Senegal - Country assistance strategy

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 13909-SE MEMORANDUM OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A COUNTRY ASSISTANCE STRATEGY OF THE WORLD BANK GROUP FOR THE REPUBLIC OF SENEGAL JANUARY 26,1995 Country Operations Division Western Africa Department Africa Region 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. The last Country Assistance Strategy for Senegal was reviewed by the Executive Directors in May 1992. CURRENCY EQUIVALENTS Currency Unit = CFA franc (CFAF) US$1.00 = CFAF 524 (January 25, 1995) CFAF 1 million = US$ 1,908 (January 25, 1995) SYSTEM OF WEIGHTS AND MEASURE: METRIC Metris U.S. Equivalent 1 meter (m) = 3.28 feet (ft) 1 kilometer (km) = 0.62 miles (mi) 1 square kilometer (km2) = 0.39 square mile (sq mi) I hectare (ha) = 2.47 acres (a) 1 metric ton (t) = 2,205 pounds (lb) 1 kilogram (kg) = 2.2046 pounds (lb) FISCAL YEAR January 1- December 31 FOR OFFICIAL USE ONLY ABBREVIATIONS AND ACRONYMS ADB : African Development Bank AEF African Enterprise Fund AGETIP Agence d'ex6cution des travaux d'int6r& public contre le sous-emploi (Public Works and Employment Project II) AGSECAL : Agricultural Sector Adjustment Loan CAS : Country Assistance Strategy CESP : Country Environmental Strategy Paper CFA : Communaute Financiere Africaine (African Financial Community) CFAF CFA franc COUD Centre des Oeuvres Universitaires de Dakar (University Services for the University of Dakar) CPSP Caisse de Per6quation et de Stabilisation des Prix (Fund for Price Equalization and Stabilization) CROUS Centre R6gional des Oeuvres Univsersitaires de Saint Louis (University Services for the University of Saint Louis) ERC Economic Recovery Credit ESAF Enhanced Structural Adjustment Facility ESW : economic and sector work GDP : gross domestic product NEAP : National Environmental Action Plan NGO non-governmental organization ODA : overseas development assistance OMVS : Organization pour la Mise en Valeur du Fleuve Sen6gal (Regional Organization for the Management of the Senegal River; member-countries: Mali, Mauritania, Senegal) p.a. per annum PAD : Port Autonome de Dakar (Dakar Port Authority) PE public enterprise PER : Public Expenditure Review PFP : Policy Framework Paper PIR : Public Investment Review QR : quantitative restriction SAED : Soci6t6 d'Am6nagement et d'Exploitation des terres du Delta (Senegal River Rural Development Agency) SAR Soci6t6 Africaine de Raffinage (Oil Refinery) SECAL : Sector Adjustment Loan SENELEC : Soci6ti Sinigalaise d'Electricit6 (Power Company) SNCS Soci6t6 Nationale de Chemins de Fer du Sin6gal (Railway) SODEFITEX Soci6ti pour le D6veloppement des Fibres Textiles (Textile Company) SONACOS Sociit6 Nationale de Commercialisation des Olagineux (Groundnut Oil Company) SONEES Soci6td Nationale d'Exploitation des Eaux (Water Company) SOTRAC : Soci6t6 des Transports en Commun du Cap-Vert (Greater Dakar Mass Transit Company) SPA : Special Program of Assistance TA : technical assistance WAEMU West African Economic and Monetary Union 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. L SENEGAL COUNTRY ASSISTANCE STRATEGY TABLE OF CONTENTS A. Historical Perspective and Recent Economic and Social Performance .........1 Introduction .............1........................... Economic Performance Prior to the Devaluation................. 2 Adjustment Efforts Prior to the Devaluation ........... ........ 3 The January 1994 Devaluation of the CFA Franc................3 Assessment of the Current Situation ........ ................4 B. The External Environment................................... 6 Exogenous Factors................................... 6 World Economic Outlook. ......................... ...... 6 Exploitation of Natural Resources: Prospects and Future Prices........... 6 External Flows...................7....... ..........7 Regional Integration ...................................... 7 C. Senegal's Development Objectives and Policies .................. ..... 8 The Government's Development Objectives ........ ............ 8 Sectoral Objectives....................8.... ..........8 Addressing the Challenge of Human Resource Development............... 10 D. Bank Group Country Assistance Strategy and Supporting Operational Program.. 12 Portfolio Management and Implementation....... ..... ....... 13 Proposed Lending Program ........................ ..... 14 Addressing Critical Issues and Areas of Special Emphasis..... ..... 16 E. Aid Effectiveness and Coordination......................... 19 F. Agenda for Board Consideration ....................... ........ 20 Annexes Annex 1 Selected Indicators of Bank Portfolio Performance and Management Annex 2 Bank Group Fact Sheet, FY91-98; IFC and MIGA Program, FY89-94 Annex 3 Poverty and Social Development Indicators Annex 4 Key Economic Indicators Annex 5 Key Exposure Indicators Annex 6 Status of Bank Group Operations Annex 7 Bank Poverty Alleviation Strategy Annex 8 Summary of Objectives and Outputs s MEMORANDUM OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A COUNTRY ASSISTANCE STRATEGY OF THE WORLD BANK GROUP FOR SENEGAL A. Historical Perspective and Recent Economic and Social Performance Introduction 1. Background. Senegal remains one of the most "visible" countries in West Africa. It has managed, for a long time, to attract high levels of external assistance in spite of its uneven economic performance. Over the past three years, the situation has evolved: Senegal's record of postponing reforms, a worsening economic crisis, and changes in the world scene and in So r the sub-region have altered the aid climate. Aid levels have dropped as Population: About 7.8 million, 40% urban. Senegal's development partners have grown increasingly weary over Social Indicators: Senegals social indicators are low and have stagnated in the lack of results. After a period of recent years. Adult literacy 38%, primary school enrollment 56%; average life resistance to these new realities, the expectancy 48 yea, and infant mortality is 68 per thousand live births. Government is relaunching a Environment: Senegal faces many environmental issues including soil comprehensive program of reforms. degradation, salinizAtion of agricultural land in low-lying coastal areas, and loss There are definite signs of change, or forest cover. Given the rate of population growth, Senegai %il have thouh thy ae moe vsibl toincreasing difficulty providing for the food and fuel needs of the population. though they are more visible to The highi rate of urbanization has led to an inability of urban environments to close observers than to those who absorb waste. still harbor legitimate doubts, as they view Senegal solely through the Economy The modem sector includes fishing, phosphates, chemical products, lens of its checkered performance d t all concentrated in Dakar and the coastal belt Agiculture record. The transition period now represents roughly 20% of Senegals GDP and employs 60% of the counry's labor force. Groundnuts are the most important agricultural commodity. under way is fraught with risks, as providing for 75% of total monetary income of a typical farm "amily. In recent forces of change battle to eliminate years, the informal sector has become increasingly importany as the modem the rents which benefit entrenched sector has stagnated. Private sector activities are very importan' in the rua and and powerful vested interests. The informal sctors, together employing about 90% of the labor force compared to only 2% employed in the modem private sector. "window of opportunity" during Governmen: The mot reet presidential and legislative elections were held which the country can capitalize on in early 1993 with the ruling party retaining its hold on the presidency and its the momentum created by the majority in the National Assembly. Political life has been somewhat agitated devaluation. The current situation since that time with demonstrations following the stabilization plan of August cncreasing dcu prvdn for1993 and the devaluatandion of January 1994. to respond with a strategy which supports change while remaining prudent and integrating the lessons of the past 15 years. The current Country Assistance Strategy (CAS) follows this guiding principle. It is based on numerous discussions between the Country Team and the Government of Senegal and on the Sixth Policy Framework Paper (PFP) which was distributed to the Board on July 26, 1994. The last CAS was reviewed by the Executive Directors on May 1, 1992. 2. Economic Structure. Senegal is a small Sahelian country with a high population growth rate (2.9% annually) substantially above the recent real GDP growth rate (1.7% for the period 1988-1993). Senegal's economy is highly vulnerable to climatic vagaries and price fluctuations in international commodity markets, and has long been dependent on external funding. A country profile is shown in Box I -2- 3. Poverty Profile. Data from the 1992 Priority Household Survey shows that during the harvest season (the most prosperous time of the year), 34% of the entire population did not have the minimum caloric intake of 2400 calories per adult equivalent per day. In spite of the deterioration of living standards in urban areas, poverty remains essentially a rural phenomenon with the exception of Dakar, which also hosts a significant proportion of poor households. With a deteriorating national economy, access to remittances from abroad plays a more central role for raising household income, and poverty is now more concentrated in the south, since the north has a higher incidence of emigration abroad. The sources of independent income for women are very limited due to several constraints: time, as they work long hours, illiteracy, lack of appropriate and affordable technology (husbands rarely transfer technology information to wives and women do not talk directly to male extension agents) and little, if any, access to credit. Economic Performance Prior to the Devaluation 4. Economic Performance until 1990. At Independence in 1960, Senegal inherited a relatively well- developed economy. Between 1974 and 1978, a fortuitous combination of good rainfall and high world prices for groundnuts and phosphates led to a short-lived export boom. This fueled high levels of public investment. A succession of droughts together with a substantial deterioration in terms of trade between 1978 and 1981 led to heavy borrowing to continue past spending patterns and created significant macro- economic imbalances which were not corrected until 1984. Between 1984 and 1988, real GDP grew at an average rate of 4.3% per annum. However, these achievements were not sustained. The large real depreciation achieved by many competitor countries and trade partners since 1985-86 combined with negative terms of trade shocks led to an increasing overvaluation of Senegal's real exchange rate. As a result, the economy experienced a serious decline in key sectors after 1988. 5. Serious Recession. Since the SengaL Main EconomkIndicators beginning of the 1990s, the economy 1990 1991 1992 1993 has experienced a serious contraction. Real GDP growth 4.5 0.8 2.9 -2.0 In particular, in 1991, fish processing Private cons. per capita growth 0.3 0.4 1.6 -51 declined in volume terms by 66%; phosphates by 24%; textiles by 37%; Ootiaecadssot . 4 -. . Growth in merchandise irports .03 4.9 1.1 -1.8 and the food processing industry by 46%. Groundnuts exports declined in Current account a4ance (as% ofr DP) value by 41% during that same period. Excluding gross official transfers -.1 8.9 -9.3 .9.9 The inability of firms to compete Toa debt outstanding (% ODP) 65.6 633 5 implied a shrinking tax base which led Toa.etottnig( D)4. 7.5 44.7 tmed arinkn tax ase ich relne Debt service ratio (as % of exports) 20.3 18,2 20.6 21.5 the Government to increase its reliance on exceptional revenue measures (e.g., Consumer price index (% growth rate) 0.3 -1.8 0.0 -0.7 heavy taxation of petroleum imports) Term of trade (1983 - 100) 114.0 103.6 104.5 103.2 and on last-minute juggling and ad hoc Real effective exchange rate (IMF data) 93.3 86.3 87.1 85.2 measures (e.g., payments of x Sources: IMF, Government of Senegal. arrears by certain enterprises in return for offsetting payments of non-budgeted export subsidies). This in turn had an adverse impact on costs of production and forced more firms to close or join the informal economy. In 1992 and 1993, Senegal's economy deteriorated further as the difficulties of pursuing an adjustment strategy based on internal deflationary policies became more acute. The fiscal deficit and balance of payment positions worsened, with the fiscal balance (excluding grants) declining from a 0.2%. Substantial domestic and external arrears accumulated and foreign reserves declined sharply. -3- Adjustment Efforts Prior to the Devaluation 6. In 1980, Senegal launched one of the first adjustment programs in Africa and has since undertaken several programs to change the structure of its economy. The reforms sought to stabilize the internal and external financial situation, raise public savings, increase investment in the productive sectors, liberalize trade, and reduce state intervention in the economy. Overall, the macro-economic outcome of Senegal's adjustment has been mixed: while little structural adjustment took place in the first half of the 1980s, more substantial changes occurred after 1985. Progress was achieved in: (i) liberalizing most prices and removing quantitative restrictions and non-tariff barriers to external trade, except for firms and products covered by special legal agreements; (ii) improving public resource management; (iii) restructuring the banking sector; and (iv) reforming monetary and credit policy. In other areas, namely civil service reform, production incentives, and industrial and trade policies, important reforms were implemented but later reversed and other reforms were never implemented. BOX 2 SENEGAL: Previous Bank Adjustment Operations The Government's reform effort has been supported since 1980 by six Bank adjustment and sectoral operations. SAL I was approved in November 1980. Although progress was made on reforms concerning the parapublic sector and production incentives, the implementation of policies in the agriculture sector ran into difficulties and as a result, the second tranche of the credit was canceled in June 1983. SAL I was approved in January 1986, and SAL Ill in May 1987. These credits addressed a number of reform areas - in particular, industrial incentives, liberalization of most prices, elimination of QRs and most non- tariff barriers, liberalization of the agriculture sector, public enterprise reform, and improved public resource management - and were generally successful, with both credits being fully disbursed. SAL TV was approved in February 1990 and targeted civil service reform, the parapublic sector, and industrial incentives Progress was made on eliminating direct subsidies to public enterprises and on privatization, on simplhfying the tax structure, and on reducing the size of the civil service - this latter measure was not, however, sustained Other key conditionalies were not met, including adoption of a revised Labor Code and privatization of SONACOS, the groundnut parastatal. SAL IV was closed in June 1993 without the third tranche being released. A Financial Sector SECAL, approved in 1989, was successful and supported the restructuring and consolidation of a number of banks and the closure of several others. The January 1994 Devaluation of the CFA Franc 7. Chaneina Course: The August 1993 Attempt at Stabilization followed by the January 1994 Devaluation. To halt a rapidly deteriorating situation, the Senegalese authorities adopted several measures in August 1993 designed to deepen the deflationary policies that had been followed throughout the past decade, including a 15% cut in public sector wages. Although these measures contributed to reducing imbalances, the magnitude of the real exchange rate overvaluation was such that they came too late to be able to restore the competitiveness of the economy. There was an overall budget deficit of CFAF 47 billion and arrears rose from CFAF 49 billion to CFAF 134 billion by the end of 1993. Net foreign assets fell by CFAF 17 billion during the last six months of the year and reached minus CFAF 203 billion. Overall, growth prospects remained extremely poor. As the internal adjustment strategy pursued by the authorities fell short of expectations, the Government of Senegal, in consultation with other member countries of the CFA franc zone, decided to reinforce its adjustment strategy by revising the parity of the CFAF from 50 CFAF/FF to 100 CFAF/FF as of January 12, 1994. 8. The Response of the Economy to the Devaluation. At this stage the real exchange rate overvaluation has been sufficiently corrected by the nominal devaluation (inflation remained below the 40% target for the first year resulting in a real depreciation of over 30% in foreign currency terms) to permit renewed economic growth, provided that the implementation of the accompanying measures is sustained. There are signs of recovery in production in several sectors where the devaluation had a particularly -4- favorable impact (see Box 3). However, due BOX3: to an initial contraction and collection lags, SENEGAL: Supply Response to the Devahation there has been a substantial shortfall in Government receipts, particularly for customs * In tourism, number of arrivals (including for business purposes) up dutis o imprtsof on-esenial onsmerby 31%; duties on imports of non-essential consumer Substantial increase in the production of cement (1st quarter goods. Furthermore, according to local banks, production in 1994 19%/6 over that of the same period 1993), firms most investment projects are still being competitive in the export market (Guinea, Mali); postponed, although potential investors are * Exports of phosphoric acid up in volume by 27% actively negotiating for several enterprises * Total fish exports up in volume by 17%; (e.g., in textiles, shoes and leather, etc.) that * Upswing in cotton and textiles production and in livestock exports; had shut down during the recession. * Cross-border trade in groundnuts has been reduced. Assessment of the Current Situation 9. Status and Sustainability of Reforms. The CFA franc devaluation offers Senegal a window of Box 4 opportunity to make a breakthrough CA Devaluation In Senegak Change inI to sustained growh. But the country continues to face major challenges. Of particular importance are SOCOCIM's price per ton before devaluatiom CFAF 32,057 USS12110 continued resistance to opening up the SOCOCIM's price per ton after devaluation. CFAF 41,547 US$ 79.0 ed Cheapest world price of Portland cement: USS 81.6 (includes transit fees at the Part and tarifl) of economic mismanagement that have left a difficult legacy to overcome. The Bank has entered into before devaluation after devaluation an active dialogue with the key actors. ImdRie These consultations are helping to set wholesale price in Dakar CFAF/kg 11 a realistic and meaningful reform (world price of USS225/iton) agenda, based on measures with consumer price 205 strong proponents in the country. The Locally Produced Rice critical issue is to maintain the reform domestic price 150 205 momentum created by the (producer price of 95 CFAFlukig) Idevaluation. )While Senegal's history of poor compliance with reform commitments raises legitimate credibility issues, the current situation is sufficiently different to increase the probability of success. Te devaluation has eliminated the need for the distortionary policies that had been necessitated by the overvalued exchange rate (see Box 4) and is proving to be a powerful impetus to reform. As a result, long-stalled reforms have been approved, including impressive progress in the higher education sector, amendment of the Labor Code, and dismantling of monopolies through the elimination of special agreements with selected enterprises. 10. Lessons Learned: SeneWals Ewse of Access to External Aid Slowed Down the Reform Process. Senegal's high profile in African affairs enabled the Senegalese authorities to mobilize an exceptionally large amount of foreign aid (more than twice the average amount of ODA per capita compared to the rest of Sub-Saharan Afica prior to 1989). Yet Senegal maintained its tradition of "African socialism", with widespread government intervention in the economy, and regulatory controls (see Box 5). large sustained flows of foreign aid unintentionally impeded adjustment by reducing Senegalese political incentive to implement hard reforms. Further adjustment lending in Senegal should be selective and conditional on the implementation of up-front key policy measures. Over time, external assistance should shift back to investmoent lending. critcalissu isto mintin te rfor -5- 11. Lessons Learned: Inadequacy BOX$S of Senegal's Internal Adjustment The Politics of State-led Growth Strategy in the Context of a High and Sustained Period of Real Exchane Perhaps more than other neighboring countries, Senegal is characterized by a strong urban-rural dichotomy. Dakar's elites put in place economic policies Rate Overvaluation. The si ich maintained low prices in urban areas and gave them access to sizable of reforms had some serious flaws and rents through administrative controls, labor laws, and monopoly arrangements. the impossibility of sustaining the The strategy of using the resources of the state to consolidate power and reform process in the context of a reward supporters necessarily fueled a state-led development strategy. prolonged period of exchange rate Economic policies favoring urban elites were financed by revenues from overvaluation led to major setbacks, in commodity production, mediated by rural elites (religious brotherhoods which particular the Government reversed its control large groundnut estates) delivering the political support of the trade liberalization policy. countryside in exchange for a share of the rents. Adjustment programs were designed to change the situation. Although they were only partially implemented - for obvious political reasons since they aimed at fundamental 12. The Unfinished Adjustment changes in the rent system -, the country was able to postpone reforms Agenda. It includes five major areas: because of the continued generosity of the donor community and sophisticated efforts at obtaining external financing by an efficient political class. (a) fu*rt her price and trade libeur t : re andty, e 24Over the past three years, the context has changed drastically, and the tightening of the aid climate has confronted Senegal's leaders with a new products (accounting for 12% environment. The worsening economic crisis in the CFA zone played a crucial of GDP) are still subject to role in this awakening, culminating in the January 1994 devaluation. price controls. Effective protection remains high Today, the situation is fluid and unsettled. The religious leaden, the civil service and the unions are still influential. But following the devaluation, (average effective protection is drastic changes in the urban-rural terms of trade, the obsolete nature of most about 31%, with cumulative monopoly arrangements, and the economic empowerment of new groups are marginal rates in excess of changing the balance of power. 45%). Some of the largest firms in the private sector remain subject to conventions spOciales or other agreements that protect them from competition. These include sugar, cement, petroleum importing, and refining. (b) elimination of monopolies: Despite inefficiencies, public sector monopolies remain in rice imports, the groundnut and groundnut oil sector, port administration, electricity, water, and telecommunications. (c) public resource management: The Government needs to: (i) improve domestic resource mobilization, especially the recovery of trade taxes, strengthen tax administration in general, and broaden the tax base; (ii) improve expenditure programming; and (iii) reduce the weight of the civil service on the budget and improve its efficiency. (d) completion of the reform ofpublic enterprises: Of the 87 non-financial public enterprises that existed in 1986, 21 were liquidated and 26 were privatized. The reform program needs to be pursued and completed, with particular emphasis on the four major parastatals in the agricultural sector (SODEFITEX, SONACOS, SAED, and CPSP) and on SENELEC, the power utility; SONEES, the water utility; and SOTRAC, the Greater Dakar mass transit company. (e) investment and export incentives and legal framework: Ineffective incentive and legal frameworks coupled with weak institutional support remain major constraints to the development of the private sector. While progress has been made under the preceding SALs, further work is -6- needed to improve the efficiency of the existing arrangements (the cumbersome administrative procedures result in long delays) and streamline them further. The reforms needed are spelled out in the 1996-98 PFP. They will be supported by the two adjustment operations currently under preparation, the Private Sector Adjustment and Competitiveness and Agriculture SECALs, and by the Economic Management SECAL planned for FY97 (see para. 40). B. The External Environment Exogenous Factors 13. The Importance of the External Environment. Economic performance in the 1980s demonstrates the degree to which Senegal's economy remains vulnerable to exogenous factors. Of these, the most significant are: (i) the world economic outlook; (ii) conditions for exploitation of natural resources and climatic fluctuations; (iii) fluctuations in world prices for its principal exports: groundnuts, phosphates, and fish; and (iv) flows of international aid. World Economic Outlook 14. Some Encouraging Signs. In general, the external environment for developing countries is expected to be quite positive, with solid gains in world output, demand, and trade, more stable real commodity prices, reasonable levels of real interest rates, and sustained large private capital flows to developing countries. The total growth rate of Senegal's partners weighted by Senegal's export market share to these markets is expected to increase from 2.2% in 1991-93 to 6.3% in 1994-96. The main factors behind this growth are rising import demand in Europe, liberalization in India, and improving conditions in the CFA franc zone and in South Africa. Exploitation of Natural Resources: Prospects and Future Prices 15. Natural Resources. In agriculture, the most important sector in terms of employment, there is little likelihood of dramatic improvements in crop yields in the short-term. Production is highly dependent on rainfall which shows a deteriorating trend. Persistent droughts have also reduced livestock productivity and pushed dry-season grazing into traditional crop areas. In fishing, a strong expansion in both output and exports is possible since the maximum sustainable catch is estimated to be 420,000 tons annually, about 155,000 tons higher than the 1991 catch. Finally, the mining sector shows some signs of exhaustion, with accessible phosphate deposits of acceptable quality nearing depletion. 16. Terms of Trade. Petroleum prices are expected to increase slightly while the prices of Senegalese exports are expected to stay constant in real terms as it is very unlikely that the massive real price decline of the past decade for non-oil commodity prices will be repeated over the next decade. However, the 1994 surge in commodity prices is expected to be temporary. 17. Implications for the Future. Continued climatic uncertainty, depletion of natural resources, and worsening terms of trade imply that in the long-term, the only viable option for Senegal is to diversify its economy and to move away from relying exclusively on extraction of natural resources for exports. The Bank's strategy for Senegal aims precisely at facilitating the necessary structural changes in the country's economy to allow this transformation by decreasing its dependence on primary commodities. Since in the -7- short- to medium-term, Senegal's exports will continue to depend largely on traditional commodities, improved competitiveness in these sectors remains important. Since so much of the growth in world demand for Senegal's export commodities is expected to come from middle income developing countries, assistance to develop marketing and distribution channels to these countries should be considered. The rapid growth of Senegalese phosphate exports to India in recent years may be a sign of things to come. External Flows 18. External . Senegal's outstanding external debt totaled about USS3.7 billion in 1993, or 64.7% of GDP. Debt outstanding as a percentage of GDP has naturally increased as a result of the devaluation and is projected to be at 73.3% in 1996. Debt service as a share of exports is, however, expected to decrease from 21.5% in 1993 to 18.8% in 1996. In 1993, 60.8% of Senegal's total debt disbursed and outstanding was concessional. Senegal's strategy is to contract new debt exclusively on concessional terms. The country recently benefited from a generous Paris Club rescheduling in addition to receiving extensive debt relief from France. Senegal is also eligible for the Fifth Dimension financing from IDA reflows. A commercial debt buyback operation is under preparation. 19. Direct Foreign Investment. Foreign private investment has averaged only about US$6.5 million a year over the last three years. With a better institutional and legal framework, foreign investment could contribute increasingly to Senegal's development by opening up new export markets. Recent discussions with private sector actors in Senegal in the context of the upcoming Private Sector Adjustment and Competitiveness SECAL confirm that both local- and foreign-based investor interest is strong. Investor interest is particularly focused on textiles, tourism, and high value-added agricultural products. Regional Integration 20. Major Initiatives. Together with the devaluation, a major step towards regional economic integration was made with the signing of the treaty transforming the West African Monetary Union into an economic and monetary union (WAEMU). The treaty's aims are: (i) the creation of a Customs Union; (ii) the convergence of fiscal policies; and (iii) the harmonization of economic and sectoral policies. Although this increases the potential for intra-regional trade in a market of nearly 60 million people, the GDP of the sub-region is too small for regional integration to be a substitute for integration into the world economy. The main benefit from the WAEMU is expected to be an increased likelihood that the seven member- countries will be able to maintain viable macro-economic frameworks as a result of the strengthening of the mechanisms proposed to ensure the convergence of their fiscal policies. Furthermore, Senegal, which currently has the highest rate of protection among the WAEMU countries, will, once the common external tariff is adopted in 1996, reach its objective of eliminating the excessive rates of protection which still permeate its economy. Finally, as part of the OMVS (the regional three-country organization in charge of managing the Senegal River Valley), Senegal aims at developing further its common border region with Mali and Mauritania by increasing the production potential of the Senegal River. In particular, the steady use of the water and hydroelectric resources of the river, made possible by the construction of the Diama and Manatali dams, and the use of artificial flooding techniques will contribute to an increase in hydroelectric production in the region while preserving traditional agricultural practices. -8- C. Senegal's Development Objectives and Policies The Government's Development Objectives 21. Medium-Term Objectives. With the realignment of its currency, the Government adopted an adjustment program for 1994-96 whose objectives are to: (i) achieve a rate of growth of real GDP of 4.7% in 1995 and of 4.8% in 1996; (ii) increase the investment-to-GDP ratio from 14.1% in 1993 to 16.7% (measured in current prices) in 1996; (iii) achieve primary surpluses in the Government's budget (budget deficit on a commitment basis excluding grants to be reduced from 4.5% of GDP in 1994 to 1.7% in 1996); and (iv) contain the external current account deficit, excluding official transfers, to 9.8% of GDP in 1994, and reduce it to 7.3% by 1996. The Government strategy also includes a program of measures to improve public sector management through: (i) the adoption of a three-year public investment program taking into account the devaluation of the CFAF; (ii) the pursuit of the reduction of the wage bill; and (iii) the pursuit of the Government divestiture program. Immediately after the devaluation, as a first step, the Government: (i) established a maximum 45% limit to import tariffs excluding the 5% stamp duty; (ii) reduced the number of VAT rates from five to three, with a maximum rate of 20%; (iii) increased energy and utilities prices to reflect more closely their current economic cost of production; and (iv) decided to pass through the benefits of the devaluation to agricultural producers. 22. Background: Trends in Expenditure. Public expenditures as a percentage of GDP declined significantly during the 1980s. While such a contraction was warranted given the unsustainable fiscal deficits, it has largely been achieved at the expense of cuts in expenditures that are critical for longer-term growth and development, particularly investment in human capital, and expenditures toward the provision and maintenance of supporting infrastructure. The biggest change in the sectoral composition of overall expenditures is the marked decline in the share going to economic services, which has fallen over 13% between 1980 and 1989. This is largely explained by lower investment spending, particularly in mining and industry. This squeeze on economic services has allowed increased shares to higher education and general public services. The share of health expenditures has remained low, barely increasing over the period. In education, total government expenditures declined in real terms by 2% throughout the 1980s. Education share in total expenditures is nevertheless high (26% in 1990) but most of this is used to pay salaries. Defense share in total expenditures increased marginally over the period, from about 8.3% to about 8.8% in 1989/1990, which is still lower than the Sub-Saharan African average of 12.5%. Sectoral Objectives 23. Agricultural Policy. The Government's strategy aims at pursuing the removal of major obstacles that still remain and fostering the growth and diversification of agricultural production. As regards the groundnuts sector producer prices have been set on the basis of world prices, and all producer subsidies have been eliminated. The offer for sale of SONACOS, the groundnut oil parastatal, to the private sector, which should take place early in 1995, is, from this standpoint, a decisive step towards the restoration of the sector's competitiveness. Regarding cereals the rice sector will be fully liberalized by February 1996. Local paddy and processed rice prices were liberalized in June 1994. Ultimately, the Government will ensure that the stabilization agency, CPSP, which now has an import monopoly on broken rice, has no further involvement in rice importation, purchasing, and distribution other than in situations in which supply is disrupted. Imports of broken rice have been partially liberalized, and CPSP withdrew from local rice marketing this past June. In the cotton sub-sector, the authorities will apply a flexible producer price policy based on world prices and will pursue the restructuring of the parastatal SODEFITEX. The Government intends to accelerate its development efforts in the Senegal River Vallev through the protection -9- of irrigated lands and improved management of irrigation infrastructure. The agriculture sector is expected to benefit from wider availability of extension services and more intensive application of agriculture research. It is particularly important to have extension services better reach women (there are very few female extension agents, yet women do not talk directly to male extension agents). Lastly, development of ural credit will be pursued, particularly through actions to decentralize and promote savings and loan establishments. 24. Industrial Poliey: BOX Liberalization. Competition Conted in Mch Gowrnment Mist Implement its &rateV Poligy, and Promotion of the Private Sector. The A Precarious Political Situation Government aims at developing The elections (Presidential in February 1993, followed by legislative in May 1993) a competitive, export-oriented and the troubles which followed (violent strkes after the stabilization plan of August manufacturing1993 and demon tions following the devaluation of January 1994) have dominated manuactrin secor.In hisrecent political life in Senegal. Urban unemployed youth, who as a majority rejected context, trade and price the ruling party in the last presidential elections, are increasingly Misceptible to liberalization, together with violent expressions of discontent improvements in the But Nevertheless A Stronger Commitment to Reforms institutional framework, are It is becoming increasingly clear that Senegalese society as a whole has begun a seen as key elements. The process of profound change. The depth of the economic crisis is now widely reform process is based on the understood, and the free press that exists in the country contributes positively to the following three components: national economic debate. To break with the past the Government of Senegal has (i) reducing factor costs; (ii) decided to agree only to things which it is sur of being able to deliver. In order to be streamlining procedures and able to do so, the authorities ensured the full participaion of all parties during the incentives; n prcers a negotiations In particular. the Government created a commission tripaite external liberalization. an bringing together representatives from the prvate sector, labor, and the civil service extenal ibealiztion Into reflect on the best ways to promote economic development in the country in the particular, efforts are aftermath of the devaluation. The creation of the Competitiveness Review Group and underway to modernize the the iflwece it had in shaping the reform program which is supported by the Private current Senegalese labor Sector Adjustment and Competitiveness SECAL is noteworthy. The same holds for legislation. In that spirit, an the process followed in developing the wide-ranging reforms in the higher education amendment to the Labor Code sector These efforts at intemal consensus-building constitute one of the most abolishing the requirement of important recent developments in Senegal. prior approval by the Labor Inspector in case of dismissal on economic grounds has been approved by Parliament. Another important area of the Governments action in the regulatory area consists of the program of liberalization of administered prices, prices subject to approval (homologathion), and producer prices. By the time all measures included in the Private Sector Adjustment and Competitiveness SECAL are adopted, only products (accounting for 3-4% of GDP and 10% of CPI) will still remain under control. Finally, in order to promote fair competition, the Government has also decided to liberalize external trade and to progressively put all enterprises presently benefiting from conventions spciales or protocoles d'accord under the common tax regime. Regarding external trade, it will eliminate most remaining prior authorizations. Regarding state-owned enterprises, the Government plans to pursue the restructuring of the electricity company SENELEC, the oil refinery SAR, the water company SONEES, and the Greater Dakar mass transit company SOTRAC. 25. Judicial Framewor. In addition to creating an economic environment that is conducive to private sector initiatives, the Government aims at improving the legal and regulatory framework. The judicial constraints affecting the private sector relate to: (i) administrative law relating to the dealings of enterprises with the State; (ii) bankruptcy procedures; (iii) codification of the Commercial Code and lack of -10- a specific office for commercial registers; and (iv) the judicial framework for micro-enterprises. A judicial reform group has been established to prepare the implementation of the necessary reforms, and Senegal is among the leading countries in an effort to harmonize business law in the sub-region. 26. Public Sector Management. Besides completing the PE divestiture, the key remaining issues concern civil service reform, public expenditure effectiveness, and resource mobilization. Concerning civil service reform, the Government is in the process of conducting an audit of the civil service, the recommendations of which will be adopted in 1995. Nevertheless, the most important and immediate priority remains encouraging the supply response in order to create employment - a necessary condition for streamlining the civil service in a lasting manner. Thus, proper sequencing of reforms implies that civil service reform is likely to be more successful once prospects for employment outside the public sector improve. Improved effectiveness of public spending will be facilitated by the completion of the Public Investment Review (PIR) jointly undertaken with the Bank. Implementation of the PIR's findings will contribute to improving the efficiency of public investment and better incorporating the recurrent cost implications of the investment program into the budgeting process. Resource mobilization remains a pressing issue for the Government. The authorities recognize that it is necessary to widen the tax base further, in particular by incorporating the informal sector, strengthening tax collection, and fighting tax fraud. 27. Infrastructure. A General Policy Letter for the transport sector, issued by the Government in 1990, sets out a medium-term strategy for the sector. This strategy aims at reforming and modernizing the management of the sector and assigns priority to maintaining existing infrastructure rather than investing in its expansion. It provides for the contracting of private companies to carry out road maintenance work and for the restructuring of the sector's parastatals (SNCS, PAD, Air Senegal) in order to enhance their performance and eliminate the need for subsidies. Addressing the Challenge of Human Resource Development 28. Senegal's human indicators of development are well below those of other countries at comparable levels of development. In the education sector, declining Government resources and competing priorities, combined with a high school-age population growth rate of 3.3/, have constrained the Government's ability to meet the rising demand for education and maintain its quality. Access to primary education is limited and inequitably distributed across regions, between urban and rural areas, and between boys and girls. Thus, Senegal is entering the 1990s with an educational system unprepared to meet the challenges posed by today's economic environment, as there can be no doubt that the current level of human resource development in the country is below the minimum required for sustained economic growth. Illiteracy rates in Senegal are among the highest in the world. In 1990, an estimated 86% of women over 15 were illiterate vs. 60% for men. Over 90% of rural women are illiterate. The current situation of the health and- population sector is still characterized by a high fertility rate (5.9%) associated with a low contraceptive prevalence rate (less than 10%). Senegal has also one of the highest maternal mortality rates in the world. Despite efforts made to expand primary health care, including family planning services, and to decentralize health management, the health sector continues to be characterized by financial and staff management constraints which prevent the establishment of a sustainable and efficient health delivery system country- wide. 29. Human Resources and Poverty Alleviation. In the education secto priority will be given to improving access to and the quality of primary education with emphasis on rural areas and the enrollment of girls. However, particular attention must be given to the high dropout rates for girls in the rural areas, - 11 - and increasing enrollment alone will not be sufficient. The objective is to increase the gross enrollment in the primary sector from 56% in 1992/93 to 65% in 1997/98. This will require the construction of about 3,500 new classrooms and the training and recruitment of approximately 700 teachers each year. Declining enrollment rates could reverse the gains of the 1980s. The Government is also working on better adapting vocational training to labor market demand. A major restructuring and consolidation of existing vocational and technical training institutions is underway to increase the cost-effectiveness of training programs and to involve the private sector closely in their design, management, and financing. Although the Government spends more than the average of Sub-Saharan African countries on public education per capita, it actually does less than the other countries for primary and secondary education since higher education has absorbed a disproportionate share of the education budget. However, the Government has started to implement wide- ranging reforms developed through a two-year National Consultation Process on Higher Education. These reforms aim to: (i) drastically reduce the share of the higher education budget devoted to financing highly inefficient student services through the privatization of those services (COUD and CROUS), which are a large drain on the budget; and (ii) reform the scholarship system (stricter controls of student flows by limiting access of repeat students to scholarship funds, since they currently take an average of 10 years to graduate). The resulting savings will be allocated to improving the quality of higher education and the enrollment rate at the primary level. In the health sector, priority will continue to be given to implementing the recent health strategy, of which the key elements are improving access to primary health care for both urban and rural dwellers, expanding preventive medicine, and improving the availability of affordable essential and generic drugs. One of the Government's main concerns is to reverse the trend of the past few years, namely, the considerable increase in the share of wage outlays within the health budget to the detriment of expenditure on equipment and supplies. The Government is also increasing its effort to prevent the spread of AIDS. The Government's policy in education and health are complementary, reflecting the important linkage between girls' education and family planning, since stressing primary and secondary education for girls reduces fertility. 30. Population. Projections based on optimistic assumptions about fertility declines suggest that within the next 25 years, Senegal's population will grow to more than 16 million, 9 million of whom will live in urban areas. The Government has announced a population strategy and supported population projects. In line with its Declaration of Population Policy adopted in 1988, the Government has intensified the integration of family planning services with public health facilities, but it has not taken a strong public stand. 31. Quality of Life and Environment. The high rate of urban population growth, despite high urban unemployment, reflects land shortages and very poor income opportunities and amenities in rural areas. As a result, the capacity of urban environments to absorb waste is dramatically below what is generated. The food and wood fuel needs of this population will exceed the capacity of all land to produce these two environmental goods simultaneously, even if better agricultural practices lead to a significant increase in yields. Senegal now faces key environmental issues such as soil degradation, salinization of agricultural land in low-lying coastal areas, and loss of forest cover. It is estimated that in some areas soil fertility is declining by 3 to 5% a year, while forestry resources are decreasing by 1.2% a year. 32. Natural Resource Manaaement. Environmental concerns are an integral part of Senegal's development strategy. The Government intends to complete its National Environmental Action Plan (NEAP) by end-June 1995. This document builds on the Country Environmental Strategy Paper recently distributed to the Board. A revised Forestry Code has been passed that will encourage more participation by local communities in the management of forestry resources. The new code needs to be accompanied by appropriate pricing and fiscal measures pertaining to household fuels in order to ensure that these reflect - 12 - the economic costs of fuel production and regeneration. A review of the land tenure system will be undertaken with the aim of clarifying the current situation and promoting more sustainable land use, including providing secure rights for pastoralism and forestry. In doing so, female and male production patterns and roles will have to be looked into separately. In the area of urban waste management, the Government intends to pass and implement in the early part of 1995 a revised Environmental Code that will more forcefully address problems of pollution, in particular clarifying the liabilities of polluters. D. Bank Group Country Assistance Strategy and Supporting Operational Program 33. The goal of the Bank's assistance BOX7- strategy is to help Senegal achieve its SENEGAL A Necwy Condionfor.Sucem - Internazd6an objective of sustainable economic growth with md Conseus-BUdingAtound ArCompeWng Futwm VhIon equity and targeted poverty reduction. In the long-term, the only sustainable source ofa compelling vision o the ftre. Pa or the Bank economic growth is through exports from the strategy is to provide help in this endeavor In January 1992. a Bank private sector. In the short-term, the team met with the Senegalese Cabinet for a three-day seminar on agriculture sector is likely to remain the most e poicy meant to clarify differences of perceptions and to important sector in terms of employment, and a common understanding of the larger context in which the SenegaWese economy has to develop. One of the first results of the it is there that the supply response to the seminar was in education policy where the Government sponsored a devaluation is first expected. Therefore, public debate on how to reform the higher education sctr A taking into account the need to change the Dialogue on Economic Strategy was initiated by the Covntry Team structure of the economy from a natural after the 1992 Annual Meetings This pie. upported by a grant resourcefrom the Institutional Development Fund, led to the creation of an resurc bae t anindstral nd ervce "Options Group' whose role is to help the Government design its base, the central focus of the macro-economic own development strategy (in particular, by disseminating strategy to relaunch growth is: (i) to promote information on the relevant adjustment experiences of other competitiveness, including regulatory reform, countries). These actions have contributed to a changing of in order to make the economy more responsive P ti witin Senegal where:the vr8ency of strucural refms is and to create more opportunities for the private sector, and (ii) to complete structural economic reform by maintaining its present emphasis on reforms in agriculture which should lead to internalization and consensus-building. OperationaUy, this wi more efficient production of traditional export translate into the systematic inclusion of infornation, education, and and food crops in the immediate future and c" components in all major oerationU non-traditional and high value-added crops. The success of this private sector-based strategy also hinges on the Government's ability to ddiver essential services efficiently and effectively. This implies addressing problems in five areas: (1) education and health; (2) infrastructure; (3) population growth and the role of women; (4) environment; and (5) capacity building for public sector management. Finally, a central aspect of the Bank's partnership with Senegal is the strengthening of the quality of our dialogue with various actors (Government officials, NGOs, entrepreneurs, trade unions, etc.) to enhance participation and to facilitate internalization and ownership (see Box 7). 34. Economic and Sector Work. The program of ESW is designed to provide an analytical foundation for IDA!s strategy and to assist the Bank in its role as facilitator of economic reform. The priorities are: (i) monitoring economic developments, with the Resident Mission taking a lead role; (ii) analyzing the constraints to private sector development in the context of the findings of the Competitiveness Review Group (see Box 6); (iii) human resource development, with an emphasis on operational research and pilot activities to develop sustainable approaches to increase female literacy and to improve community nutrition standards; and (iv) institutional analysis to underpin capacity building efforts, especially in public sector the uthrites,theBan intndsto tregthtt ts rl$ s fciltatr o - 13 - management. Major studies of trade policy and regional integration issues at the level of the WAEMU are also underway. A Public Investment Review (PIR) is being conducted at the time of this writing and a second Public Expenditure Review (PER) is planned for FY96. A Private Sector Assessment and a Country Environmental Strategy Paper (CESP) were recently issued. A Poverty Assessment is nearing completion and will be issued in FY95. Sector work recently completed includes studies of industrial policy, the informal sector, the informal financial sector, higher education, health care financing, family planning, girls' education, and women issues. The analyses and recommendations set forth in these studies provide the basis for a new impetus in the policy dialogue on key development issues and will help improve the quality and focus of Bank-supported interventions. They will also help shift the focus of the dialogue away from immediate crisis management towards medium- and long-term development issues. Thus, since a substantial amount of ESW has already been completed, the accent will be on dissemination and operational follow-up as opposed to undertaking major new tasks. A seminar on girls' education took place in January 1994 and a poverty workshop is planned for the beginning of 1995. Portfolio Management and Implementation 35. Past and Current Bank Operations. As of June 30, 1994, the Bank Group had approved 102 operations for total commitments of about US$1.3 billion consisting of 70 IDA credits, 20 Bank loans, and 12 IFC operations. To date, 57 Composition of IDA Lending (FY86-94) by percent of Total Portfolio IDA credits and all 20 IBRD US$ million % loans have been fully disbursed. Of those remaining, one Aiuture 120714.0 176 (Transport SECAL) is a hybrid Industry & Energy 120.0 17.6 adutetivsmn Infrastructure 173.7 25.6 adjustment/investment Population and Human Resources 87.0 12.9 operation. The rest are divided Adjustment Lending 203.7 29.9 between agriculture (four), Total Commitments 680.1 100.0 infrastructure (two), human resources development (three), industry (one), and a technical assistance project. Since the devaluation, an Economic Recovery Credit (ERC) was approved on March 17, 1994. 36. Portfolio Performance. Portfolio performance has been poor compared to other countries in Africa. Generic implementation problems such as non-availability of counterpart funds, inadequate financial management, inefficient procurement procedures, and unsatisfactory project management capacity which the portfolio encountered in recent years (FY92 and FY93) continued during FY94 and eventually hampered the progress of projects in the portfolio. As the number of projects in the portfolio diminished (19 in FY92, 17 in FY93, and 13 in FY94) , the share of problem projects increased: 11% in FY92, 24% in FY93, and 29% in FY94. The main problem has been the financial crisis which was reflected in the lack of counterpart funds. Furthermore, little progress was made regarding compliance with audit requirements. As a result, in FY94 the rate of disbursements as a percentage of outstanding balance continued to fall. This was largely accounted for by the following projects: Agricultural Research II, Agricultural Services, Human Resources I, Public Works and Employment II, TA Development Management (PAGD), and Transport SECAL. The disbursement lag deteriorated to 21.9% in FY94 compared to 12.5% in FY93. Total disbursements made during FY94 amounted to US$60.66 million. The actual undisbursed balance at the end of FY94 was USS231.9 million. A Country Portfolio Performance Review was carried out in March 1993. Key actions taken since then include: (i) increased involvement of the Resident Mission in portfolio supervision; (ii) use of AGETIP for management of civil works under the Human Resources I (health) and II (education) Projects; (iii) thematic procurement and auditing missions; and (iv) development - 14 - of action plans for problem projects. Arrangements have been made for the completion of audits, and the constraints on counterpart funds are expected to become less binding once public finances improve following the adoption of the measures contained in the PFP. Proposed Lending Program 37. Alternative Scenarios. The proposed operational program considers three scenarios: base, core, and high. The base cas corresponds to a "successful structural adjustment" scenario under which the authorities would follow through with the reform program described in this document. In that case, it is likely that the Government would succeed in reaching the growth objectives adopted in the PFP. If resistance to reforms is high and Government determination insufficient, Senegal will go back to "muddling through". The bulk of the reform program would either not be adopted or be taken halfheartedly as in the past. In spite of the short breathing space afforded by the change of parity, the economy would not be able to benefit from the devaluation in the medium- and long-term and would return to a sustained period of low or negative growth. The Bank would respond by scaling back its activities to a core program. If, on the contrary, the reform momentum builds and the economy responds quickly, we would move to a high cs scenario corresponding to a "successful transition from structural adjustment to accelerated growth". Under this scenario, the pace of implementation would accelerate, and the country would be able to successfully attract sizable private investment. In this ideal case, a sustained high growth rate (possibly as high as 8%) could materialize. 38. Senegal's current performance justifies implementation of the base case scenario. It is expected that growth will initially come from the traditional sectors of agriculture, fishing, and certain branches of industry (e.g., cement) Stgal: r and services. Producers 0' . . . in these sectors are 9 2. 2 already taking advantage of the gains in GDP aiot Rate (%) 2.4 4.7 4.8 4.5 4.5 competitiveness and PublicFixed Inestmt 3.7 3.7 3.8 3.8 39 extending their production (% of real GDP) and markets. Moreover, Privae Fixed Investment 8.5 8.8 9.7 10.6 10.7 there is significant excess (% of real GDP) capacity in Senegal after years of recession (e.g., textiles, tourism, fisheries). Thus, output can increase fairly rapidly. In the longer term, with a liberalized economic environment in place, the principal source of growth would be expected to shift towards exports of high value agricultural products and manufactured goods. 39. The Composition of the Program. The core proWr would comprise operations in education (female literacy, vocational training, and higher education), health, community nutrition targeted towards women, and natural resource management. Furthermore, in addition to the existing AGETIP project, an additional public works/employment creation project would most likely be necessary, since under this scenario economic performance would be so weak that a safety net project, in addition to the ongoing AGETIP operation, would be required to help protect the poor. Under the base case, adjustment lending would continue to play an important - although decreasing - role: the two follow-up quick-disbursing operations to the Economic Recovery Credit (Private Sector Adjustment and Competitiveness SECAL and Agriculture SECAL) are crucial in allowing a successful transition from the serious recession of the last few years to setting the stage for high growth and poverty alleviation. Both credits would be released in the period FY95-96. An Economic Management SECAL with a capacity building component aimed at - 15 - deepening the reforms undertaken during the Composition of Proposed Lending Program post-devaluation transition to growth period is FY96-98 planned for FY97. Finally, in addition to the Ranges for Core and Base Scenarios operations mentioned for the core program, the US$ million % base case would include a Private Sector Agriculture 30 - 50 22 -26 Capacity Building Project to accompany the Industry/Energy 0 -30 0- 16 Private Sector Adjustment and Competitiveness Infrastructure 30 -20 22 - 10 SECAL, projects in agriculture (Private o/w additional targeted Agriculture Development and Irrigation), and in publieworks 30 - 0 infrastructure and energy (water sector projects, Population and HR 75 -75 56 -38 Energy II, and Urban IV). Under the high case, Adjustment and the Bank would accelerate the pace at which Capacity Building 0 -20 0-10 operations would be programmed and move into Total 135 - 195 100 high gear. The Bank's share of operations in areas where private sector participation is, in general, not forthcoming (e.g., large infrastructure projects) would most likely increase. Furthermore, direct support of private investment (e.g., lines of credit) and assistance with introduction of financial intermediation instruments would then be included in Bank operations. The Bank would seek increased contributions from other donors and would encourage them to take the lead in some sectors. 40. Nature of Operations. The proposed base case includes three adjustment operations: the Private Sector Adjustment and Competitiveness SECAL, the Agriculture SECAL, and an Economic Management SECAL. The third operation would be undertaken only if the preceding two are successful and lead to significant progress in the unfinished adjustment agenda (para. 12), which they are designed to address. All other operations would be investment operations, and efforts would be made to move to sector investments. This is already the case in transport (and it would continue with the follow-up operation), health (Human Resources Development I) and education (Human Resources Development II). The water sector projects under preparation would also be sector investment operations. Beneficiary participation and client consultation will also be used systematically, building on the experience already gained in a number of cases. 41. Level of Commitments and Triggers. The lending program for Senegal currently under consideration for the period FY96-98 ranges between USS135 million for the core case scenario and US$195 million for the base case scenario depending on overall economic and portfolio performance. A series of critical factors will be important in monitoring performance and deciding whether the lending program should be scaled back from the base case to the core case. The proposed triggers correspond to the importance given to revenue mobilization and to improving the structure and efficiency of public expenditures (in particular in areas crucial to bolstering the supply response, i.e., human resources and infrastructure), and to portfolio implementation. They also take account of past experience by putting a heavy weight on reform reversal. The triggers are as follows: (a) slippage in the macro-economic framework as set forth in the PFP, especially with revenues remaining at extremely low levels as a result of endogenous factors (e.g., fraud) or unwarranted increase in public sector spending levels (e.g., wage bill) and failure to improve the overall level and structure of public expenditures; lack of progress on price and trade liberalization; and sluggish public enterprise reform; -16- (b) decreased development expenditures, particularly in the social sectors with adverse consequences for human resources and longer-term development; (c) deterioration in portfolio implementation reflected in worsening overall portfolio performance ratings and falling investment disbursement ratios, which do not receive forceful and timely corrective measures; and (d) backtracking on reforms. In the event of any one of these triggers materializing, IDA will review the lending program to be implemented under the base case and the emphasis will be shifted toward the smaller core program described earlier. Concerning the last trigger on backtracking of reforms, for each sector for which a lending operation is prepared, the corresponding Sectoral Letter of Development Policy will show a program of reforms agreed between the Government of Senegal and the Bank and will be explicit that once reforms are adopted, their sustained implementation will be reviewed annually with IDA to ensure continued progress. In particular, the Bank will monitor the introduction of new legislation that could potentially introduce loopholes allowing policy reversal in any given area. 42. Over the next two to three years, the probability of moving into the high case scenario remains fairly low. Nevertheless, in light of the clear signals which have been received from the authorities and the renewed economic activity experienced since the devaluation, the inclusion of a high case scenario is warranted. The Bank will be watching carefully the speed at which reforms are implemented and the response of the economy. A good indicator of a successful transition is the return of foreign direct investment, usually preceded by domestic investment (so far the bulk of the capital return which had fled in anticipation of the devaluation has been reinvested in construction, a source of employment which has a positive effect on aggregate demand but which is not conducive to long-term growth). Therefore, the triggers to move from the base case scenario to the high case are as follows: (a) acceleration of the reform effort; (b) improved composition of public spending; and (c) clear evidence of higher and sustained levels of private sector investment. Addressing Critical Issues and Areas of Special Emphasis 43. Long-Term: Facilitating the Supply Response from the Private Sector. The most important measures concern regulatory reforms and the elimination of bottlenecks blocking the supply response. The instrument to assist this reform agenda is the Private Sector Adjustment and Competitiveness SECAL. Other sectors which are directly relevant to the ability of Senegalese enterprises to be competitive are the financial and the energy sectors. The banking system is relatively healthy, which is a reflection of the comprehensive restructuring of the financial sector made in 1989-91. The energy sector, in the absence of a restructuring of the electricity company SENELEC, will remain extremely inefficient. The Energy II Project would address this issue. 44. Short-Term: Facilitating the Supply Response from the Rural Sector. The instrument for assisting with reform in the agricultural sector is a proposed Agriculture SECAL. The main areas of actions are: (i) liberalization of prices and trade in agricultural production; (ii) privatization of production, processing, and trade in agricultural products; and (iii) increased efforts in services such as research and extension. In continued support of the reforms not covered by the AGSECAL, other operations under consideration include a Private Agricultural Development and Irrigation Project, the instrument to foster development of - 17 - high value export products by the private sector, and a Senegal Valley Development Project, which would aim at reforming the irrigation sub-sector with the objective of an economically rational and financially sustainable development of Senegal's water resources. 45. Deepening the Reform Process. Although the Private Sector Adjustment and Competitiveness and the Agriculture SECALs will have removed the remaining major distortions, the reform agenda will still not be completed since issues of public sector management (resource mobilization, public expenditure effectiveness, public enterprises, and civil service reform) remain to be addressed. Hence, the Bank Group plans to help the Government address these issues by means of an Economic Management SECAL. This would be the last adjustment operation foreseen for Senegal. Finally, the Private Sector Capacity Building Project which is being prepared in parallel to the Private Sector Adjustment and Competitiveness Credit will help the Government of Senegal in defining and carrying out the necessary reforms needed to improve the judicial framework and facilitate the private sector's response to the improved policy and regulatory environment. 46. Human Resource Development. Senegal's long-term growth prospects ultimately depend on labor productivity, which can rise only with a concerted effort to develop the country's human resource potential. The Bank Group has been involved in the education sector in Senegal through four completed projects and one ongoing operation, the Second Human Resources Development Project. This project supports measures aimed at increasing the primary education enrollment ratio and decreasing inequities across regions, between urban and rural areas, and between boys and girls. Three follow-up operations are under preparation: a Vocational/Professional Education Project, a Higher Education Project, and a special operation to address specifically the problem of high illiteracy among women. (The planned follow-up primary education projects fall outside the time frame covered by this CAS.) Implementation of the National Health Policy, developed within the framework of the ongoing First Human Resource Development Project, has helped improve the situation of the health sector. The public drug procurement system has also improved significantly, although difficulties remain in ensuring a regular replenishment of funds for drugs. The ongoing project supports the development of district health systems, the decentralization of financial management, the procurement of essential drugs, and the recovery of health cost. A follow-up operation is included in the lending program for FY98. 47. Provision of Adequate Infrastructure. A large and well-developed infrastructure is already in place, indicating that financial management and maintenance of existing infrastructure will continue to be the main areas in need of reform. Sector objectives continue to be: (i) reducing the cost of transport; (ii) privatizing the execution of works and the provision of services; and (iii) restructuring or privatizing the parastatals (SOTRAC, the Greater Dakar mass transit company; SNCS, the railway; PAD, the Port Authority of Dakar; and Air Senegal), which should be run on a commercial basis. The Bank is assisting this reform agenda with its Transport SECAL, which ran into substantial difficulties when none of the budgeted counterpart funds were provided in 1993; this matter is now being addressed by the Government. Objectives in the area of water resource development are: (i) to increase the supply of potable water in both urban and rural areas; (ii) to increase the sector's financial viability so as to reduce its dependence on the Government's budget; and (iii) to strengthen sewage operations. Senegal possesses adequate water resources to cover all of its needs and the problem is not one of availability but of water resource transfer. The Bank's involvement in the past has been instrumental in the reorganization of Senegal's water supply sector. Continued assistance to the sector will be through two sector investment operations, the Third and Fourth (Canal du Cayor) Water Supply Projects, which are the second and third phases of a comprehensive long-term water supply development plan. Current difficulties in the urban water supply sub-sector relate to the following points: (i) sufficient autonomy of SONEES, the water company; (ii) regular payment of - 18 - water bills by governmental agencies; (iii) an adequate tariff policy to ensure sustainable financial viability of the sector; and (iv) coherent planning of investments in support of a long-term solution of Dakar's water supply problem. Lending for these projects is conditional on improvements in the management of SONEES. The Government of Senegal intends to privatize the management of SONEES. 48. Population Growth and the Role of Women. Slowing population growth through accelerated fertility decline is critical to securing sustainable development in Senegal. Public policy formulation must take into account the linkages between high population growth rate, environmental degradation, and poverty alleviation. The First Human Resources Development Project also covers the implementation of a National Population Policy formulated under SAL III, which includes strengthening the national family planning program and promoting the status of women. Other relevant projects under preparation include a Female Literacy Project and a Community Nutrition Project as well as the ongoing Second Human Resources Development Project in the education sector given the linkage between girls' education and reduced fertility rates. 49. Pover Alleviation. The overriding goal of the Bank's assistance to Senegal is to promote poverty alleviation through: (i) sustainable broad-based economic growth; (ii) human resources development and increased access to social services; and (iii) targeted actions to address the needs of the most vulnerable groups. The interventions planned by the Bank in these areas have been described sector by sector above and are summarized in Annex 7. 50. Addressing Environmental Issues. Given its high population growth rate and other environmental constraints which make it nearly impossible for Senegal to be self-sufficient in food production, the only way to avoid an environmental crisis is for the country to improve its international competitiveness and become an exporter of light manufactures and services. This will create jobs in the urban areas in numbers sufficient enough to help decrease pressures on the land. Nevertheless, even if fertility rates are reduced, the environmental gains will only be felt in the long-term. Thus, in the medium-term, management of natural resources will be a challenge to policy makers in Senegal. The Natural Resources Management Project will be the culmination of a three-year pilot operation which is now underway and which includes trials of sustainable resource management systems for different ecological zones, as well as the establishment of and assistance to a national body responsible for coordinating environmental programs. 51. International Finance Corporation. IFC has undertaken 12 operations in Senegal, six of which are ongoing. Two of these operations are in the fisheries sector, and both are suffering from substantial financial and management problems. Other operations include a fertilizer plant, an equity participation in a bank, and a recent investment in a leasing company. The establishment of the African Enterprise Fund has enhanced IFC's ability to reach smaller businesses. AEF management recently approved a loan to a fruit and vegetable exporter for the installation of irrigation systems and the purchase of farm equipment. The Bank and IFC are coordinating their respective roles and working closely in developing policies in the areas of industry, the private sector, and banking and finance. The Private Sector Assessment was a joint effort between the Government, IFC, and the Bank. 52. Multilateral Investment Guarantee AMency. MIGA's involvement in Senegal has been limited thus far, although since the devaluation, investor interest has been stronger, and as a result, MIGA anticipates a more active role in the country. In the area of guarantees, in recent months several firms have filed preliminary applications for political risk insurance with MIGA for proposed operations in Senegal. In the area of investment marketing services, Senegal participated in a MIGA-organized African Mining Investment Conference in June 1994. -19- E. Aid Effectiveness and Coordination 53. External Financing Requirements. External financing requirements before adjustment support and debt relief are estimated at CFAF 572.4 billion (roughly US$1.0 billion) for the 1994-98 period. These requirements will be met by projected adjustment support of CFAF 377.3 billion and debt relief of CFAF 212.5 billion. IDA adjustment support is expected to contribute CFAF 75.3 billion. The need for exceptional balance of payments support is projected to be eliminated after 1997, at which time remaining balance of payments and fiscal gaps will be met by debt relief. Senegal: External Financing Table. Base Case Scenario CFAF Billions 1994 1995 1996 1997 1998 Requirements 335.0 145.0 102.4 38.0 25.3 Exceptional Financing 145.7 135.8 81.1 14.7 0 Debt relief 189.3 -1.4t1 8.5 8.2 7.9 I/ Includes debt relief for 1995 plus deferred payments for 1994. 54. Aid Effectiveness. As has already been mentioned, until recently, Senegal has consistently received a larger share of ODA, in per capita terms, than almost all other Sub-Saharan African countries. Budgetary support has had the undesirable effect of focusing Government attention exclusively on the availability of these funds, often to the detriment of longer-term development issues. However, foreign assistance to the Government (in per capita terms) went from US$40 in 1986 to US$25 in 1993, and it is expected to drop further to US$17 by 1996. The drastic decrease in foreign aid partly reflects low effectiveness of past aid (aid fatigue). It also contributed positively to the change of perceptions in Senegal and internalization of the need for a profound structural transformation of the economy. 55. Aid Coordination. At present, aid coordination efforts are directed towards ensuring broad-based donor consensus on the policy reform agenda, maximum efficiency in the use of external assistance, and sufficient resources for both investment and adjustment needs consistent with development priorities and a sound public investment program. The IMF has been a key player in Senegal's reform efforts. A Stand-by arrangement was approved after the devaluation and was transformed into a three-year ESAF in August 1994. The cooperation between the Bank and the IMF has worked well, characterized by frequent technical discussions and joint missions. The European Union, UN agencies, and bilateral donors, particularly France and the United States, are also key partners, both with respect to cofinancing and the preparation of economic and sector work. While the Bank plays a leading role in assistance to the Government in most sectors, particularly in transport and water resources, France is particularly active in agriculture, infrastructure, water supply, and energy, the US in agriculture and health, Japan and Germany in water resource management, water supply, and urban development, and the EU provides substantial support to commodity programs. In 1991, the ADB pledged important cofinancing for the Third Water Supply Project. 56. Given the importance of foreign aid to Senegal and the large number of interested donors, aid coordination will receive special attention, in particular in the support the Bank will provide to the Government's efforts in improving its capacity to manage and coordinate foreign aid. Furthermore, in light of the difficulties with the reform process in Senegal, it is crucial to avoid duplication of effort and conflicting policy advice to the Government. Therefore, the Bank will continue to encourage frequent -20- contacts through coordination between donor representatives in Senegal, under the aegis of the Bank Resident Mission, the semi-annual Special Program of Assistance (SPA) donors meetings, and informal contacts with other donors to coordinate the assistance around integrated sector investment operations (this has been particularly important in the agriculture, education, and transport sectors). A Consultative Group Meeting is planned for the first half of 1995. The Bank and Senegal attach a particular importance to this upcoming meeting and will ensure that satisfactory progress on structural reforms (at the macro-economic, general policy environment, and sectoral levels) has been achieved before the meeting takes place so as to give Senegal the possibility of focusing on long-term development issues in the discussions with its development partners. F. Agenda for Board Consideration 57. Does the CAS Take Adequate Account of the Lessons Learned in Senegal?: The Credibility Issue. Much has been written on the postponement of adjustment in Senegal. The Bank program was in core mode until the CFA devaluation. Has enough of a track record been re-established to resume adjustment lending? The CAS argues for action now for five reasons: (i) the devaluation has considerably altered the economic landscape and eliminated major distortions, making it easier, and sometimes indispensable, to address rent situations which have blocked past reform efforts; (ii) there is a constituency for reform in Senegal, with whom the Bank has developed an active dialogue, and who is pushing for change; (iii) the positive supply response to the devaluation shows that reform can bring growth instead of more austerity as was the case under "internal adjustment"; (iv) the Government, while still divided, has realized the changes in the aid context and is prepared to act, as evidenced by the fact that difficult measures have already been taken in the context of the Private Sector and Competitiveness SECAL and the Agriculture SECAL; and (v) a wait-and-see attitude at this point might well become a self-fulfilling prophecy about reform failure. Significant risks remain. The proposed CAS addresses them by front-loading adjustment operations, carefully monitoring program and project implementation, and maintaining an active dialogue with all key actors. Therefore, regardless of balance of payment support considerations, we would not hesitate to postpone or scale down individual operations. In order to be able to "monitor" the willingness of the authorities to move forward, it is crucial to focus on the process of change itself and to develop a trusted partnership, in particular by diversifying our dialogue partners. Postponing or scaling down an operation should not imply inaction, but time spent working towards establishing a consensus on the path to follow. Unless this "collective therapy" to reach consensus approach is adopted, the likelihood is great of falling back into the errors of the past. 58. Poverty Alleviation. Does the CAS put enough emphasis on poverty alleviation? The Bank strategy aims at improving the living conditions of the Senegalese people and fostering a more equitable distribution of the benefits of growth. The past few years have shown that poverty alleviation efforts are doomed without economic growth and efficient public resource use. Conversely, a comparison between Southeast Asia and Latin America shows that economic growth is severely impeded without increased equality. The major elements of the proposed strategy aim at restoring growth and improving the efficiency of public expenditures, especially in the social sectors. Two areas require special attention: (i) translating the Government Population Policy into effective action through interventions in the health sector, public information campaigns, and efforts at adult literacy (especially aimed at women); and (ii) reaching the most destitute in both urban and rural areas. Finally, while the growth objectives supported by the CAS are both optimistic (when compared to the past) and too modest (when measured by the magnitude of the challenges), the Bank will continue to behave in a manner which increases the probability of the quickest possible transition to accelerated growth. -- - ---- -- -- - ---- -[ Annex 1 Page 1 of I SENEGAL - Selected Indicators of Bank Portfolio Performance and Management Indicators FY91 FY92 FY93 FY94 Portfolio Performance Number of Projects under implementation 20 19 17 13 Average Implementation period (years) 4 4 5 5 Average Ratings Development Objectives 1.8 2.0 2.0 2.2 Overall Status 1.7 1.9 2.1 2.3 Percent (%) of Projects rated 3 or 4 Development Objectives 20.0 10.5 11.8 23.0 Overall Status 10.0 10.5 24.0 29.0 Canceled during FY - - - - Investment Disbursement factor (%) 27.13 21.06 21.26 16.37 Disbursement lag (% overall avg.) 11.1 7.7 12.5 21.9 Memorandum item: % completed projects rated unsatisfactory - 0.0 10.0 - Portfolio Management Supervision resources (total sw) 284.3 301.4 278.6 270.4 Average supervision (sw/projects)l' 15.0 15.9 16.2 20.8 Supervision resources by location (in %) Percent headquarters 88.1 85.2 86.0 81.7 Percent Resident Mission 11.9 14.8 14.0 18.3 Supervision resources by rating category (avg. swk) Projects rated 1 or 2 16.4 16.0 12.3 11.4 Projects rated 3 or 4 9.9 14.5 23.7 20.8 Memorandum item: date of next CPPR: FY95 Source: ARPP Reports and (MIS) data. 1/ Figures include staffweeks for ARPP projects only (including local staff time); and exclude time spent on PCR. t Annex 2 Page 1 of 2 SENEGAL - Bank Group Fact Sheet, FY91 - 98 IDA Lending Program, FY95-98 Past - Planned---- Category FY91 FY92A FY93A FY94 FY95 FY96 to FY982/ (cumul FY88-91) Commitments (USSm) 443.3 43.7 40.0 68.7 115.0 135.0 195.0 Sector (%) Agriculture 19.2 - - - 34.8 22.0 26.0 Ind., Energy, Fin. & Priv. Sect. Dev. 17.6 - - 58.2 30.4 - 15.0 Infrastructure & Urban Dev. 29.6 89.2 - 5.4 26.1 22.0 10.0 Human Resources & Capacity Bldg. 7.9 - 100.0 - 8.7 56.0 39.0 Multi Sector/SAL1/ 25.7 10.8 - 36.4 - - 10.0 TOTAL 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Lending Instrument (%) Adjustment Credits 32.0 10.8 - 41.8 69.6 - 10.0 Specific Investment Creditstothers 68.0 89.2 100.0 58.2 30.4 100.0 90.0 TOTAL 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Disbursements (US5m) 337.5 100.5 53.6 60.7 73.4 160.0 Adjustment loans 159.4 51.9 6.6 25.6 43.4 70.0 Specific Investment Credits/others 178.1 48.6 47.0 35.1 30.0 90.0 Repayments (USSm) 63.0 13.1 15.4 15.2 15.7 47.1 Interest (USSm) 50.2 11.5 12.5 11.0 11.5 34.5 Source: Disbursement Reports - MIS data. 1/ Figures include SAL IV Supplemental Credits (FY90 USS4.4m; FY91 US$7.1m; and FY92 S4.7m); Fifth Dimension funds which will be disbursed in FY95 are not included in the FY95 commitments. 2/ The range of planned IDA commitments has been determined to reflect the scenarios developed in the Country Assistance Strategy and will be reviewed and revised as necessary in view of actual performance and the overall. availability of IDA resources. Annex 2 Page 2 of 2 SENEGAL - IFC and MIGA Program, FY89-94 Category FY89 FY92 FY93 FY94 (cumul 1967-89) IFC approvals (US$m) 56.17 - 0.33 of which: Loans 52.40 - 0.18 Equity 3.77 - 0.15 Sector (%) Agribusiness (Vegetable Export) 1.50 - Tourism 5.34 Capital markets 1.42 - 54.5 Infrastructure - Manufacturingl/ 91.74 Oillmining - - Other2/ - - - 45.5 TOTAL 100.0 - - 100.0 Investment Instrument (%) Loans 93.3 - - 54.5 Equity 6.7 - - 45.5 Quasi equity TOTAL 100.0 - - 100.0 MIGA guarantees (USSm) MIGA commitments (USSm) 1/ includes: Fertilizer Plants, Fishing and Fish Procesing Plant, Printing & Manufacturing. 2/ Other = Leasing Company. A Annex 3 Page 1 of 2 Poverty and Social Development Indicators Senegal: Priority Poverty Indicators Maa Su.ner r4cone group Nr.u UnR of m~iné Sahar~n m~iddle- incoem Indictor nwure 1970-75 195045 1937.92 Afrsca Lacone gru Priority Poverty Indicators rovTRTY Upper povery lin lecal u . .. Headcaunt index % of pop. .. Lower povety lim local cur. .. Hedcou index % Of pop. - GNP per cita LISS 350 380 780 520 3.570 SHORT TRM tNCOME MNDICATORS Unskilled rb wge local cur. Unsilled rul wag "ura s of of~ Conuer pået index 1987-100 40 98 97 Foda 21 102 98 Urban . Rwal SOCIAL MNDICATOMS Pumlic 0 hn, munk m asei % of GDP .. - - GO emalL r y%sholapp. 41 56 59 64 .. 107 Male 48 67 70 79 F~mal 34 46 49 62 - Mor~it 1naamnauiry pr osa.1Ive bir 122.0 97.0 68.0 99.0 45.0 40.0 Uder 5 mortailly- - 105.1 169.0 59.0 51.0 M % a g - 40.0 59.0 54.0 . 2.0 DFT - 4.0 60.0 54.6 . 73.8 Chid nämma (nd.) . - 17.3 23.4 . Lifh -; ~)- Tot y 43 45 49 52 68 69 Fma ad g 2.0 3.3 2.0 3.4 6.4 6.3 Total irilkyr bh peu 6.3 6.7 5.9 6.1 3.1 2.9 Mm mt my rag pe 100.000 live bn . 530 . . . Supplem n Poverty Idicators Expendinrm an social uerby % Gf mmä gqv" . . . . Social scy Goveg % en. ave pop. . . .. . Accesu sawr:o %ofpap. .. "o.0 . 41.1 .. 85.6 Urban • 56.0 79.0 .. 77.8 .. 94.3 Kural .. 38.0 . 27.3 .. 73.0 Acessthealth . . 40.0 Population grwth rata GNP per capita growth rate Development diamond -' - .-- -" (ana wemgs p-an l02 Lifk expeccency T 2 GN<P ~rms 1 0 [ per pomar 4- . 5 casinr lm n -1 -1 -.ccs ensafm wi -20 1970.75 1980-85 1987.92 i970-75 198045 1987-92 [ Sen~ - Snegaå - Lwer.middl- - Lower-middle-income .Sec t achnical n. p.389. b. The developmen diamond, baed on four key indicaors, shows the averg level of devulopmen in the countr compad wiLh iS ime 8r~up. 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TALIP- ~ LIBIP- ~ me 14.~ 6'29 9W 6'95 VV% L-a Z9W LIM r62 M rM OW L-M Tw#NIPEP 1~& L 9ML r2M ZIM 01M 5*02 röt M r« (ME 6*09 M M ("ålå iå :0 0~ 6W am (ponguuoD) u03831PUJ 21MOU033,cax - Ivt)3W3S Z JO Z aft(1 Annex 5 Page 1 of 1 SENEGAL - Key Exposure Indicatorn in = iltion at a~t pric T d dcd. & am~dr c v W.0 3 1.0 M1 17.0 .o 3&I.0 . 156.0 3.0 3. 35.0 . wlt didare~t v 15s 127.9 W. I.1 140. 81.3 155.3 aue 51A4 81.1 w. E T~n cilt ~Amk dia (1M V3 nu m.0 M.63 au5 2mi.2 5.1 n.u n6u 32.9 z.0 2.0 Dat d~ vd-ml r5ctr M V 1 11.3 71.0 6.6 6.1 57.5 M.7 91.1 m,0 73.3 .5 9.0 2.7 10~ 33k1 27.7 20 A 3.5 1a.4 B .7 0.5 26W 2.3 1.2 159.9 1M 27.7 21.0 2.3 .2 WA 21.5 21.9 19.7 1U 56 16 12U ~UaI~/iW 52U SA Å .2 5.2 57.4 .8 6U .7 70.6 W2.6 17.3 75.7 wrd m* D~blIc 1.8 cU 11.8 1.5 5.0 12.9 0.2 11.2 11.5 11.7 11.8 22 Plefrild tr eiks 31.0 31.3 3.A 41.4 5.1 41.1 42.9 4.6 48.0 47.9 464 46.3 7Itd atIn 2.1 1.9 1.7 2.1 1.5 2.1 LO 14 1.7 1.5 1.4 1.3 V In~lub pålic .d dplcty s M4a p .i rm-rw dit. mi aU ad~ta. ad dart- caL. k~em De, D~ b ~ 9arir smasl. L. Annex 6 Page I of 2 Status Of World Bank Operations in SENEGAL Statement of IBRD Loans and IDA Credits (As of December 31, 1994) Amount in USS million (less cancellations) Last ARPP Rating Loan or Undis- Disburse Dev. Imple. Credit No FY Purpose Bank IDA bursed lag (%) Objective Progress Twenty (20) Loans closed 129.33 Fifty six (59) Credits closed 751.03 1855-SN 1988 Irrigation IV 33.60 1.85 ( 4.0) S S 1868-SN 1988 Industry Sector 33.00 20.18 ( 0.3) U U 1884-SN 1988 Municipal Housing Dev. 46.00 19.20 37.3 S S 1910-SN 1988 TA Development Mgmt 17.00 6.54 38.5 S U 1992-SN 1989 Small Rural Operations II 16.10 6.83 2.8 S S 2107-SN 1990 Agricultural Research II 18.50 8.79 41.8 S S 2255-SN 1991 Human Res. I (Pop/Health) 35.00 17.59 51.2 S S 2266-SN 1991 Transport Sector SECAL 65.00 48.36 56.3 U U 2369-SN 1992 Public Works & Employ. II 39.00 37.31 87.9 U U 2473-SN 1993 Human Resources Dev. II 40.00 39.96 0.0 S S 2266-1-SN 1994 Transport Sector SECAL 3.73 3.88 - - - 2582-1-SN* 19 Economic Recovery Credit 3.20 3.33 ( 2.4) S S Total number of Credits = Thirteen (13) 389.03 220.97 TOTAL (including closed projects)** 129.33 1,101.16 of which repaid 97.78 33.23 TOTAL held by Bank & IDA 31.55 1,067.94 TOTAL Undisbursed 22L2 * Not yet effective. * * Total Approved, Repayments, and Outstanding balance represent both active and inactive Loans and Credits. Annex 6 Page 2 of 2 SUMMARY OF IFC INVESTMENTS IN SENEGAL (As of December 31, 1994) Original Gross Commitment Fiscal Type of Loan Equity Total Year Company Business US$ mil 1967 Socidt6 Industrielle d'Engrais du S6n6gal (SIES) Fertilizer Plant 1.70 1.01 3.47 1972 BUD S6n6gal Vegetable Export - 0.84 0.84 74/76 1974/ SOFISEDIT Development Finance - 0.34 0.34 85 1980 Banque de l'Habitat du Sdn6gal Capital Markets - 0.46 0.46 1980 Socidt6 H6teli&re du Barachois Tourism 3.00 - 3.00 1982/ Industries Chimiques du S6n6gal Fertilizer Plant 37.00 0.14 37.14 88 1986 African Seafood Fish Processing Plant 3.29 0.82 4.11 1986 SOTIBA-SIMPAFRIC Textiles 3.20 - 3.20 1988 AFRICAMER Fishing 3.45 - 3.45 1994 SOGECA Leasing Company - 0.16 0.16 1994 SOEX Livestock 0.19 - 0.19 TOTAL Gross Commitments 51.83 3.77 56.36 less Cancellations, Repayments and Sales 42.06 301 45.83 Net Commitments held by IFC 977 0.76 1053 TOTAL Undisbursed 0.45 0.14 0.59 Annex 7 Page 1 of 1 SENEGAL: Bank Poverty Alleviation Strategy Objectives Main Interventions New Lending ESW/Other Economic Growth facilitate supply response from the rural sector Agriculture SECAL, FY95 Country through: i) liberalization prices and trade in Private Agricultural Development and Environmental agriculture products, ii) privatization of Irrigation, FY06 Strategy Paper, FY95 production, processing, and trade, and iii) Agricultural Services M, FY97 .Public Investment expansion of research and extension efforts. Private Sector Adjustment and Review, FY95 facilitate supply response from the private sector Competitiveness SECAL, FY95 Revised Environment by improving competitiveness, diversifying .Energy II, FY96 Code, early 1995 production, and lowering domestic factor costs. .Transport I, FY98 .National .provide adequate infrastructure through reductions .Economic Management SECAL, FY97 Environmental in the cost of transport. Action Plan, June .strengthen institutional capacity to cany out 1995 economic reform Human Resource Development and Increase Access to Social Services intensify integration of family planning services in .Human Resources Development I, .Poverty Assessment, public health facilities ongoing FY95 extend district health systems .Human Resources Development II, .Girls' Education, .continue decentralization of financial management ongoing FY95 and health cost recovery Health Sector, FY98 .expand use of essential and generic drugs .Vocational and Professional Education, increase primary enrollment rates FY97 decrease inequities in education across regions, .Higher Education L FY96 between urban/rural areas, and between boys/girls Water Supply I, FY95 .develop vocational/professional education in line .Urban IV, FY98 with labor market demand .Natural Resources Management, FY96 privatize university student support services and reform scholarship system .increase supply of potable water-in urban areas .strengthen sanitation facilities .improve natural resources management and urban waste management. Targeted Actions to Address Needs of Vulnerable Groups .limit the deterioration in nutritional status of .Community Nutrition Project, FY95 WID Assessment, children under 3, pregnant women, lactating .First Female Literacy, FY96 FY92 mothers .increase female literacy . expand access to rural credit [ Annex 8 Page 1 of 1 COUNTRY ASSISTANCE STRATEGY SUMMARY OF OBJECTIVES AND OUTPUTS AF5 SENEGAL Objectives Actions/Goals Instruments/Sequencing A. Facilitate the supply Improve competitiveness of the economy and Competitiveness SECAL (FY95) response from the private diversify production. Lower domestic factor costs, Private Sector Capacity Building sector. in particular labor and energy and reduce Project (FY96) transportation costs for the promotion of exports. Regulatory reform and improved investment requirements. Trade and price liberalization. B. Facilitate the supply Pursue strategies to increase and diversity output. AGSECAL (FY95) response from the rural sector. Liberalize pricing, marketing, and processing with Private Agricultural Development the aim of disengaging the state from the sector. and Irrigation (FY96) Promote research and extension efforts to improve Agricultural Services III (FY97) productivity, in particular privatization of Senegal Valley Development SONACOS and restructuring of CPSP and (FY96) SODEFITEX. C. Human resource Continue to increase investments in human resource WID Assessment (FY92) development. development. Health: extend district health system, Higher Education Report (FY92) encourage use of generic drugs, extend cost-recovery Poverty Assessment (FY95) program. Population: increase public information Community Nutrition (FY95) efforts and funding of family planning programs First Female Literacy (FY96) with aim of a contraceptive prevalence rate of 11% Higher Education I (FY97) by 1996. Education: expand access to rural areas Vocational Training (FY97) with objective of raising the primary enrollment rate Health Sector (FY98) to 65% by 1997/98; target education of girls; PI, PER (FY95, FY96) privatize university services. D. Provision of adequate Reduce the cost of transport in Senegal. Privatize Water III (FY95) infrastructure, the execution of works and the provision of services. Energy it (FY96) Restructure or privatize the parastatals. Urban Development IV (FY98) Transport (FY98) E. Addressing environmental Strengthen national environmental institutions and Natural Resources Management issues. improve economic incentives to encourage better (FY96) natural resource management. Improve sustainability of land use and urban waste D._Provisionofadequatemanagement. Protect grazing areas. Privatiz_Water_II_(FY95 F. Internalization and Strengthen the role of the Bank as facilitator of Economic Management SECAL consensus-building. economic reform by maintaining emphasis on (FY97) internalization and consensus-building and participatory processes in project design and implementation.