Annex 5: Map of Senegal XIII