Senegal - Fourth Structural Adjustment Program Project

Document of The World Bank FOR OFFICIAL USE ONLY Ct~. 2 090 -S C- Report No. P-5185-SE REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT OF SDR 62.4 MILLION TO THE REPUBLIC OF SENEGAL FOR A STRUCTURAL ADJUSTMENT PROGRAM (SAL IV) JANUARY 17, 1990 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit - CFA franc (CFAF) US$1.00 m CFAF 316 (November 14, 1989) CFAF 1 million - US$ 3167 (November 14, 1989) SYSTEM OF WEIGHTS AND MEASURE: METRIC Metric U.S. Eauivalent 1 meter (m) . 3.28 feet (ft) 1 kilometer (km) . 0.62 miles (mi) 1 square kilometer (km2) - 0.39 square mile (sq mi) 1 hectare (ha) . 2.47 acres (a) 1 metric ton (t) 2,205 pounds (lb) 1 kilogram (kg) - 2.2046 pounds (lb) FISCAL YEAR July 1 - June 30 ABBREVIATIONS AND ACRONYMS ACC : Agent Comptable Central (Central Accounting Agency) BCEAO : Banque Centrale des Etats de l'Afrique de l'Ouest (Central Bank) BCH : Bureau d'Organisation et Methodes (Bureau of Organization and Methods) COUD : Centre des Oeuvres Universitaires de Dakar (University Services) CP : Contrat-Plan (Contract Plan) CSP : Cellule du Secteur Parapublic (Parapublic Sector Cell) CSS : Compagnie Sucriere Senegalaise (Sugar Factory) DCS : Direction Centrale de la Solde (Central Payroll Directorate) DFP : Direction de la Fonction Publique (Civil Service Directorate) DGID : Direction Generale des Imp8ts et des Domaines (Tax Department) DIRE : Delegation a l'Insertion, a la Reinsertion et a l'Emploi DRSP : Delegation a la Reforme du Secteur Parapublic EP : "Etablissement Public' LDP : Letter of Development Policy PAGD : Projet d'Appui a la Gestion du Developpement (Development Management Project) PE : Public Enterprise UMOA : Union Monetaire de l'Ouest d'Afrique (West African Monetary Union) SAR : Societe Africaine de Raffinerie (Oil Refinery) SME : Small- and Medium-Scale Enterprises SOCOCIM : Societe Commerciale des Ciments (Cement Company) ZFID : Zone Franche Industrielle de Dakar (Industrial-Free Zone)  FOR OFFICIAL USE ONLY REPUBLIC OF SENEGAL FOURTH STRJCTURAL ADJUSTMENT CREDIT (SAL IV) Table of Contents Credit and Program Summary . . . . . . . . . . . . . . . . . . . . . i I. THE ECONOMY . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Recent Developments . . . . . . . . . . . . . . . . . . . . . . 1 Prospects and Financing Needs . . . . . . . . . . . . . . . . . 4 II. THE GOVERNMENT'S STRUCTURAL ADJUSTMENT PROGRAM ANn BANK SUPPORT 6 The Government's Medium-Term Program . . . . . . . . . . . . . . 6 Bank Support to the Government's Adjustment Effort . . . . . . . 7 III. SAL IV PROGRAM 1989-92 . . . . . . . . . . . . . . . . . . . . . 9 A. Public Finances and Investment Programming . . . . . . . . . 9 B. Incentives for Private Sector Development . . . . . . . . . . 12 C. Parapublic Sector Reform . . . . . . . . . . . . . . . . . . 22 D. Civil Service Reform . . . . . . . . . . . . . . . . . . . . 32 E. Social Dimension of Adjustment . . . . . . . . . . . . . . . 39 IV. THE PROPOSED OPERATION . ... . . . . . . . . . . . . . . . . . . 40 iinancing and Management of the Program . . . . . . . . . . . 40 Benefits and Risks . . . . . . . . . . . . . . . . . . . . . . . 46 V. BANK GROUP STRATEGY AND OPERATIONS . . . . . . . . . . . . . . . 47 VI. COORDINATION WITH THE IMF . . . . . . . . . . . . . . . . . . . 50 VII. RECOMMENDATIONS . . . . . . . . . . . . . . . . . . . . . . . . 50 Text Tables Table 1 : Main Economic Indicators . . . . . . . 3 Table 2 : External Capital Requirements and Sources.. 5 Table 3 : Government Trrnsfers to Public Enterprises . . . . . . . . 22 Table 4 : Civil Service Wage Bill Indicators . . . . . . . . . . . . 33 Table 5 : Civil Service Staff Reductions . . . . . . . . . . . . . . 35 Table 6 : Financial Impact of the Civil Service Reduction Program. . 38 Annexes Annex I - Economic Indicators; Balance of Payments; Status of Bank Group Operations . . . . . . . . . . . . . 1-5 Annex II - Supplementary Project Data Sheet . . . . . . . . . . . . 1 Annex III - Matrix of SAL IV Program . . . . ... . . . . . . . . . . 1-8 Annex IV - Government's Letter of Development Policy . . . . . . . 1-50 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  - i - REPUBLIC OF SENEGAL FOURTH STRUCTURAL ADJUSTMENT CREDIT (SAL IV) Credit and Program Summary Borrower: Republic of Senegal Amounts: IDA Credit: SDR 62.4 million (US$ 80 million equivalent) Swiss Government: SwF 10 million (US$6.3 million equivalent) Cofinancing: African Development Bank (AFDB): UA 30 million (US$35.3 million) Swiss Government: another SwF 10 million (US$6.3 million equivalent). Other donors, namely Belgium, France, and Japan are expected to contribute about US$ 56 million equivalent to the program as cofinancing. Terms: IDA Credit: Standard with 40-year maturity Swiss: Non-reimbursable contribution credits and grants Program Description: The proposed adjustment program extends the process of structural reforms begun in 1985 and supported by two previous Structural Adjustment Credits (SAL II and SAL III), as well as by the IMF Enhanced Structural Adjustment Facility (ESAF). The proposed credit would support the Government's strategy, detailed in its medium-term economic program (1985-92), to promote private investment and exports, to improve the efficiency of public sectcr resource mobilization and allocation, and to alleviate poverty. The ultimate objective is sustained growth, with equity, ver the medium term. While significant progress has been made towards financial stabilization, public rssource management improvement, and economic liberalization, Senegal is still faced with important structural issues that need to be resolved. Resolution of such issues is a prerequisite for the needed supply response. The proposed SAL IV key policy areas, which represent a consolidation and a deepening of policies initiated under the previous SALi, are: (i) private sector incentives, i.e., reduction in the costs of production (especially labor and energy) and further improvemernt of the incentives system and the regulatory environment; (ii) public sector resource management, i.e., reductions in both current spending for civil service wages and transfers to parastatals, improvements in investment programs and the revenue base; and (iii) minimization of the social costs of adjustment.  - ii - The SAL IV program will be supported by the ongoing technical assistance provided for civil service reform (Development Management Project) and industrial restructuring (Industrial Restructuring Project); and by the proposed TA component of the public enterprises reform. In addition, the Government is formulating, with IDA support, a series of SECALs, notably in the banking, agriculture and transport sectors. Because a sound financial sector is important to the development process and to macroeconomic performance, the SECAL banking reforms will be implemented simultaneously with the SAL. The Government is also undertaking an Employment Creation Project with Bank support which is focused on reducing the social costs of adjustment in the short term. Estimated Disbursements: It is expected that the total amount of US$184 million equivralent would be disbursed within 24 months. The IDA credit and the Swiss grant would be disbursed in three tranches and would finance the CIF cost of eligible general imports. The first tranche of SDR 25.0 million from the IDA credit and the entire US$6.3 million equivalent from the Swiss contribution, would be based on credit effectiveness, expected January 1990. Disbursement of the second and third tranches, each being SDR 18.7 million of IDA credit, would be cortingent on satisfactory progress in program implementation. It is envisaged that release of the second and third tranche will be effected by December 1990 and December 1991 after applicable performance reviews. Disbursement of the entire credit is expected to be completed within 24 months of certifying credit effectiveness. !H: BIRD 18499R There is no separate Staff Appraisal Report  INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE REPUBLIC OF SENEGAL FOR A STRUCTURAL ADJUSTMENT PROGRAM