Senegal - Country Assistance Strategy

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 17269-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 December 29, 1997 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 on February 16, 1995. CURRENCY EQUIVALENTS Currency Unit = CFA Franc (CFAF) US$1 = CFAF 595 (December 1997) WEIGHTS AND MEASURES Metric system FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS AfDB African Development Banlk AGETIP Agence d'execution des travaux d'inter2t public contre le sous- emploi (Public Works Executing Agency) BCEAO Banque Centrale des Etats de I Afnique d 'Ouest CFD Caisse Francaise de Developpement CNES Conseil National des Employeurs du Senegal CNP Conseil National du Patronat CNTS ConfMdration Nationale de Travailleurs Senegalais CPPR Country Portfolio Performance Review CRJ Comite de Refonnes Juridiques EDI Economic Development Institute EIB European Investment Bank ESAF Enhanced Structural Adjustment Facility EU European Union FSP Fondation du SecteurPrive GEF Global Environmental Facility GRCC Groupe de Rdflexion sur la CompgfitivWte et la Croissance GRS Groupe de Reflexion Strategique HIPC Heavily Indebted Poor Countries IDF Institutional Development Fund KfW Kreditanstalt ftr Wiederaufbau (Germany) NEAP National Environmental Action Plan NGO Non-governmental Organization OHADA Organization pour I 'Harmonisation du Droit des Affaires OMVS Organisation pour la Mise en Valeur du Fleuve Senegal (Regional Organization for the Management of the Senegal River) PIP Portfolio Implementation Plan SAES Syndicat Autonome des Enseignants du Superieur SAGA Social and Gender Analysis SENELEC Societe Senegalaise d 'Electricite (Power Company) SOE State Owned Enterprise SONACOS Societe Nationale de Commercialisatzon des Oleagineux (Groundnut Oil Company) USAID United States Agency for International Development WAEMU West African Economic and Monetary Union WID Women in Development XGNFS Exports of Goods and Non-factor Services Vice President Jean-Louis Sarbib Country Director Mahmood A. Ayub Sector Manager Emmanuel Akpa  FOR OFFICIAL USE ONLY REPUBLIC OF SENEGAL COUNTRY ASSISTANCE STRATEGY TABLE OF CONTENTS Page No. EXECUTIVE SUMMARY ...................................i 1. BACKGROUND .................. II. RECENT ECONOMIC DEVELOPMENTS .................................... A. Policy Reforms Adopted During 1994-97 ...................................1 B. Impact of the Reforms ...................................3 Ill. SENEGAL-S DEVELOPMENT AGENDA ............................................................................................................3 A. Maintaining M9acroeconomic Stability ....................................4 B. Private Sector Development ....................................5 C. Promoting Rural Development ....................................6 D. Social and Human Development ....................................6 E. Regional Integration ....................................7 F. Cross-Cutting Themes .8................. Gender ....................................8 Governance and Capacity Building ...................................8 Enmironcrnt ....................................9 IV. ECONOMIC OUTLOOK AND RISKS ................................... .9 A. Exte mal E nvironment ....................................9 B. Base Case Scenario ................................... 10 C. High Case Scenario ................................... II D. Low Case Scenario .II................1 E. Social and Political Constraints to Growth ................................... II V. THE BANKS COUNTRY ASSISTANCE STRATEGY ................................................. 12 A. Implementation of the Previous CAS and Lessons Leamed ................................................ 12 What Worked Well.:12 What Did Not Work Well ............................................. 13 Lessons Learned ............................................. 13 B. Toward a Poverty-Focused Assistance Strategy ............................................. 13 Achieving More Rapid and Sustained Growth ............................................. 14 Social Sustainabilitv ............................................. 15 Management of the Bank's Existing Portfolio ............................................. 16 Other Bank Group Activities ............................................. 17 VI. COORDINATION WITH DEVELOPMENT PARTNERS .............................................. 18 VII. CAS SCENARIOS AND RISKS ............................................. 20 A. The Base Case .............................................. 20 B. The Low Case ............................................. 20 C. The High Case ............................................. 20 D. Risks Facing the Strategy ............................................. 2 1 BOXES Box I Main Structural Reforms Since 1994 Box 2 Key Economic Indicators Box 3 Senegal's Major Development Partners Box 4 - Triggers for High- and Low-Case Scenarios ATTACHMENTS Attachment I Summary of the Proposed CAS Attachment 11 Poverty and the CAS Attachment Ill CAS Matrix Attachment IV Alternative Economic Growth Scenarios Attachment V CAS Consultation Process Attachment VI Treatment of Cross-Cutting Themes Attachment VIl Standard Annexes MAP This document has a restricted distribution and may be used by recipients only in the perfornance of their official duties. Its contents may not otherwise be disclosed without . World Bank authorization.  ;~ ~ ~ ~ ~~  EXECUTIVE SUMMARY i. The last four years have witnessed a remarkable turnaround in the implementation of economic reforms in Senegal. This reverses two decades of poor economic management and lackluster growth performance. The impact of the policy reforms adopted since early 1994 is already evident in terms of reduced fiscal and balance of payments deficits, a return of inflation to pre-devaluation levels, and an average growth rate of 5 percent during the past three years. Senegal's social and economic indicators -- poor by the standards of countries with comparable levels of income -- have also started to improve recently, reflecting the increased attention and resources the Government is allocating to social development. Moreover, the status of the Bank's portfolio has improved significantly over the past three years (see paras. 57-64). ii. Recent progress notwithstanding, a sizable unfinished agenda of reforms remains. Unemployment rates remain high, especially for urban youth. Based on daily caloric intake, one out of every three Senegalese is poor. Despite being one of Africa's politically most stable regimes with a solid macroeconomic stabilization program, the country has been unable to attract appreciable levels of foreign direct investment, thanks to cumbersome and opaque administrative and judicial procedures, an incomplete privatization process, and the high costs of the factors of production such as electricity, water, and transport. Senegal is also saddled with a bureaucracy that still has some vestiges of the dirigiste tradition, and is too large for a small country with limited natural resources. iii. The Bank Group's assistance strategy for Senegal seeks to address these issues, guided by the country's Ninth Economic and Social Development Plan and molded by the lessons learned during the implementation of the previous CAS (see para. 44). The over-arching objective of the CAS is to reduce the incidence of poverty and create gainful employment, especially for youth. This would be addressed through a two-pronged strategy (see Attachment I for an illustration of the proposed strategy): supporting policies and programs aimed at more rapid and sustained growth; and ensuring the social sustainability of the program. The proposed base case lending level of US$560 million for 14 projects (compared to 16 under the previous CAS) is predicated on continuing improvements in performance. In particular, it assumes good progress on the implementation of reforms to unshackle private sector initiatives, continued good portfolio management, and allocation of sufficient attention and resources to the development of social and human resources. In terms of lending instruments, the base case includes two adjustment operations in the areas of energy and trade liberalization, and five sector investment program (SIP) operations in the health, education, agriculture, transport, and water sectors. The SIPs are also foreseen as adaptable lending instruments that provide financing for the first phase of a larger program. iv. The proposed CAS has some notable features. First, the preparation has been highly participatory, involving in-country focus group consultations with various segments of Senegalese society (see Attachment V). Second, the CAS exercise also included a social analysis undertaken by a Senegalese sociologist, which has guided the design of the CAS. Third, the CAS stresses selectivity in the Bank's involvement. It identifies the areas where the Bank should lead donor efforts (trade reform and policy reforms in the energy, agriculture and education sectors), and areas where it would follow other development partners (for example, CFD in rural water supply, the Dutch Cooperation on environmental issues, and the European Union, CFD and USAID in selected  subsectors of agriculture). Further details are provided in para. 72. Fourth, even though this CAS was not planned as a joint Bank/IFC product, the collaboration has nonetheless been very close. The Bank's support is focused on solidifying the enabling environment for private sector development and making Senegal a "good business address". IFC -- helped by the opening of its office in Dakar in February 1997 -- will increase its direct support to the private sector, especially in the power, mining, small- and medium-size business, privatization and capital market development. Finally, the CAS subjects each of the proposed projects to the test of how it addresses the key cross-cutting issues such as gender, capacity building, and the environment (see Attachment VI). In addition to its usefulness for the CAS process, the exercise also helped sensitize task team leaders to the cross- cutting nature of project preparation. v. There are risks facing the proposed strategy. Apart from exogenous shocks such as the debilitating droughts in this Sahelian country, a more likely risk relates to delays and even reversals of policy reforms as the country heads into an election cycle: legislative elections in May 1998 and presidential elections in 2000. As the discussion in this document (para. 39) indicates, there is far from unanimity on the need for significant policy action. However, there are some mitigating factors. On several of the more controversial and difficult reforms (such as in the energy and education sectors), the President of the Republic is himself taking the leadership and holding open consultations with civil society on the need for reform. Second, some important measures (for example, in the energy sector) are being adopted up-front to avoid their becoming politicized in the run-up to the legislative elections. Above all, there is growing realization among the authorities that the days of easy and plentiful external assistance without domestic effort are over. This last factor largely explains the good reform implementation record of the past four years. vi. Even with these mitigating circumstances, the proposed strategy is medium risk. However, the rewards are high. For example, if the foreseen reforms in the electricity and pe troleum subsectors are implemented, Senegal would move to the forefront of Sub-Saharan African countries for reforms in the energy sector. The Bank will be closely monitoring progress on the implementation of the reform agenda and will reduce its lending volume significantly (to US$275 million) or increase it to the high case level (US$630 million) depending on performance. The criteria and triggers for the various lending scenarios are outlined in Box 4. vii. The Board may wish to discuss the following issues: * Are the overall thrust, priorities and instruments proposed by the CAS appropriate? * Do Senegal's reform efforts and economic prospects justify a proposed base case lending level of about US$560 million over the period FY98-2000? * Does the CAS adequately reflect the challenges and risks to implementing the proposed strategy?  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 I. BACKGROUND 1. Historically one of the most stable and least repressive political regimes in Africa, which has been spared the ethnic and religious strife and military coups that have torn apart other African nations, Senegal has nevertheless had a checkered record of economic growth during the period 1960-93. In 1960, its per capita GDP of US$1,017 (1985 US$) was higher than that of South Korea. By 1993, South Korea's per capita was at least fifteen times that of Senegal. Falling terms of trade for its main exports (groundnuts and phosphates) was one factor. The frequency of debilitating droughts was another: for a country that depends for about 20 percent of its value added and 60 percent of employment on agriculture, Senegal has experienced 11 years of severe drought during the last 30 years. But most of all, the weak performance of the past reflected a poor record of economic reform, marked by little ownership, weak implementation and occasional back-tracking in a "no-sanctions atmosphere" caused by generous aid inflows. II. RECENT ECONOMIC DEVELOPMENTS A. Policy Reforms Adopted During 1994-97 2. Over the past four years, a major improvement in economic policy implementation has occurred, whose results so far have been positive. The wake-up call came in 1993, when the economy was plunged into a severe recession. Because of Senegal's inability to adjust the nominal exchange rate (Senegal belongs to the CFA currency zone, which requires unanimous agreement on action by all CFA zone members and France), the authorities resorted to ad hoc measures and last minute juggling to reduce fiscal imbalances caused primarily by a shrinking tax base. With the realization that the internal adjustment measures were too little and too late, the Government of Senegal, in consultation with other member countries of the CFA franc zone, revised the parity of the CFAF from 50 CFAF/FF to 100 CFAF/FF in early January 1994. 3. The exchange rate adjustment was accompanied by a comprehensive medium-term adjustment and reform strategy aimed at creating the conditions for strong and sustainable growth and poverty alleviation. The strategy is based on fiscal and monetary stability and structural reforms intended to liberalize the economy, reduce the size of the public sector, foster private sector development, and support social sector development (see Box I for the major structural reforms implemented since 1994). The over-arching objective is to reduce the incidence of poverty: one- third of the Senegalese population lives below the poverty line and the country's social indicators are poor even by Sub-Saharan African standards. The macroeconomic adjustment and structural reform programs have been supported by the international community, including through a three-year ESAF arrangement from the IMF, and structural and sectoral adjustment lending from the Bank.  2 Senegal CAS Box 1: Maior Structural Reforms since 1994 Price and Trade Liberalization * Major liberalization of consumer and producer prices, and of imports * Abolition of special agreements (conventions speciales) for 5 enterprises, and re-negotiation 'of another Labor and Regulatory Legislation * Revision of the Labor Code to allow enterprises to freely adjust their work forces for economic reasons * Elimination of prior authorization for professions other than those affectingpublichealth and security:c * Simplification of customs procedures for import of intermediate inputs used in producing eported goods Public Enterprise Reform * Privatization (completed or underway) of several public enterprises hitherto considered "strategic" and of a: number of smaller enterprises * Liquidation of the waste disposal company, SIAS * Close monitoring of the economic and financial performance of key enterprises PublicWAdministration * Completion of an audit of the civil service, and elimination of etrabudgetai0 y arrears * Settlement of cross debts with public enterprises * Passage of the Local Government Law stengtheniiing decentralization Agriculture * Complete removal of subsidies on fertilizer and other inputs * Liquidation ofthe import monopoly for wheat and rice (Caisse dezrequation et Jde'stabilasation desprix) * Ongoing restructuring of the cotton processigngcompanty, S0DEFTEX * Privatization of the rice mills belonging to the rural development agmcy,0 SAED Energy * Decision to liberalize the petroleum sector, including the abolition of conventions iales and repeal of other rents to monopoly * Decision to privatize the power company, (SENELEC) and to gradually liberalize the electricity sector Transport * Abolition of the monopoly granted to the national shipping company for 40 percent of maritime transportation * Privatization of road maintenance * Implementation of a staff reduction plan for the national railway company, SNCS * Reduction of costs at the port, establishment of normal billing procedures, and reduction of port tariffs * Decision to privatize urban transport company, (SOTRAC) and the Dakar/Bamako railroad activities. Social Sectors and Environment * Adoption of the principles of the Cairo Conference on Population and Development, and establishment of parliamentarian committee for promoting population policy * Adoption of the strategic framework for improving health sector management and promoting cost-sharing * Adoption of a national program to reduce high illiteracy, especially among women * Integration of Desertification Convention program into the National Environmental Action Plan  Senegal CAS 3 B. Impact of the Reforms 4. The policy reforms pursued since early 1994 have led to a marked recovery of economic activity and a significant improvement in Senegal's financial position (see Box 2). * Inflation has been brought down from about 32 percent in 1994 to less than 3 percent in 1997. * After three years of virtual stagnation during 1991-93, real GDP increased by 2 percent in 1994, and has averaged around 5 percent during the past three years. * A strict budgetary stance has allowed the reduction of the fiscal deficit from almost 6 percent of GDP in 1994 to, less than 1.5 percent in 1997. The share of wages and salaries in total expenditures has declined from 41 percent in 1993 to 35 percent in 1997. * Despite import liberalization, exports have been growing more rapidly than imports, leading to a reduction of the external current account deficit from over 10 percent in 1993 to an estimated 6 percent in 1997. - In the real sectors, better economic policies have led to substantial improvement in the industrial, service, construction, and fisheries sectors, stemming from strong export demand, rising profits, and increasing confidence. Total nonagricultural output in 1997 increased by over 6 percent, which will more than offset a drop in agricultural production in 1997 caused by irregular rainfall. In general, there have been significant income effects from the increases in production of "poor farmer" crops such as millet and sorghum, as opposed to rice. 5. On the other hand, there is little doubt that these achievements were accompanied by social costs emanating from the dismantling of the public sector, which had dominated the economic scenery for over three decades. Unemployment rates remain high, and for urban youth in the 20-34 age group, they have reached 40 percent. Despite the social safety net put in place by the Government in 1994, there are indications that the fiscal tightening did result in a reduction of the budgetary allocations to the social sectors (especially education and health) and some deterioration in social indicators. Senegalese cities, especially Dakar, appear to be facing an explosive situation, marked by declining quality of infrastructure, chronic unemployment, juvenile delinquency, and drug addiction. Only recently have the social indicators started to register some recovery. III. SENEGAL'S DEVELOPMENT AGENDA 6. The Government's overall development strategy is well articulated in the Ninth Economic and Social Development Plan, adopted by the National Assembly in February 1997 after extensive consultations with various segments of the civil society. The Plan's over-arching objective is to reduce the incidence of poverty and create gainful employment opportunities for youth through a significantly higher (and somewhat unrealistic) growth rate of 9 percent per annum during 1998- 2001, as well as through effective measures of social and human development. Specifically, the authorities' strategic agenda can be grouped under the following six themes: (i) maintaining macroeconomic stability; (ii) encouraging private sector development and redefining the role of the state; (iii) promoting rural development as an effective poverty alleyiation mechanism; (iv)  4 Senegal CAS accelerating human and social development; (v) fostering regional integration, particularly in the context of the West African Economic and Monetary Union (WAEMU); and (vi) providing specific attention to cross-cutting issues of increasing relevance to economic and social development, such as gender, capacity building and environment. Box 2: Key Economic Indicators (percentages unless othetwise stated) 1986-93 1994 1995 1996 1997 Real GDP growth rate 1.7 2.0; 4.8 5.6 47 Population growth rate 3.0 2.7 2.7 2.72. Real per capita growth rate -1.3 -0.6~ 2.2: 3.0 21.1 Investment/GDP 12.7 13.7 15.6 S 16.3 :16.5 Domestic Savings/GDP &66 7.4 v:104 :1J1.4 11.8 Export growth rate 2.7 5.3 9.4 4.8 1.5 lmlport growth rate -0.2 -9.5 5.5 6.5 0.6~i ~Q Ter ms of trade (1983 = 100) 116.9 110.51 i; i 108.2! 106.5 107.3 BOP current account deficit/GDP -102i -6.5 -6.1 -.5 -6.1 Fiscal deficit/GDP (excl. grants) -2.6 -57 4 -3.2-2.0 -1.3 Foreign direct investment (US$m) -25.1 95.1 2.7 8.21 29.9 Debt outstanding & disbursed (US$b) 3.6 3.7 3.8 3.7 3.4 Debt outstanding & disbursed/GDP 72.2 94.3 79.0 71 .5 69.6 Debt service ratio (percent XGNfS) 24.3 15.9 15.1 17.0 17.5 7 : : f 2 4 5t! Vg f :f:!t :g: tfEi :L:i: .i 5. A 7- 1 : : Tt :!: T: Inflation rate 0.2 32.1 8.1 2.8 2.51 A. Maintaining Macroeconomic Stability 7. Despite significant progress in removing the key macroeconomic distortions, several items on the macroeconomic agenda in the areas of fiscal adjustment, financial sector deepening, and external debt sustainability remain unfinished. 8. In the area of fiscal adjustment, the authorities plan to build on achievements since 1994 through measures on the revenue and expenditure side. On the revenue side, the Government plans to harmonize indirect taxation, with a broadening of the VAT base and the adoption of a common list of excisable goods. The Government also plans to implement a major revision of the taxation of petroleum products during 1998-2000 as well as a comprehensive reform of its tariff in the context of the adoption of the common external tariff by the member countries of WAEMU. These reformns will have substantial economic and financial impact on Senegal. To offset part of the shortfall in government revenues, the authorities expect to take additional measures to broaden the tax base and further improve tax administration. On the expenditure side, the Bank-supported Public Expenditure Review (PER) exercise, focusing on health, education, and justice, is expected to improve the composition of public expenditure, budgetary procedures, and overall expenditure management.  Senegal CAS 5 9. Following a major restructuring during 1989-91, the financial sector of Senegal continues to remain thin, as shown by standard financial deepening measures and by the limited availability of financial instruments and services. As part of the reform in the banking sector, the Government plans to strengthen the judicial system and train judges and magistrates to assure prompt and impartial enforcement of contracts. Microfinance institutions have flourished in Senegal during the past few years, and the challenges for the Government are to avoid new regulations that could jeopardize the flexibility of these institutions, and to work closely with the many NGOs that are supporting these institutions. 10. The Government plans to complete an external debt sustainability analysis by early 1998, with Bank/IMF support. Preliminary indications are that, even with continued implementation of sound macroeconomic policies and prudent debt management, and with recourse to concessional financing only, the ratio of debt service obligations to government revenue will remain relatively high. A stock-of-debt operation on Naples terms, including a topping up of previously rescheduled debt, which Senegal plans to request from the Paris Club, could contribute to reducing debt servicing obligations to more sustainable levels. B. Private Sector Development 11. The private sector dominates the Senegalese economy. Its share in total GDP is about 82 percent, representing virtually all the value added in the primary sector, and about 80 percent in the rest of the economy. Several constraints have inhibited more rapid growth of the private sector. First, despite some progress, the regulatory environment continues to be cumbersome, involving long administrative processing delays and an absence of transparency. Second, the costs of the factors of production (electricity, water, and transport) are relatively high and considered a major constraint to private sector activities. Third, despite progress on the implementation of the divestiture program, the state is still involved in activities where its comparative advantage is dubious. There is a need to accelerate the privatization program and to limit the role of the state to the creation of a framework conducive to the expansion of private sector activities. 12. The Government's strategy in this area is aimed at addressing the above constraints. It involves: deepening the price and trade liberalization; providing a more enabling environment for private investment; assuring good governance and improved legal and regulatory framework (modifying the commercial and criminal legislation to better suit the needs of business, and better training of magistrates and judicial personnel in commercial law); investing in high priority infrastructure projects that support private sector development; and continuing to reform the public enterprises, privatizing those that have already been slated, and improving the surveillance of those that will continue to remain under government control. These measures will be essential to accelerating the growth of exports and attracting private investment. In terms of institutional support to the private sector, the Government plans to continue its support to: (i) the Groupe de Reflexion sur la Competitivite et la Croissance (GRCC), an independent group that is assisting in identifying, and proposing solutions to, the key legal and policy constraints; (ii) the Comite de Reformes Juridiques (CRJ) which is working on improving the legal and regulatory environment of the private sector; and (iii) the Fondation du Secteur Prive (FSP), a totally private institution that provides information and guidance to private enterprises. These institutions were set up with support from previous Bank operations.  6 Senegal CAS C. Promoting Rural Development 13. With four-fifths of poor households living in rural areas, no poverty alleviation strategy can succeed without a heavy focus on rural development and on its main engine: agriculture. Agriculture accounts for almost 20 percent of GDP, 60 percent of employment, and a sizable portion of the country's foreign exchange earnings. 14. Despite its importance for growth and poverty alleviation, Senegal's agriculture sector has stagnated during the past decade. While the parity change of the CFAF in early 1994 did have a positive impact, the supply response was more muted than in some other CFA zone countries. Senegal's limited natural resource base and its degradation are certainly two factors behind the poor performance. Another is the climatic risk factor, with the impact of debilitating droughts reverberating for many years through its effect on productive assets and on the behavior of farmners who seek low risk/low productivity farming systems. However, there are also other reasons, related to 1he policy and institutional framework. First, the state continues to remain involved in some subsectors, and exporters still face a host of infrastructural constraints to penetrating increasingly competitive markets. Second, despite considerable progress in empowering farmers' organizations, much remains to be done on the institutional front to restructure public agencies and change their bureaucratic and centralized culture. Third, access to basic services (appropriate technology, credit, agricultural inputs, and potable water) and markets (locally, regionally, and internationally) needs to be iimproved considerably. Finally, there is need to redress the imbalance between the large-scale irrigation investments in the Senegal Valley, which have yielded low returns, and other regions and rainfed agriculture. 15. The Government considers the development of the agricultural sector to be one of its highest priorities, and the major policy reforms undertaken during the past four years confirm its serious commitment. In addition, in 1996 the Government launched a national consultation on the issues and plan of action for the sector. This exercise, coordinated by an independent Groupe de .Rflexion Strate'gique (GRS) is expected to lead to the adoption by the Government of a Document d'Orientations Strategiques, reflecting a broad national consensus on development priorities, and to the preparation and adoption of a new, detailed rural development strategy and supporting public investment program. D. Social and Human Development 16. Senegal's ability to respond to competitive market conditions will be determined in large part: by: (i) its ability to supply a well-trained, competitive, and healthy labor force; and (ii) a more effective women-centered population policy that succeeds in reducing the high population growth rate of 2.7 percent per annum. Based on data from the latest Poverty Assessment (Senegal: An Assessment of Living Conditions, May 1995) and other sources, Senegal's indicators of human development are well below those of other countries with comparable levels of income (see Attachment II). 17. In the education sector, progress is being achieved in terms of enrollment in primary education, education of girls and women, and reforms in higher education. However, the gains are fragile. For example, much of the recent advances in primary enrollment ratios were achieved by recourse to the recruitment of contractual volunteer teachers, who now comprise about 25 percent of  Senegal CAS 7 the teaching force. Unless a more permanent, lower cost solution is found to the provision of teachers, and unless personnel management improves, it will not be possible to substantially increase access to primary education. Similarly in the higher education subsector, the significant reforms implemented since 1995 to economize on student support services and scholarship budgets have been partially reversed by the agreement reached to end the prolonged strike by teachers and students during 1997. The Government's strategy for education aims at addressing the above issues, in addition to promoting the development of technical and vocational training, and encouraging the involvement of the private sector and NGOs in education. 18. The country's health sector is characterized by a high burden of disease, much of which is preventable and treatable. In particular, Senegal might experience an explosion of its lurking HIV/AIDS epidemic unless additional preventive measures are taken soon. Despite progress made during the past decade as a result of a clear policy shift toward prevention and the provision of a minimum package of primary health care, the public health system continues to suffer from inadequate and -inequitable sector financing (actual expenditure of US$8 per capita in 1995, compared to the minimum of US$9-$12 per capita recommended in the 1993 World Development Report and "Better Health in Africa" report). There is also substantial inefficiency in the use of resources that are allocated to public health facilities. Finally, the institutional base for health care management is weak, and there is minimal involvement by the private sector and NGOs in public health. 19. Since the early 1990s, the Government has increased investments in primary health care, with support from its development partners. The key elements of the accompanying health reforms include: decentralization of the planning and management functions to the regions and health districts; redirection of the pharmaceutical subsector toward the use of generic essential drugs; and efforts to increase beneficiary and NGO participation in the financing and management of, basic health care services. The Government is also committed to increasing the sector's share of the total recurrent budget from the 6 percent in 1996 to 9 percent by 2002, as recommended by WHO. 20. In the area of population policy, even under the most optimistic assumptions about fertility declines, Senegal's population will double to more than 16 million by 2020, of whom some 9 million will live in urban areas. This obviously carries the risk of social instability: it will exacerbate pressures on the consumer and social sector services, absorb a major share of GDP growth, and place a heavier burden on an already fragile environment. 21. There is a critical need to overcome traditional resistance to change in fertility behavior and to further expand the supply of reproductive health information and services, especially in rural areas. In line with its Declaration of Population Policy adopted in 1994, the Government has integrated family planning into the broader public health system. However, until recently, its public stand on the issue has been lukewarm. E. Regional Integration 22. Several important initiatives are underway in the context of WAEMU to introduce a common external tariff and a common framework for investment incentives, and to harmonize economic policies among the member states. This should serve as an additional incentive for, Senegal to streamline its incentives further and improve its business climate. Moreover, the right set  8 Senegal CAS of incentives, adopted at the regional level, will boost credibility vis-a-vis domestic and foreign investors to the extent that it renders policy reversals by individual countries impossible. 23. Another aspect of regional integration is the hydroelectric power project of Manantali, which involves cooperation among Mali, Mauritania, and Senegal. It will help reduce the long-term cost of electricity supply to all three countries and reduce some of the environmental and health damage from the construction of the dam, in whose financing the Bank was not involved. Another example of regional cooperation, in which the Bank played an important facilitating role, is the agreement reached in early 1997 between Malian and Senegalese authorities to create a private operating company for international rail traffic on the Dakar/Bamako line. F. Cross-Cutting Themes Gelnder 24. Women's groups in Senegal outdo those of neighboring countries in numbers (3,600) and dynamism, and the Government has been implementing programs to improve the condition of women since the early 1 960s. Senegalese-educated women in recent years have made their mark on the intellectual and cultural life of the nation. In spite of this, women face several hurdles to their evolution of women as equal partners in Senegalese society. Female illiteracy rates are high (66 percent, compared to 47 percent for men), as are female dropout rates due to early marriage and the need for girls to help their mothers. Their health status is generally poor as a result of undernutrition and frequent pregnancies, and is marked by a high rate of mortality, anemia, and female genital mutilation (the incidence is estimated at 20 percent). Women's access to land (especially irrigated land) and agricultural services is limited, and access to credit is predominantly limited to credit clubs established by women (tontines), which can only provide small credits. Finally, while the Coonstitution guarantees women equal rights and statutory law does not discriminate against them, personal, business, and inheritance matters are still largely conducted in accordance with unwritten customary laws that put women at a disadvantage. 25. The Government is well aware of the additional efforts needed to improve the condition of women. The establishment in 1990 of a separate Ministry of Women, Children and Family Affairs has had a very positive impact. The Ministry, working very closely with NGOs, civil society, and key development partners, has completed the second National Action Plan for Women, which focuses on five strategic areas: (i) development of economic activities for women, including improved access to land, credit, and extension services; (ii) improved female access to education; (iii) strengthening of health and family planning services; (iv) legal status of women; and (v) stepped-up cooperation among organizations that promote the role of women. The Government is also working closely with women's groups and NGOs to discourage the traditional practice of female genital mutilation (see Attachment VI, para. 5). Governance and Capacity Building 26. Good governance, defined as public accountability, citizens' participation, government responsiveness, transparency, and efficiency, is increasingly surfacing as an important concern of the Senegalese private sector, media, NGOs, and other members of the civil society. A study undertaken for the 1997 World Development Report demonstrated that the major concerns of private  Senegal CAS 9 entrepreneurs in Senegal were the unpredictability of the laws and weaknesses in the judicial system. In November 1997, Senegalese NGOs held a seminar on code of conduct, corruption, and governance issues in the NGO sector, while in the same month more than fifteen ministers attended a ministerial-level seminar on good governance organized by the British Embassy in Dakar. 27. Several recent Government actions confirm the growing interest in this area. First, with the support of UNDP, the Bank, and other donors, the Government is formulating a coherent strategic program for good governance and public administration reform. In October 1997, it presented and discussed an Action Plan for a National Program for Good Governance. Second, it has established a focal point for capacity building within the Ministry of Finance, in the context of the Partnership for Capacity Building in Africa initiative. This focal point has two main tasks: (i) to carry out a National Capacity Assessment and subsequently develop a National Capacity Building Strategy; and (ii) to establish a formal National Capacity Building Secretariat to coordinate capacity building efforts in Senegal. Third, a critically important aspect of capacity building is the decentralization process underway in Senegal, particularly since 1990. The adoption of legislative reforms in February 1996 and the modification of the Code of Local Governments (Code des Collectivites Locales) are important initial steps to ensure that the delegation of responsibilities to local governments is backed by the transfer of financial resources to support municipal development. Finally, in June 1997, Parliament approved a law on merit-based promotion that should improve the accountability and efficiency of public services. Environment 28. Attachment VI provides a summary of Senegal's key environmental problems. In an effort to address these problems, the Government has just completed the preparation of a National Environmental Action Plan (NEAP). It is translating the strategic objectives of the NEAP into a series of tables that identify Senegal's principal environmental problems region by region. Based on the respective ranking of the regional priorities, the Government plans to request support from development partners to implement the NEAP in a decentralized framework that empowers local communities in each region. IV. ECONOMIC OUTLOOK AND RISKS A. External Environment 29. An analysis of Senegal's primary linkages to the global economy indicates that in general the country faces favorable external conditions over the next few years. 30. Import demand growth in Senegal's major markets, after taking into account the global impact of the East Asian crisis, is slated to improve from the 4 percent of the past decade to 5-6 percent over the coming decade. Recovery from sluggish conditions is currently under way in the European Union (EU), which accounts for more than 60 percent of Senegal's merchandise exports. The CFA countries (20 percent of exports) are anticipated to post 4.5 percent demand growth. While the chances are slim that there will be a direct contagion effect of Asian economic and financial turbulence on CFA countries, there are likely to be some secondary effects resulting from the sharp declines in the exchange rates of many East Asian countries. For example Thailand and Senegal  10 Senegal CAS compete in the fish products market in Europe. On the other hand, the emergence of India (10 percent of exports) as a fast-growing trade partner should support improved market conditions. International tourism is likely to continue to grow by 4 percent a year during the coming 10 years. However, tighter restrictions on expatriate workers in Europe can be expected to lead to stagnation in the level of worker remittances. 31. Senegal's terms of trade are expected to register a modest decline of about 1 percent per annum over the next decade. The export price index is likely to rise marginally, with the expected upward movements in fish prices being counteracted by a decline in the prices for processed fertilizers, -including phosphates, as new capacity comes on stream around the turn of the century. ThLe rise in Senegal's import prices, while anticipated to be moderate, is expected to exceed that of export prices. 32. In terms of external financing, Senegal has failed to avail itself of the increasing flows of private capital to developing countries (in 1996, for example, Senegal attracted less than US$10 million out of US$245 billion flows to developing countries).; Emerging optimism in Senegal and some other African countries regarding potential capital flows from East Asian countries (especially Malaysia) is diminishing in view of the inflow requirements of the Asian countries themselves. Similarly prospects for ODA flows are not encouraging, given the movement toward fiscal consolidation in major OECD countries and -- of particular importance to Senegal -- the budgetary restrictions associated with qualification for the European Monetary Union among EU members. In this environment, additional debt relief from Paris Club creditors, if granted as Senegal plans to re(luest in early 1998, and continued progress in privatization are options for covering the financing gap over the next 2-3 years. In this regard, the sizable external inflow (about US$130 million) in 1997 related to the partial privatization of the telecommunications company, SONATEL, is a positive development. 33. With the impressive progress in macroeconomic adjustment and stability, the extent to which Senegal can exploit the positive external environment will depend critically on the depth and pace of second generation structural reforms, particularly in terms of unleashing the entrepreneurial spirit of the private sector and ensuring accompanying measures of social protection. B. Base Case Scenario 34. The main assumptions underlying the base case scenario (Attachment IV) are that the stabilization program remains on track, the Paris Club rescheduling reduces the external debt burden, and the authorities implement the energy and trade reforms starting in 1998. Assuming that macroeconomic stabilization continues and that structural reform improves the Government's provision of public services, growth should remain around 5 percent until the year 2000. Total investment, mostly domestic, would increase to around 19 percent of GDP. Exports are expected to grow., only moderately, since the economy is not diversifying the production and export base sufficiently. The increase in exports essentially reflects the growing demand from OECD countries. The fiscal deficit (excluding grants) remains moderate.  Senegal CAS 11 C. High Case Scenario 35. A real opportunity exists for achieving a higher growth rate than forecast in the base case: there is great scope for liberalizing the economy and improving the investment climate. Sub- Saharan Africa is at the center of multiple initiatives to increase trade and investment with preferential arrangements with the US and the EU. 36. The opening of the economy, together with aggressive implementation of structural reforms, such as privatization of public enterprises, may increase foreign direct investment to Senegal considerably, given its strategic location and human capital endowment. While these initial investments will affect only the portfolios of companies, the improved business climate might encourage new foreign direct investment that may lead to the development of non-traditional exports (especially in agro-business and simple manufacturing), tourism and information technology services, permitting growth to reach 7 percent by the end of the decade. 37. Proceeds from the sales of public enterprises would reduce the debt burden on the budget during the next 2-3 years. Together with reform of budgetary allocations, public expenditure in the sectors with more impact on growth could rise. As a consequence, poverty would be reduced not only directly through higher GDP, but also indirectly through an increase in public expenditure for basic health care and primary education. This may start a virtuous circle of higher sustainable growth, accompanied by a marked reduction in the incidence of poverty. D. Low Case Scenario 38. The low case scenario assumes a conjunction of delayed reform and unfavorable exogenous circumstances (see para. 76 below). Under this scenario, absence of significant reforms would leave the economy undiversified and vulnerable to terms of trade shocks or severe droughts. In the presence of a fixed arrangement for the exchange rate and inflexible prices and nominal wages, the real demand/supply shocks would create an overvaluation of the real exchange rate. Such a reduction in competitiveness would slow foreign and domestic investment and delay privatization of public enterprises and trade liberalization. Reduced revenues and the need for counter-cyclical expenditure would increase the debt burden on the budget and might drive the Government off the stabilization course. An average growth rate of 3 percent per annum would barely keep up with the population growth rate (2.7 percent) and would lead to an increase in poverty incidence. E. Social and Political Constraints to Growth 39. Despite its many advantages indicated earlier, Senegal has not been successful, until very recently, in achieving high, private sector-driven growth. Strong vestiges of the dirigiste tradition linger, and the elitist education system has led to high rates of illiteracy, neither conducive to growth nor to attracting foreign investment. Also, there is far from unanimity on the need for economic liberalization. The line-up of the main influential pressure groups is as follows: * Opposed to reform. Many elements of the bureaucracy (fonctionnaires) have the difficult task of adopting and implementing an adjustment program that chips away at their capacity to distribute patronage, selling to the public a program they believe in only halfheartedly, and yet knowing that without continued aid and its attendant conditionality, jobs and financial resources  12' Senegal CAS will shrink. The Conseil National du Patronat (CNP), the main employer group representing the establishment firms with a long presence in Senegal, often foreign-owned (generally French) and which developed under protectionist policies, has frequently criticized the Government and the World Bank for the "excessively rapid pace of liberalization." The main trade union federation, the Confederation Nationale de Travailleurs Senegalais (CNTS), fought the liberalization of the labor code provisions on hiring and firing and has urged pro-employment policies. In the education sector, the Post-Secondary Teachers Union, the Syndicat Autonome des Enseignants du Superieur (SAES), has led a fight, including during 1997, for higher housing allowances. The primary and secondary teachers' unions have opposed the recruitment of volunteer teachers. University students have been frequently on strike against the reduction of their generous benefits. * In favor of reform. Apart from a sizable portion of the civil service, three main pressure groups support the reform program. An employer group of more recent vintage, the Conseil National des Employeurs du Senegal (CNES), favors opening up the economy and increased competition. Farmers organizations, which have flowered, particularly since the 1990s, have gained from the agriculture sector reforms and decentralization of the cooperative movement. Women's groups have become an important force for policy changes, especially on rural development and gender issues, and particularly since the creation of the separate Ministry of Women, Children, and Family Affairs in 1990. 40. As in many other countries, elections in Senegal have been accompanied by political tensions. This was particularly the case in 1983, 1988, 1993, and 1996. Electoral periods have also been marked by a resurgence of the separatist movement in the Casamance region (which in the past has affected the country's thriving tourist industry). The country is headed into an election cycle (legislative elections in May 1998 and presidential elections in 2000), and pressure to stall or even backtrack on key economic reforms will likely build during the coming months. V. THE BANK'S COUNTRY ASSISTANCE STRATEGY A. Implementation of the Previous CAS and Lessons Learned 41. The Board discussed the previous CAS for Senegal in February 1995. Overall implementation of the CAS has been satisfactory. Actual commitments for FY95-97 amounted to about US$300 million. This level was higher than the base case proposal of US$200 million for 16 operations, mainly because performance triggers justified larger Bank assistance in the context of the post-1994 policy reform pick-up and good absorptive capacity for Bank lending. In terms of specific aspects of the CAS, success in implementation was mixed. What Worked Well 42. There has been a definite and favorable turnaround in macropolicy formulation and implementation, which has had a very positive impact on the key macroeconomic indicators (see paras. 2-4). The Bank's advisory and financial support was timely and greatly appreciated. Bank/IMF coordination has been exemplary. The status of the Bank's portfolio has improved considerably. When reading the previous CAS document, it is hard to believe that it talks about the  Senegal CAS 13 same country: portfolio performance then was poor even by the standard of Sub-Saharan African countries. The situation has improved dramatically (see paras. 57-64). What Did Not Work Well 43. Little progress has been registered in civil service reform, where the high unemployment rate and tension between ministries on which one is to take the lead have frustrated the Bank's efforts. In the energy sector, bold action has been hampered during the past 7-8 years by opposition from entrenched monopolies threatened by the liberalization of the petroleum sector and by the main trade union's resistance to privatization of the power company, SENELEC. Delays in the implementation of reforms and projects in the agriculture sector have been due to: (i) differences of opinion between the Government and the Bank concerning strategy (emphasis by some in the Government on food self-sufficiency) and hence over investments (the Government's preference for large investments in the Senegal Valley versus the Bank's proposal for more emphasis on rainfed agricultural areas); (ii) the Bank's underestimation of the complexity of the institutional reforms aimed at decentralizing support services and strengthening the professional capacity of producer organizations, as well as the Government's slow response in undertaking specific actions; and (iii) the absence of continuity in the Bank's technical team. Lessons Learned 44. Several lessons emerge from the Bank's experience with past assistance. First, certain reforms (particularly those of a cross-cutting nature and those involving long-term institutional development issues, such as capacity building and civil service reform) require more time to mature. They need to be discussed extensively by the authorities with all segments of civil society in an open and participatory manner before ownership for those emerges. The Bank should facilitate participative dialogue mainly by bringing the experience of other countries and sectors, but it should not set the pace of reform. The Bank's proposed IDF grant for civil service reform is expected to catalyze this process, in close collaboration with the UNDP and other development partners. Second, while the Bank's collaboration with other donors in Senegal has been generally positive, it needs to be more selective in its choice of which sectors to focus on and which instruments to employ. Where other development partners have a comparative advantage, the Bank should follow rather than lead (see para. 72). Third, while the recovery in the quality of the Bank's portfolio has been remarkable, there, is considerable scope for improvement in the area of financial accountability and procurement. The Resident Mission in Dakar should play a more active role in this area. Finally, there is need for greater support for the management of statistical data on the incidence of poverty in Senegal to facilitate refining and monitoring the poverty alleviation strategy. B. Toward a Poverty-Focused Assistance Strategv 45. The Bank's assistance strategy for Senegal is: (i) guided by the country's Ninth Economic and Social Development Plan; (ii) enriched by extensive consultations with various segments of the -civil society during May/June 1997 (see Attachment V); and (iii) molded by the lessons learned during implementation of the previous CAS (see previous para.). 46. The over-arching objective of the proposed CAS is to reduce the incidence of poverty and create gainful employment, especially for youth. Attachment II summarizes the nature and incidence of poverty in Senegal, the Government's strategy for poverty alleviation, and the Bank's  14 Senegal CAS proposed support for this strategy. Overall, Bank support would be two-pronged (see the systematic summary of the CAS in Attachment I): assistance for the policies and programs aimed at more rapid and sustained growth; and assurance of the social sustainability of the program. Attachment III presents the current assistance matrix and Annexes B3 and B4 list the lending and non-lending instruments. Achieving More Rapid and Sustained Growth 47. No appreciable reduction of poverty incidence can occur without high, sustained, and employment-generating economic growth. Achievement of such a growth rate will require initiatives on several fronts. 48. At the macroeconomic level, the Bank will work closely with the Senegalese authorities and the IMF to maintain macroeconomic stability and extend the fiscal reform (broadening the VAT base, better expenditure control, and public expenditure review for selected sectors), financial reform (deepening of the sector and use of more varied financial instruments), trade liberalization in the context of the common external tariff of the WAEMU, and debt sustainability. The main instrument of policy dialogue in this area will be the Policy Framework Paper (PFP) and close coordination with the IMF in their current and future programs in Senegal. Analytical work is underway on the transitional costs of trade reform (FY98), which is expected to lead to the preparation of the Trade Reform Adjustment Credit (FY2000). The ongoing Public Expenditure Review (FY98) is helping the Government improve the size and composition of public expenditures for the period 1998-2000. 49. Critical to more rapid economic growth and poverty alleviation will be helping Senegal solidify the enabling environment for private sector development and making the country a "good business address." This would involve: attitudinal change in the role of the state from control to facilitation, as evidenced by the dismantling of the regulatory and market interventions that continue to hamper competition and private sector investment and initiative; strengthening of the dialogue between the public and private sectors; speeding up of the Government's privatization program within an appropriate regulatory framework; better identification of the sources of Senegal's comparative advantage; supporting improvements in Senegal's infrastructure (electricity, water, telephone, and transport), which is characterized by high costs and service unreliability; and assurance that environmental problems do not jeopardize sustainability of long-term growth. 50. The Bank and IFC will continue to work closely in this area, with the Bank concentrating on factors that improve the business environment, and IFC -- helped by the opening of its office in Dakar in February 1997 -- increasing its direct support to the private sector, especially in the power, mining, small- and medium-size business, privatization, and capital market areas. (Details on IFC and MIGA involvement in Senegal are provided in paras. 65-66). 51. Several IDA lending operations are proposed in support of this strategy. The Private Sector Development operation (FY99), a follow-up to the ongoing Private Sector Development Capacity Building Project, is expected to address the institutional, regulatory, judicial, and financial constraints of the private sector. It will also assist with the development of Senegal's information processing services industry, where there are strong indications of comparative advantage. The Energy Sector Adjustment operation (FY98) will support the Government's program of reforms in the energy sector, within the framework of its reform agenda to liberalize the economy, reduce the size of public sector and improve the quality of infrastructure for private sector development. The  Senegal CAS 15 Agricultural Export Promotion Project (FY98) is a pilot operation to facilitate the production and export of selected agro-based products that have gained from the parity change of 1994 but face specific bottlenecks. Two other operations in the agriculture sector (Agriculture Services Support Project in FY98 and Agriculture Sector Investment Project in FY99) will support improvements in rural infrastructure and agricultural support services to improve the supply response in this sector. To mitigate the negative impact of frequent droughts, cooperation with the FAO on small-scale irrigation will be continued, especially in the context of the Agriculture Sector Investment Project. Finally, six operations (two in the energy sector, two in the transport sector, and one each in the water and urban development sectors) are expected to alleviate the key infrastructure bottlenecks in these sectors and to support the decentralization process. 52. In terms of non-lending services in this area, several important economic studies are planned to identify ways to make Senegal more attractive for private investment. In addition to the study on the transitional costs of trade reform (FY98), a flagship study is underway on the constraints and opportunities for private sector development in Senegal (Senegal: The Challenge of International Integration, FY98). This study is expected to form the basis of high-level workshops for all segments of the civil society and Government, to be organized jointly with other development partners and with support from EDI. The aim is to develop agreement on the implementation of measures to significantly improve the environment for private sector development. A Financial Sector Assessment (FY99) will provide recommendations for addressing the key problems of the financial sector in Senegal; inputs from this study will feed into the preparation of the Private Sector Development Project and the Regional Financial Sector Project (FY99). 53. Given the environmental problems Senegal faces, it is important that economic growth be environmentally sustainable. The Bank will support the Government's multi-donor program to implement the recently completed National Environmental Action Plan (NEAP). The Bank's contribution could include: (i) support for environmental capacity building, including environmental legislation and assessment; (ii) work on coastal zone management issues (where GEF support will be sought); (iii) support for addressing specific urban environmental issues; and (iv) implementation of a soil conservation and reforestation program. Social Sustainabilitv 54. The Bank is collaborating closely with key development partners, NGOs, and community- based organizations to ensure the social sustainability of the program through: investments in health and education; greater focus on and attention to population policy and its linkage to the low female literacy rate; increased emphasis on rural development, given that poverty is largely a rural phenomenon; attention to urban employment issues through selective employment-creating activities (AGETIP-like projects and support for small- and medium-scale enterprise development); and improved knowledge of the nature and incidence of poverty for more effective support. 55. Apart from the rural development projects already referred to, two important sector investment operations are included in the health (FY98) and education (FY2000) sectors, aimed at addressing the problems and constraints of these sectors in an integrated manner and in close coordination with other development partners. A Social Development/WID (FY2000) operation will provide direct support for poverty alleviation activities, especially those focused on women's social apd economic development.  16 Senegal CAS 56. Sector analysis in the social sectors will largely be embodied in the preparation of the new operations. Also, in line with selectivity considerations, it will draw heavily on the work of other development partners, especially at the subsector level (see para. 72). Management of the Bank's Existing Portfolio 57. The Bank's portfolio in Senegal has registered strong improvement during the past two years, reflecting both the positive impact of the reform program (lack of counterpart funds is no longer a critical issue) and also sustained efforts by country officials and the Bank (see Annex B2). In particular, the increasing role of the Resident Mission in portfolio management has been a very positive factor, involving clear and persistent follow-up until problems are resolved, regular meetings with the Club of Project Directors, pre-screening of disbursement operations in the field, and the growing experience of the locally recruited procurement/implementation officer. 58. FY97 ended with 20 operations, of which 14 were active and 6 were closed but still disbursing during FY97. The commitment value of the 20 operations in FY97 was US$583.3 million, with the 14 active operations valued at US$378.2 million. Of four projects rated "unsatisfactory" in FY96, three were upgraded to "satisfactory" as a result of improved performance. The only remaining project rated unsatisfactory (Small Rural Operations II) was restructured in February 1997. Results so far are encouraging, and the status of the project is expected to be upgraded during FY98. 59. The dramatic fall in the proportion of problem projects (from 21 percent to 5 percent) was paralleled by an even sharper reduction in the proportion of "projects at risk," from a historical level of about 50 percent to 5 percent. The sole project classified as "at risk" is, as noted, the Small Rural Operations II. The project's specific risk flags on slow disbursements and procurement progress have been addressed through the restructuring. The reduced proportion of unsatisfactory outcomes for FY90-98 (21 percent from the historical record of 33 percent), and the total elimination of the disconnect for this period, confirm the improvement in portfolio performance and increased realism in ratings. 60. Disbursement performance also improved significantly: the disbursement ratio increased to 30.4 percent in FY97, compared to 15.8 percent in FY96 and 15.3 percent in FY95 (actual disbursements increased by 61 percent between FY95 and FY97, from US$70 million to US$113 million). The disbursement lag decreased from 33.5 percent in FY95 to 21.4 percent in FY96 and only 12.3 percent in FY97. 61. There is, of course, room for improvement, in particular in the area of financial accountability, specifically, audits/financial reporting and procurement. Only 50 percent of the audit reports due in FY97 were received, and the number of qualified/unsatisfactory audits increased by 80 percent in FY97. In procurement, despite five procurement and disbursement seminars offered to Senegalese officials during FY97, progress was impeded, in large measure by the outdated procurement code still in force. Adoption of a new procurement code is under consideration. The recruitment of a financial analyst/expert in the Resident Mission should also help improve the situation. 62. A highly participatory Country Portfolio Performance Review (CPPR) was carried out in June 1997 immediately preceding the CAS consultations in order to draw lessons from the  Senegal CAS 17 experiences of ongoing projects, build on their strengths, and eliminate areas/components that did not work. The two main themes that emerged from the CPPR discussions were the need to: (i) strengthen the capacity of key ministries through adequate training and equipment for project design, implementation, monitoring, and evaluation; and (ii) promote "sustainability" by strengthening the capacity of the Government and beneficiaries to enable them to carry on projects beyond the Bank- supported implementation period. Specific action plans were agreed upon for a number of projects as well as for generic themes. The Resident Mission is monitoring implementation of these actions. 63. Senegal is one of the countries selected Bank-wide for the Portfolio Implementation Plan (PIP) exercise, whose objective is to achieve a major improvement in the performance of projects at risk. The strategy focuses, inter alia, on retrofitting the portfolio where necessary, increasing the use of Midterm Reviews, further increasing the responsibility of the Resident Mission in portfolio management, better linking local auditing firms with internationally recognized auditing firms, strengthening the capacity in procurement and financial management/auditing through training and dissemination of relevant materials, using trust funds more effectively to help capacity building, and promptly completing ICRs following project closing. 64. Given the scheduled closing of some ongoing projects and the approval of new operations during the proposed CAS period (FY98-2000), it is expected that the portfolio will consist of about 23 projects at the end of FY2000. Five of these will be sector investment operations (in the health, education, agriculture, transport, and water sectors) that are typically more supervision-intensive. Efforts in the area of financial accountability will also need to be enhanced. Resources for portfolio management will, therefore, have to be increased during FY99-2000. Other Bank Group Activities 65. The IFC's current active portfolio in Senegal includes five investments in manufacturing, fishing, and the financial sector. In June 1997, it approved an investment of US$16.1 million in the first independent power project in Senegal. This project, with a capacity of 56 MW, will help reduce the growing power shortages in the country. The Corporation, helped by the opening of its field office in Dakar in February 1997, has identified five priority areas to advance private sector development in Senegal: (i) power sector, where there is a large demand for expansion and which is being liberalized; (ii) small- and medium-size business, where the IFC is already providing technical assistance in project preparation and implementation through the Africa Project Development Facility (APDF) and project financing through the Small Enterprise Fund (SEF); (iii) advice and financial support for particular privatization deals; (iv) development of capital markets by supporting the development of diversified funding bases and expanding the operations of existing financial institutions regionally through joint ventures with commercial banks in neighboring countries; and (v) exploring options in the mining sector, where Senegal is starting to attract interest from foreign mining companies. The current pipeline of new projects includes two that deal with the rehabilitation and expansion of existing companies and two that are greenfield operations. 66. MIGA has not yet issued a guarantee in Senegal, but four preliminary applications in various sectors are pending. In addition, Senegalese representatives have participated in several Investment Marketing Services (IMS) in mining, tourism, capacity building of investment promotion agencies, etc. The IMS newsletter routinely features articles on investment prospects in Senegal.  18 Senegal CAS 67. Senegal is one of the most active countries in Sub-Saharan Africa for the EDI. The Social and Gender Analysis (SAGA) training program aims at improving the performance and outreach of agricultural extension field agents, with women cultivators being its important target group. The Grass Roots Management Training Program trains poor, often illiterate women to create and run small income- generating activities. Other recent EDI activities include workshops on public expenditure management, a regional seminar on trade, a visit for high-level Senegalese decision-makers to New Zealand to study its experience with agriculture reforms, and guidance on Internet connectivity issues. EDI is expected to play a critical role in the series of planned workshops on private sector development (see para. 52). VI. COORDINATION WITH DEVELOPMENT PARTNERS 68. Collaboration with the IMF has been very close on the macroeconomic and structural reform program under the three-year Enhanced Structural Adjustment Facility (ESAF), the Policy Framework Paper (PFP), and the Public Expenditure Review. Bank staff routinely participate in IMF missions, and extensive consultations take place. Bo RX 3: Senga's Maor Develoment Partners ArtJ from iAtShe larrgest ix Sedevelopment parrs ofnl are:al; Frantce,h teEuropean'Union, US , Japan, Germany, and the rican Dieavelopment Bank. The following ista summaryof thleisize and fou oftheiAs oa smm r programs. France French pwport tbqoSenegals &developmenttduring the past three years (1994-96) totaled US$700 million. A great deal of the focus was on enabigthetountiyito make a smt transition ferthe!CFAF deivalution of 1994: some US$380 million were provided in the form of adjustmenItgrants and debt cancellation. Beyond the support f ttu refos,the French;Coopertion ,hasifocused on: social sector eveI t(educatioyouithdevelo ,health, andclte;produtive sectors (nrurl development, public enterprise development, fisheries, energy, indusry f y and teleommunications); and intiial development (civil service and judiciary reform, and decentrlization). Ov)er thkenextthree yeEars,thle focus onithese areas is expected to continue, although the levl of technical assistance will likely decrease tothe re-evaluationievel. Undv tht.eighth EDF (1997-4001), the EU has targeted thtre mamor areas for total grant financing of about US$200 million: (not includ budgetXaryaid, stbiiizatiot finwds,Bwfood sertand temergency assistice): promoting economic growth, especially.'in the agriculturesector(supporting activitieson lthe lef bank of the Senegal River, the groundnut basin, and horticulture); strengthening the ceapacity of thepblic sector bin thelthservices and road maintenance; and: supporting local development through NGOs, local goveme n, and co ybased organaions inthefightagainstpoverty, gender discrimination, and environmental degradation. In addition toothese threemajore, the EU is also involved in regional integration activities and fisheries. USAID DIrng 97, USAID) :comnutmentXs totaled over US$200 millioni, covering the following major areas: health (population and family iplkhti; n hildsurival, and AIDS);agriculture and natural resource management; human resource development; and market liberalization ( WWri tdjustmnt reform). The agency recently finalized its strategy for the period 1998-2006. The level of commitment for this period will be US$215 imillion, of-which US$75 million will be for the period 1998-2000. The three main areas of focus are: support for more ecticve, democratic, and accountable local governments; private sector income-generating activities in selected sectors; and increasbdAutilizatin ofreprodtive health services (child survival, maternal health, family planning, and STD-AIDS). Japan's-commitments to Senegal during 1994-96 totaled about US$200 million. Investment has been mainly in: agriculture and fisheries; educatin;tersupply;community-based micro-projects; and structural adjustment programs. For the next three years, the following are the topp prori areas. water supply;.education (especially basic education); primary health; agriculture and fisheries; and enviroinrent. Germany G;ermhansupport,to Senegal during the past three years (1994-96) amounted to about US$150 million. The main areas of involvement have bee itrigation,- water supply, educaion, and health. Af-ican Develooment Bank With tlhe regen of AfDB as an active lending institution, its program for the period 1996-98 amounts to about US$115 million, twith.Iheficusontfiel education heal*, agriculture, and energy. sectors.  19 69. Development partners have an important and increasingly coordinated approach to the social and economic development of Senegal. Apart from IDA, the most important donors are: France, European Union (EU), USAID, Japan, Germany, Canada, the African Development Bank, the UN agencies (especially UNDP, IFAD, FAO, UNFPA, UNEF, and the WHO), Islamic Development Bank, European Investment Bank (EIB), West African Development Bank (BOAD), Arab Bank for the Economic Development of Africa (BADEA), and Taiwan Province of China. Box 3 summarizes the areas of focus of the development partners with the largest programs. 70. Overall, the quality of cooperation among the donor agencies has been very good. This is best exemplified by the coordination in the health, water, and environment sectors. In the health sector, 10 donors (with WHO playing the role of quality assurance) participated actively in the donors meeting in May 1997, whose purpose was to coordinate policies and to firm up financing for the sector in the context of the recently approved Bank sector investment program (SIP) operation. While the Bank took leadership for the formulation of the elements of the SIP, the EU took on the coordination role. Similarly in the water sector, seven donors (IDA, CFD, Nordic Fund, EIB, KfW, BADEA, and the Belgian Cooperation) coordinated closely in the preparation and implementation of the water sector strategy. Supervision missions are conducted jointly with all donors. Finally, in the area of environment, where USAID has been the main donor for the National Environmental Action Plan (NEAP), there exists an informal donor group in which the Dutch Cooperation, owing to its heavy presence in the sector, is accepted as the natural leader and coordinator of the group. 71. While strong, there is room for further deepening of the collaboration among Senegal's development partners. In preparation for the forthcoming Consultative Group Meeting (scheduled for March 17-18, 1998), a series of informal consultations among donors is scheduled in Dakar on the key policy and institutional issues. 72. The challenge for the Bank is to build on the existing cooperation and focus on the areas of its comparative advantage, leaving leadership in other areas to other development partners. Experience with Bank operations indicates that the Bank Group's strong comparative advantage is in leading the dialogue on difficult policy reformns (especially in the area of trade liberalization, as well as in the energy, agriculture, and education sectors). It also has technical leadership in various social and infrastructure sectors. On the other hand, other development partners are better qualified to take the lead in some sectors, and the Bank will follow. For example, CFD is heading the program formulation in rural water supply, and the Dutch Cooperation is leading efforts on environment. In the agriculture sector, other donors, because of their "filiere" approach, invariably have much more detailed knowledge of specific subsectors than does the Bank. The Bank will continue to rely on the leadership of these donors in the design of sector-specific policy reforms. In particular, the Bank will collaborate closely with, and follow, the CFD in the cotton subsector reforms, the EU in groundnut policies, and USAID in reforms affecting the cereal subsector. Similarly, rural credit is an area where the comparative advantage of the Bank is less than clear, and it will need to follow the lead of the EU, French Cooperation, Germany (through PARZ), and a number of NGOs that have initiated mutual funds and credit schemes.  20 Senegal CAS VII. CAS SCENARIOS AND RISKS A. The Base Case 7:3. The base case scenario is predicated on continuing improvements in performance, which will be closely monitored. It assumes good progress in implementation of reforms to unshackle private sector initiatives, continued good portfolio management, and allocation of sufficient attention and resources to the development of social and human resources. It specifically includes the adoption of measures in the areas of energy and trade reform, which would make possible Board presentation of the two adjustment operations (see para. 74). 74. The lending program under this scenario consists of 14 operations (two less than in the FY95-97 period) for a total of US$560 million. Included in this number are two adjustment lending o]perations to support the reform of the energy sector (FY98), and to compensate for the transitional costs of trade liberalization in the context of WAEMU. Of the investment projects, the majority are focused on alleviating key infrastructure bottlenecks, particularly in the energy, transport, and water sectors (both directly and by catalyzing private participation in these sectors) and on supporting social sector development. There is also important stress on the use of sector investment program (SIP) operations to ensure comprehensive sectoral coverage, increased ownership, and more systematic coordination among development partners. These operations, planned in the health (FY98), agriculture, energy, transport (FY99), education, and water (FY2000) sectors, are also adaptable program loans (APLs) that provide financing for the first phase of a larger program. 75. The Bank plans to continue tailoring its commitments and disbursements to actual performance in the four areas indicated earlier: macromanagement; private sector development; social sector development; and portfolio management. Box 4 presents the specific triggers for shifting from one scenario to the other. B. The Low Case 76. The base case program, while fully justified by good performance and demonstrated absorptive capacity for lending during the past 3-4 years, is demanding. It assumes continuing fiscal discipline in a period of elections and implementation of bold structural measures, especially in the energy and education sectors, which threaten several vested interests (see para. 39). If implementation of the reform program stalls, and the Government does not provide sufficient attention and resources to development of the social sectors, the program will be scaled back considerably to a total of seven operations for about US$275 million for the period. Under this scenario, lending will focus on the social sectors, and more attention will be devoted to maintaining the quality of the existing portfolio and to completing the key analytical pieces in anticipation of a return to the base case. C. The High Case 77. As the base case already implies a relatively large resource transfer, the triggers for the high case entail appreciable improvement in outcome indicators: a growth rate more in line with the Government's objective of 9 percent per annum; much larger inflows of foreign direct investment than in the past; further improvement in the disbursement ratio; and visible  21 improvements in the social indicators. Under this scenario, there will be need for an additional adjustment operation and a line of credit operation for private sector operators whose demand for credit would increase. The lending level for the three-year period would amount to about US$630 million for 16 operations. D. Risks Facing the Strateg 78. As indicated earlier (paras. 29-33), the external market environment for Senegal over the next decade appears generally favorable. On the other hand, the risk of debilitating droughts is quite high: there have been 12 years (including 1997) of severe droughts during the last 30 years. An unfortunate coincidence of adverse exogenous factors such as droughts and a deteriorating external environment would be difficult to endure without slippage in the economic reform policies. In such a situation, the appropriate course of action would be determined after an evaluation of the conditions on the ground. Box 4: Triggers for High- and Low-Case Scenarios LOW CASE BASE CASE HIGH CASE Portfolio Management and * Problem Projects > 20 percent * Problem Projects between 10 * No problem projects Absorptive Capacity percent and 20 percent . Disbursement lag > 20 percent * Disbursement lag between 15 * Disbursement lag < 15 percent and 20 percent percent Macroeconomic Performance * No program with the IMF * Compliance with the * Compliance with the because of non-compliance IMF/ESAF program IMF/ESAF program * Achievement of a growth rate of 7-9 percent annually Private Sector Development * Lack of satisfactory progress * Satisfactory progress in * Very good progress in in regulatory and judicial regulatory and judicial regulatory and judicial reforms (benchmarks in reforms (benchmarks in reforms Annex III, page 1) Attachment I1I, page I) * Lack of satisfactory progress * Completion of the * Completion of the on ongoing divestiture Government's ongoing privatization program by program privatization program by 2000 1999, and approval to divest additional enterprises * Adoption of measures in the * More than US$75 million areas of energy and trade foreign direct investment reform attracted annually Social Sector Development * Failure to increase gross * Increase in gross primary * Increase in gross primary (education, health, and primary enrollment ratio enrollment ratio from 59.7 enrollment ratio to 65 percent population planning) above the present 59.7 percent in 1997 to 65 percent in 1999 and 70 percent in percent by 2000 2000 * Failure to increase the share * Increase in the share of girls' * Increase in the share of girls' of girls' enrollment in primary enrollment from 44 percent in enrollment to 46 percent by education above the 44 1997 to 46 percent by 2000. 1999 and 47 percent by 2000 percent in 1997 * No progress in * Increase in contraceptive * Same as for base case implementation of the prevalence from 9 percent in recommendations of the 1997 to 13 percent by 2000 Declaration of Population Policy of 1994. Contraceptive prevalence declines below current 9 percent level * Failure to increase the share * Increase in the share of health * Same as for base case - of health in total public in total recurrent expenditures recurrent expenditures above to 8 percent by 2000 the current 6 percent * No improvement in present * Decline in matemal mortality * Decline in maternal mortality matemal mortality rate of 510 rate from 510 per 100,000 rate to 430 by 1999 and 380 per 100,000 births births in 1997 to 430 by 2000 by 2000  22 Senegal CAS 79. A more likely risk relates to delays and even reversals of policy reforms as the country heads into an election cycle. Consultations with various segments of the society during CAS preparation indicated widespread social discontent with the elusiveness of the benefits of the reform. The Senegalese Government has a history of forsaking fiscal discipline in election years, and the discussion on the line-up of opponents and proponents of reforms (paras. 39-40) indicates far from unanimity on the need for significant policy action. However, there are some mitigating factors. First, on several of the more controversial and difficult reforms (such as those in the energy and education sectors), the President of the Republic is himself taking the leadership and holding open consultations with the civil society on the need for reform. Second, some important measures (for example, in the energy sector) are being adopted up-front to avoid their becoming politicized in the run-up to the legislative elections. Third, there is growing realization among the authorities that the days of easy and plentiful external assistance without domestic effort are over, that competition from East Asian countries is likely to increase, and that, therefore, "muddling through" is not an option. Finally, the informal social safety net appears to be more resilient than expected, which renders the high urban unemployment rates less explosive. Clearly the absorptive capacity of the informal sector is stronger than anticipated. 80. Even with these mitigating circumstances, the proposed strategy is medium risk. Rewards, however, are high. For example, if the foreseen energy sector reforms are implemented, Senegal would move to the forefront of Sub-Saharan African countries in reforms in this area. The Bank will closely monitor progress on the implementation of the reform agenda to determine which of the lending scenarios to follow. James D. Wolfensohn President by Sven Sandstrom Attachments Washington, D.C. December 29, 1997  Attachment I Page 1 of 1 SENEGAL CAS Overall Bank Strategic Objective: Alleviation of Poverty ,~~~~~~~~~ More Rapid and Sustained Growth Social Sustainability Macroeconomic Private Sector Supporting Environmental Healt and Populanion Rural Stability Development Infrastructure Protection Edcto rtcinad Development i~ ~ ~ ~ ~~~~~~Gne  i I  Attachment II Page 1 of 1 Poverty and the CAS Nature and Incidence of Poverty: Based on daily caloric intake, one out of every three Senegalese was poor during the harvest season of 1991/92. Data from the 1994/95 Integrated Household Survey and the last Poverty Assessment (Senegal: An Assessment of Living Conditions, May 1995) show the persistence of a high incidence of poverty. Using a poverty line of CFAF100,000 per capita per year, these data indicate an incidence of poverty of 38 percent at the national level. Poverty incidence is higher in the rural areas (67 percent) than in the urban ones (13 percent). In terms of absolute number of poor, Dakar hosts a significant proportion of poor households. Poverty is also more concentrated in the south. Based on comparison of Gini coefficients from the 1994/95 survey with those from earlier years, relative inequality has not increased, although the absolute number of poor has increased. Some Social Indicators: Senegal's indicators of human development are below those of other countries with comparable levels of income. Gross primary enrollment rates are low (60 percent overall; male 67 percent and female 53 percent). Total fertility rate is still high at 5.9 births per woman, associated with a low contraceptive prevalance rate of 9 percent. Life expectancy at birth is estimated at 54 years (compared with 63 years for lower middle income countries). Infant mortality is high (62 per 1000 live births, compared to 58 for low income countries). Infant malnutrition rate has remained relatively constant during the past decade with 29 percent of children under 5 years being chronically malnourished. Poverty-Population-Environment Nexus in Senegal: While the dynanics of the linkages between poverty, population, and environment have not been examined systematically in Senegal, some worrying trends can be perceived, suggesting that the poor are both agents as well as victims of environmental degradation. Declining land availability and quality, coupled with a population growth rate of 2.7 percent p.a., have led to rapid rural-urban migration (between 1990 and 1996, the share of urban population has increased from 35 percent to 42 percent) and associated environmental problems. In squatter areas (e.g., Guediawaye, Dallifort, and Malika) of peri-urban Dakar, sanitary conditions are poor or non-existent, and characterized by a lack of safe water, indoor pollution, insufficient waste collection and management, and rapid prevalence and spread of waterbome and contagious diseases. Moreover, poverty forces people to consume low-value energy: more than 80 percent of the population depends on traditional fuel (firewood and charcoal) for cooking. The expanding population has increased the consumption of traditional fuels (in 1987 US$ terms) by 75 percent. This has meant a continuous forest resource loss, corresponding to a reduction of the total forest from 8 million hectares in 1981 to 7.6 million in 1990. The high population growth rate has also resulted in a demographic structure in which 50 percent of the female population is below 15 years of age. This introduces a powerfil momentum in population growth rates and the associated resource demands. Government's Strategy for Poverty Alleviation: In the context of its Ninth Economic and Social Development Plan (1996-2001), the Government has issued a draft National Program to Fight Poverty, including strategies and features of an action plan. The program serves as a complement to sectoral investment programs with special focus on income-generating activities and employment creation for vulnerable groups (mainly women and unemployed youth). It is strongly conceived as a decentralized and consultative program, under which grassroots participation and contribution of all development partners is encouraged. Bank's Support of this Strategy: The Bank's Country Assistance Strategy supports the country's poverty alleviation efforts through: (i) support of macroeconominc and structural reforms that lead to a higher growth rate that is also more labor-intensive; (ii) analytical and financial support for greater social sector development, especially in education and health; (iii) direct pro-poor interventions via ongoing operations (AGETIP, Community Nutrition, Small Rural Operations II) as well as new operations (such as the proposed Social Sector Project); and (iv) improving the analysis and monitoring of poverty. Further analysis of the 1994/95 Integrated Household Survey and the recent work of the Groupe de Reflexion Strategique (GRS) should help improve our knowledge of the nature and incidence of poverty for more effective support.   Attachment III Page I of 5 SENEGAL: Country Assistance Strategy Matrix (FY98-2000) Diagnosis/Lessons from Experience Strategy/Actions Progress Benchmarks IDA/IFC Instruments 1. Rapid and Sustainable Economic Growth l. Macroeconomic Stability Non-lending * Despite considerable trade * In the context of the UEMOA . By 2000, implement import * ESW: Senegal: The Challenge of liberalization. effective protection common extemal tariff, a new structure with only 4 tariff International Integration (FY98). remains quite high. tariff reform will be rates and a maximum duty * ESW: The Fiscal Costs of Trade Reform introduced in early 1998 to rate of about 20%. (FY98). simplify the trade regime and * Technical Collaboration with UEMOA. reduce protection. Lending * Trade Reform Adjustment Credit (FY2000). Non-lending * Need to increase public savings to * On the revenue side, * Total tax revenue/GDP to . Collaboration with the IMF (which will take release financial resources for the harmonization of indirect increase from 14% in 1997 to the lead) and other donors on fiscal reform. private sector and address poor social taxation planned, with a 16% by 2000. indicators of the country. broadening of the VAT base, and adoption of a common list of excisable goods. * Larger allocation of recurrent . Public Expenditure Review (PER) (FY98). . On the expenditure side, a budget to health sector (8% * IDF: Civil Service Reform (FY98). new public expenditure by 2000, compared to 7% in review exercise, better 1997). expenditure controls, and an * Maintain share of recurrent improved budgetary process. budget allocated to education at its current level (33%/6). Non-lending . Despite significant reforms during . Reform of the legal code . Agreement with the Bank and * ESW: Financial Sector Reform (FY99). 1989-91, the financial sector remains regulating the financial sector the IMF on a plan of action in * IFC/Bank support to the development of the thin, as measured by standard financial in the context of OHADA. this area. Regional Stock Exchange (ongoing). deepening measures, and has limited * Training ofjudges and financial instruments and services. magistrates to reduce delays Lending in application of business law. . Support to financial sector reforms under * Addressing issues related to ongoing Private Sector Capacity Building accords de classement, the Project (FY95). debt from the former * IFC supporting a leasing company ONCAD, and the usury rate. (SOGECA) through equity and guarantee investments. * Private Sector Development Project (FY99). Non-lending * While not eligible for HIPC Initiative * Government plans stock of * Reduction of all three HIPC * IMF/Bank will support Government's debt on the two critical extemal thresholds debt operation, including indicators to more sustainable sustainability analysis (FY98). (debt and debt service ratios), Senegal's topping up of previously levels by 1998. extemal debt service burden as a share rescheduled debt with Paris Lending of govemment revenue remains high. Club. * Bank-supported debt reduction effort through * Only highly concessional a commercial Debt Buyback Operation borrowing. (FY96). 2. Improved Private Sector Environment Non-lending * Diverse and cumbersome incentive * Govemment plans to provide * Rationalize and consolidate * ESW: Senegal: The Challenge of schemes entailing long administrative more enabling environment, all investment incentives in Intemational Integration (FY98). processing delays. Heavy taxation assuring good govemance and the Tax and Customs Codes. . ESW: Promotion of Private Investment hampers enterprises' ability to improved legal and regulatory * Rationalize enterprise (FY2000). consolidate and strengthen net worth. framework. taxation. Transaction costs and delays affect * Rationalize the cost and * Adopt an improved Lending imports and exports requiring air procedures of the use of the Commercial Code. * Agricultural Exports Promotion Project transportation. Also judicial constraints Dakar airport by * Establish within the Chamber (FY98). affecting the private sector relating to exporters/importers. of CommeTce an arbitration * Agriculture Sector Investment Project the administrative law conceming * Support for market research center and a Centre des (FY99). dealings of enterprises with the state, and development in private formalites. . Private Sector Development Project (FY99). bankruptcy procedures, and the judicial firms exporting agricultural * Establish new procedures to * IFC will provide medium-term financing and franework for microenterprises. Very products. tie govemment payments to technical assistance for selected small and low level of direct foreign investment. . Reform laws and financial private enterprises and medium companies operating in various Finally, govenmment arrears continue to procedures applying to eliminate arrears. sectors (manufacturing, tourism, and private hamper the activity of the private sector. enterprise receivership. I _I schools) through the Small Enterprise Fund.  Attachment III Page 2 of 5 SENEGAL: Country Assistance Strategy Matrix (FY98-2000) Diagnosis/Lessons from Experience Strategy/Actions Progress Benchmarks IDA/IFC Instruments 2. Improved Private Sector Environment (contd.) Lending Notwithstanding progress in * Govemment intends to * Completion of the * Ongoing operations (Water Sector Project, implementation of the divestiture accelerate the privatization Governments privatization FY95; Urban Transport Project, FY97) and program. there are still 42 public program and to limit the program by 2000. recently completed (Ag Sector Adjustment commercial and industrial state's role to the creation of a Credit, FY95) have supported privatization of enterprises. framework conducive to companies in the water, urban transport, expansion of private sector cotton, and groundnut subsectors. activities. * Energy Sector Adjustinent Credit (FY98) will support privatization of the power company SENELEC. * IFC will provide advisory and financial assistance in selected cases. Has also expressed interest in funding the post- privatization investment of the telecom company (SONATEL). 3. Alleviating Infrastructure Botlenecks Energy Non-lending A key constraint to a higher * Elimination of monopolies or * Liberalization of the * ESW: Recently completed work in the power growth rate. especially of the rigid oligopolies (woodfuel petroleum sector. and household energy sectors. private sector, is the high cost, trade, petroleum products, * Reform the petroleum service unreliability, and poor electricity power generation products prices and taxation Lending quality of factors of production and distribution). system to promote * IFC has participated (FY97) in the first (electricity,. water, telephone, competition, reflect economic Independent Power Project on a BOT basis. transport). cost, and remove existing * Ongoing IDA projects (both FY97) in the subsidies. household energy sector (Sustainable * Improve management of the * Encourage private sector te Participatory Energy Project) and the power sector to reduce explore for petroleum in Regional Hydroproject (Manantali). growing deficit of power Senegal and limit the * Energy Sector Adjustment Credit (FY98). generation capacity, halt Government's ability to * Energy Investment Project (FY99). deterioration of facilities, and promoting private sector increase access to electricity. exploration and production - * Eliminate the subsidies of the new Petroleum Code. uneconomic refinery that has * Opening up of the power led to high prices of sector to private sector petroleum products. participation (generation as well as distribution) - new electricity law. * Privatization of the power utility SENELEC. * Meet the growing urban * Transfer to local communities demand for household fuels of responsibilities for the without loss of forest cover management and use of and other environmental forestry resources (woodfiuel damages. and charcoal) - new Forestry Code.  Attachment III Page 3 of 5 SENEGAL: Country Assistance Strategy Matrix (FY98-2000) Diagnosis/Lessons from Experience Strategy/Actions Progress Benchmarks IDA/IFC Instruments Transport Non-lending * Further institutional strengthening * Further reductions in public service * ESW: Medium-Term Strategy for the of companies or parts thereof that obligations and/or redefined Transport Sector (FY97). are expected to remain in public compensation mechanism for such domain (port authority, railroad obligations (e.g., rail, civil aviation). Lending company, etc.). More coherent Development of corporate plans (plan * Ongoing operations (Transport SECAL, overall sector d'enterprise) for each entity. Better FY91 and Urban Transport, FY97). planning/programming and performance contracts (where * Transport 11 (FY99). simplified procedures. applicable). * Urban Transport II (FY99). * Rural Transport (FY2001). * Support privatization/restructuring * Finalization of privatization of efforts (Air Senegal, SOTRAC, SOTRAC and Dakar/Bamako Railway, restructuring/privatization of Air ASECNA-Senegal). Senegal, restructuring of ASCENA- * Develop Dakar into both Senegal, and completion of intemational maritime and air privatization of Dakar/Bamako railway transport hub. activities jointly with Mali. * Implementation of recommendations of Port Master Plan in progress. Modemize airport infrastructure and adopt performance indicators. * Improved management of the * Establishment of a Road Fund on a Road Fund to eliminate sustainable and transparent basis. impediments to efficient road maintenance. * Better planning and programming, * Establishment of a comprehensive especially in the road subsector. database to facilitate better planning and * An important constraint to * Development of relevant info on monitoring. promoting higher agricultural rural roads and other rural growth is the poor quality of rural infrastructure and design of infrastructure (feeder roads, small- program to underpin planning, scale irrigation works, cold storage financing, development, and facilities, etc.) maintenance of rural roads. Water Lending * Improvement in management, * Adoption of a new tariff structure, based * Ongoing Water Sector Project (FY95). pricing, and cost recovery for on analysis of willingness/capacity to * Long-Term Water Sector Project industrial, domestic, and irrigation pay. (FY2000), in coordination with IFC. water. * Eliminate water deficit of Dakar as from * Private sector participation in the year 2000 until the year 2020. BOT managing urban water supply. contracts with a private partner. Urban Development Lending * Urbanization is growing at the rate * Create a Municipal Development * Performance of MDA to work closely * Urban Development and of 3.7% per year. By the year Agency (MDA) under the tutelage with the various partners (central and Decentralization Project (FY98). 2010, more than half the of the Ministry of Finance to work local authorities and the private sector). population of Senegal will live in directly with municipalities. * Signature of several municipal cities. Most of the investments contracts. have taken place in Dakar, which * Launch an intensive program open * Improvement in the use by local is expected to reach 2.3 million to the 60 municipalities of govemments of management and inhabitants by the year 2000. Senegal, aimed at identifying and programming tools. With the growing pressures on implementing a Priority urban services and infrastructure Investment Program (PIP) and a and with the decentralization Municipal Adjustment Program trends, more needs to be done in (MAP) under municipal contracts. secondary cities. This program has as its main objective the strengthening of the capacity of municipalities to efficiently program, finance, deliver, and maintain basic urban services. * Support a reform program on: (a) * Improvement of the Fonds local fiscal issues; and (b) d'Equipement des Collectivites Locales intergovemmental transfers. (FECL) allocation. * Improvement in the mobilization of local resources.  Attachment III Page 4 of 5 SENEGAL: Country Assistance Strategy Matrix (FY98-2000) Diagnosis/Lessons from Experience Strategy/Actions Progress Benchmarks IDA/IFC lnstruments 4. Environmental Management *Risks to sustainability of long- * Better management of natural * Adoption of the amended Forestry Lending term growth arising from fragility resources. Code. * Natural resource management issues being of soils, low and erratic rainfall, * Better integration of agriculture, addressed through other sector projects loss ofvegetation cover and forest livestock, and forestry activities. (water, agriculture, energy). resources. and reduction of biodiversity. * Environmental degradation can Environmental Action Plan available Lending hamper sustained economic by end 1997 provides strategic * Environmental issues to be addressed through growth and increase poverty. framework for environmental a possible GEF project and in close * Lack of environmental and social activities. coordintion with other development partners. indicators increase risk of serious environmental and economic disruptions. * Enhance environmental * Revised legal framework. legislation. * Increase capacity to enforce * Rehabilitation of critically environmental regulations. damaged areas such as the Baie de Hann. * Implement environmental review * Environmental review process (EA). systematically done on all large investments having an impact on the environment. * Increase public awareness of environmental issues. * Establish a system to monitor and * Availability of environmental report on environmental indicators and State ofthe indicators. Environment Report. * Support decentralized * Local communities empowered to management of the environment manage environmental resources. through an Environment Fund. * Support policy reviews. * Loss of biodiversity. * Develop and implement Non-lending management plans for coastal * Protection of marine environment and wetlands. biodiversity to be addressed using GEF * Increase local participation in the funding. management of protected areas. * Support National Action Program to Combat Desertification. 11. Social Sustainability 1. Education Sector *Despite recent increases in the * Need to expand access to primary . I Non-lending enrollment ratio, the gains remain education, particularly among e Increase in gross p .mary i PER Educaton Sector Financial Framework fragile., based largely on recourse girls. 1 t 65% by 59. to recruitment of voluntary * Expand access to other levels of 1997 to 65% by 2000. teacers 'Mee i a siftawayin ducaionwithn asustinale * Increase the share of girl's Lending teachers. There is a shift away in education witha i a sustaunable enrollment in primary education * Education Sector Investment Project secondary and higher education financial framework, from 44% in 1997 to 46% by (FY2000). from math, science, and * Raise adult lteracy rates in rural 2000. * Ongoing Higher Education Project (FY97). technology towards the areas, particularly among women. * Reduce repetition rates in grades 5 humanities. Recent gains * Promote the development of and 6 from 14% and 28% in 1997 notwithstanding, tertiary education technical and vocational training. to 10% and 18%, respectively by is high cost, marked by grade * Involve private sector and NGOs 2000. repetition and frequent student in education. * Increase the number of unrest. * Reengineer sector management beneficiaries of literacy programs and business processes. b 000aya 7%wmn * Improve efficiency in the between 1997 and 2000( allocation and use ofresources. * Rationalize higher education by * Improve conditions for reducing its share in the budget of progressive development of the Ministry of Education to education quality. 20.3%, its enrollment to 20,500, * Introduce technology as part of and the number of scholarships to management and quality 9000 by 2000. improvement.  Attachment III Page 5 of 5 SENEGAL: Country Assistance Strategy Matrix (FY98-2000) Diagnosis/Lessons from Experience Strategy/Actions Progress Benchmarks IDAQIFC Instruments 2. Health Sector Non-lending * Senegal's health status * Govemment has finalized its ten- * Increase share of health in total * ESW: Human Resource Development in the characterized by a high burden of year health development plan recurrent expenditures from 6% Health Sector (FY96). disease and a high incidence of (1998-2007) along with a first (1996) to 9% by 2002, as preventable and treatable diseases. five-year investment program for recommended by WHO. Inadequate and inequitable sector its implementation. Key elements * Reduce matemal mortality by 25% Lending financing. Insufficiency of of the proposed reform include: from 510 per 100,000 births in * Ongoing Endemic Diseases Project (FY97). resources allocated. Weak expanded access to PHC and 1997 to 380 per 100,000 births by * Health Sector Investment Project (FY98). institutional base for health care referral services, management 2002. management. Minimum autonomy of hospitals, * Increase immunization coverage involvement by the private sector decentralization to the regions and from 60% in 1997 to S0%O by and NGOs. health districts, greater use of 2002. beneficiaries and NGOs in the * Increase contraceptive prevalence financing and management of from 9%/a in 1997 to 16% by 2002. basic health care services, and * PHC use frequency rate to increasing the share of health in increase from 0.4 visit per total recruitment expenditures. inhabitant in 1997 to 0.6 by 2002. * Prenatal care coverage to increase from 40% in 1997 to 80% by 2002. . 3. Population Planining, Social Protection and Gender Issues * Despite its adoption of the * Govenmment needs to redouble * Increase contraceptive prevalence Lending Declaration of Population Policy efforts in this area. rate from 9% at present to 16% by * Health Sector Investment Project (FY98) in 1994, the Govemment's public 2002 among women of stand on integrated family reproductive age. planning is lukewarm. Population expected to double to more than 16 million by 2020. * Many hurdles remain to the * Significant progress has been * Agreement with the Bank and Lending evolution of women as equal made since the creation in 1990 of other development partners on a * Ongoing Female Literacy (FY96) and Human partners in the Senegalese society. a separate Ministry of Women, strategy covering: improved Resource Development (FY93) Projects. Illiteracy rates are higher for Children, and Family Affairs. In access of women to land, credit, * Social Development/WID Project (FY2000). women (66%) than for men (47%), close coordination with NGOs, and extension services; improved there are high female drop-out civil society, and development female access to education; rates, poorer health status, partners, the Ministry has strengthened health and planning problems in access to land and completed the second National family services; and improved credit, etc. . Action Plan for Women. legal status for women. * Based on caloric intake, one out of * Govemment put in place in 1994 a * No increase in % of malnutrition Non-lending every three Senegalese is poor. three-year social safety net in poor peri-urban areas. * ESW: Intensive support to the Senegalese Poverty is essentially a rural program aimed at mitigating price * Agreement with the Bank and key "think-tank" (Groupe de Rflexion phenomenon, although there is increases for basic necessities development partners on the rural Stratigique) in finalizing the rural sector growing urban poverty also. (bread, rice, and pharmaceuticals). sector strategy. strategy (FY97-98). * Government also now placing greater emphasis on rural Lending development. * Ongoing Community Nutrition Project (FY95) and Small Rural Operations Project 11 (FY89). * Agricultural Services and Producers Organizations Project (FY98); Agriculture Sector Investment Project (FY99). * Local institutions (local * Prepare a program that alms at Non-lending govemment in rural communities, building the managerial and * ESW: Support for strengthening the Poverty CBOs and NGOs, and civil society technical capacity of these Monitoring System (FY99). groups) are managerially and institutions based on the operationally weak, which understanding that the existence of Lending severely hampers their efforts to effective local institutions is an * Social DevelopmenttWID Project (FY2000). fight poverty at the grassroots important social factor in level. development. * Proposal to continue preparing Non-lending projects that directly address * ESW: Support for the strengthening of the poverty issues, such as the Poverty Monitoring System (FY99). AGETIP public works and employment-creating projects that Leading also help in building private sector * Urban Development and Decentralization capacity. Project (FY98).   Attachment IV Page 1 of 3 Alternative Economic Growth Scenarios (Base Case) Growth Rate of GDP 4.7% 4.8% 4.8% 4.8% Consumption Growth 4.3% 3.8% 3.7% 4.1% Real Per Capita Growth Rates: Gross Domestic Product (GDP) 1.9% 2.0% 2.0% 2.0% Total Consumption 1.9% 1.0% 0.8% 1.2% Private Consumption 2.1% 1.4% 1.2% 1.2% Import real growth rate (MERCH CIF) 0.6% 4.8% 5.3% 5.1% Export real growth rate (MERCH FOB) 1.5% 5.0% 4.5% 4.5% Current Account Balance as % of GDP -6.1% -5.8% -5.9% -6.0% Debt and Debt Service (LT+ST+IMF): Total DOD (US$M) 3378.6 3287.7 3230.2 3244.3 Total Debt as % of GDP 69.6% 63.3% 56.9% 53.2% Debt Service (US$M) 285.1 278.2 257.5 271.5 Debt Service as % of Total Exports 17.5% 16.0% 13.8% 13.8% Total Revenues as % of GDP- 15.3% 15.3% 14.8% 15.1% Total Expenditures as % of GDP 16.6% 17.2% 16.8% 16.7% Government Deficit excl all grants (-) as % of GDP -1.3% -1.9% -2.0% -1.7% Investment as % of GDP 16.5% 17.3% 18.3% 19.0% Gross Domestic Savings as % of GDP 11.8% 13.1% 13.9% 14.4%  Attachment IV Page 2 of 3 Alternative Economic Growth Scenarios (High Case) Growth Rate of GDP 4.7% 4.8% 5.8% 7.0% Consumption Growth 4.3% 3.0% 3.8% 6.2% Real Per Capita Growth Rates: Gross Domestic Product (GDP) 1.9% 2.0% 2.9% 4.1% T'otal Consumption 1.9% 0.3% 1.0% 3.4% P'rivate Consumption 2.1% 0.6% 0.2% 2.9% Irnport real growth rate (MERCH CIF) 0.6% 5.1% 6.1% ,7.2% Export real growth rate (MERCH FOB) 1.5% 5.0% 5.8% ,7.6% Current Account Balance as % of GDP -6.1% -5.8% -5.3% -4.9% Debt and Debt Service (LT+ST+IMF): Total DOD (US$M) 3378.6 3254.5 3150.6 3098.1 Total Debt as % of GDP 69.6% 62.6% 55.0% 49.3% Debt Service (US$M) 285.1 278.2 256.9 269.9 Debt Service as % of Total Exports 17.5% 16.0% 13.5% 13.0% Total Revenues as % of GDP 15.3% 15.3% 15.4% 15.6% Total Expenditures as % of GDP 16.6% 17.2% 16.7% 16.7% Government Deficit excl all grants (-) as % of GDP -1.3% -1.9% -1.3% -1.1% Investment as % of GDP 16.5% 18,0% 19.3% 19.5% Gross Domestic Savings as % of GDP 11.8% 13.8% 15.2% 15.8%  Attachment IV Page 3 of 3 Alternative Economic Growth Scenarios (Low Case) Growth Rate of GDP 4.7% 3.5% 3.0% 3.0% Consumption Growth 4.3% 4.5% 3.6% 3.3% Real Per Capita Growth Rates: Gross Domestic Product (GDP) 1.9% 0.8% 0.3% 0.3% Total Consumption 1.9% 1.7% 0.8% 0.5% Private Consumption 2.1% 2.3% 0.9% 0.6% Import real growth rate (MERCH CIF) 0.6% 2.7% 2.8% 3.1% Export real growth rate (MERCH FOB) 1.5% 1.6% 1.7% 1.7% Current Account Balance as % of GDP -6.1% -6.0% -6.1% -6.3% Debt and Debt Service (LT+ST+IMF): Total DOD (US$M) 3378.6 3287.1 3223.4 3235.7 Total Debt as % of GDP 69.6% 64.0% 58.5% 55.6% Debt Service (US$M) 285.1 278.0 257.3 271.0 Debt Service as % of Total Exports 17.5% 16.3% 14.3% 14.7% Total Revenues as % of GDP 15.3% 14.8% 14.9% 14.8% Total Expenditures as % of GDP 16.6% 17.3% 16.3% 16.0% Government Deficit excl all grants (-) as % of GDP -1.3% -2.5% -1.4% -1.2% Investment as % of GDP 16.5% 15.8% 15.5% 15.5% Gross Domestic Savings as % of GDP 11.8% 11.5% 10.9% 10.6%  b : ::  AttachmentV Page 1 of 1 Senegal CAS Consultation Process W0,,..... ., .... . . . ... . . ... "' :-" ,.,.,..'...'..'...,....., .X,'>.'..,','.' "..'.'..'.'. March-April 1997 Design of the CAS Preparation Resident Mission and HQ Staff Process May 1, 1997 HQ CAS Workshop Resident Mission and HQ Staff to identify the key issues facing Senegal today and the best niche for the Bank May 12-June 17, 1997 Focus Group Discussions * Representatives of the private in Senegal to obtain participants sector, the media, trade unions, perspective on key issues facing women's groups, Senegal's socio-economic development NGOs/CBOs/Local Government and the role of the World Bank institutions * Resident Mission Staff * Government Representative May-June 1997 Client Feedback Survey * Approximately 300 people to assess the views of its clients and including: key decision makers, partners technical ministers, donors, representatives of private sector and civil society groups * Resident Mission and HQ Staff June 12-13, 1997 CPPR * about 91 people representing to review progress of all projects in the key technical ministries, the donor portfolio, identify their weaknesses and community, beneficiaries, non- strengths, and agree on plan of action to governmental organizations improve their implementation in order to (NGOs) attain the portfolio's development * Resident Mission and HQ staff objectives. The outcome of this exercise may be used in the formulation of the country assistance strategy. June 27, 1997 Validation Workshop * Hosted by the Ministry of to share and discuss results of focus Economy and Finance group discussions * Co-Chaired by the Minister of Budget and World Bank Country Director * Representatives of each focus group * Government officials * HQ and Resident Mission Staff July-August 1997 Social Analysis Review * Conducted by a local consultant to study the social context in which its programs are formulated and implemented March 1998 Restitution Workshop * Representatives of focus group to present the approved CAS to all discussions stakeholders involved in the preparation * Govemnment officials of the document * HQ and Resident Mission Staff   Attachment VI Page 1 of 7 Treatment of Cross-Cuttinz Themes: Gender. Capacity Building and Environment 1. This attachment provides some details on three specific cross-cutting themes: gender, capacity building, and environment. This note describes the key issues in each of these areas and the Government's program to address these issues. Additionally, a matrix is attached to this note and outlines how each of the Bank's proposed lending operations are expected to support the Govemment's efforts. Gender 2. Many of the constraints faced by Senegalese women are common to most women in the Sahel. However, no other Sahelian country has been as active as Senegal in promoting the situation of women. Women's groups in Senegal outdo those of neighboring countries in numbers (3,600 groups) and in dynamism, and the Government has been implementing programs to improve the condition of women since the early 1960s. Senegalese-educated women in recent years have been able to make their mark on the intellectual and cultural life of the nation. Women constitute one-third of the University of Dakar's total enrollment. 3. In spite of this, several hurdles remain to the evolution of women as equal partners in the Senegalese society: * High female illiteracy rate (66 percent, compared to 47 percent for men). High female drop-out rates due to early marriage and the need for girls to help their mothers. * Poor health status as a result of undernutrition, frequent pregnancies (median marriage age for women is 16.6 and median age at birth of first child is 19.4). High maternal mortality rate, high fertility rate; incidence of anemia; and female genital mutilation (see para. 5 below). * Women's lack of access to land (especially irrigated land) and agricultural services (only 15-20 percent of participants in extension activities are women). * Women outnumber men in the informal sector, but owing to their lower levels of education, only 6 percent of the female labor force is employed in the formal sector. Access to credit is predominantly limited to credit clubs (tontines) which can only provide small credits. * While the Constitution guarantees women equal rights and the statutory law does not discriminate against women, personal, business, and inheritance affairs are still largely conducted in accordance with unwritten customary laws that disadvantage women. 4. The Govermment is well aware of the additional efforts needed to improve the condition of women. The establishment in 1990 of a separate Ministry of Women, Children and Family Affairs has had a very positive impact. The Ministry, working very closely with NGOs, civil society, and key development partners, has completed the second National Action Plan for Women which focuses on five strategic areas: (i) development of economic activities for women, including improved access to  Attachment VI Page 2 of 7 land, credit, extension services, etc.; (ii) improvement in female access to education; (iii) strengthening of health and family planning services; (iv) improvement of women's legal status; and (v) enhanced cooperation among organizations that promote the role of women. 5. In the specific case of female genital mutilation (whose prevalence is estimated at about 20 percent, mostly in the Senegal River basin and parts of Casamance), the Government is increasingly becoming aware of its negative impact on women's mortality, morbidity, and reproductive health, as well as on increasing their risk of contracting AIDS. The Government, in close collaboration with the National Committee on Negative Health from Traditional Practices (COSEPRAT), other NGOs and women's associations, plans to organize a nationwide Information, Education and Communication (IEC) campaign against such practices. It will also provide support to NGOs programs such as those of ASBEF (Association Senegalaise de Bien- Etre Familial). Finally, the Government is examining the option of declaring these practices illegal. _apacitv Building 6. In June 1997, the Bank carried out a review, from a capacity building perspective, of its program in Senegal. The objectives of the review were primarily to assess the capacity building impact of the program and to make suggestions for increasing this impact in the future. The conclusions of the review apply much more generally than just to Bank-financed projects. The review concluded that, while nearly all-Bank supported activities address capacity building in some form or another, their impact has been somewhat less than anticipated. A significant causal factor has been weak stakeholder ovmership. Furthermore, while the program has been relatively successful in promoting capacity within the private sector (both for and non-profit), largely by encouraging the administration to delegate implementation to this sector, the impact on state capacity has been less than anticipated. 7. The Govemment is becoming increasingly concemed about weak administrative capacity, and this is reflected in two activities in which the President of the Republic has taken a personal interest. The first is a National Consultation on Good Govemance and Civil Service Reform, which is being supported by an IDF Grant. The idea is to bring together some 200 people, from all segments of Senegalese society over an extended period of time, to develop and build consensus on a program to reform the state so as to respond to client needs. The second activity is the establishment of a capacity building focal point within the Ministry of Finance, in the context of the Partnership for Capacity Building in Africa initiative. This focal point has three main tasks: (i) to carry out a National Capacity Assessment and subsequently develop a National Capacity Building Strategy; (ii) to establish a formal National Capacity Building Secretariat to coordinate capacity building efforts in Senegal; and (iii) to prepare a National Plan for Good Govemance, which focuses largely on civil service reform. 8. A critically important aspect of capacity building is the decentralization process underway in Senegal, particularly since 1990. The adoption of legislative reforms in February 1996, the modification of the Code of Local Govermments (Code des Collectivites Locales) and the efforts to simplify the functioning of the Fonds d'Equipement des Collectivites Locales are initial efforts to ensure that delegation of responsibilities to local authorities is backed up by transfer to financial resources to support municipal development. The Bank's Urban Development and Decentralization Project (FY98) supports this decentralization effort and aims at gradually shifting responsibility and  Attachment VI Page 3 of 7 accountability in terms of delivery and maintenance of urban services and infrastructure to municipalities. Environment 9. Senegal's development potential is rendered problematic by its harsh, arid climate, its vulnerability to changes in rainfall amounts and the pressure placed by rapidly increasing population levels on the fragile and increasingly scarce resource base. This demographic pressure, coupled with the effects of a continually shrinking forest and vegetal cover and the insufficient or inappropriate use of fertilizers has contributed to the degradation of already-fragile soils, with consequent decline in agricultural yields. Natural forests have shrunk over 7.4 percent over the past ten years. Degradation of water resources, especially from saline intrusion and pollution of subterranean waters by pesticides and other pollutants, has increased steadily. The difficulties of maintaining a productive existence in rural areas has contributed to the rapid swelling of urban centers, where environmental problems are characterized by the near total absence of systems to manage urban solid and liquid waste and to ensure adequate sanitation. 10. In an attempt to confront this nexus of problems, the Government of Senegal has just completed the preparation of a National Environmental Action Plan (NEAP). The NEAP provides an analysis of the environmental difficulties facing Senegal, on a national as well as on a regional and ecogeographic basis. It also details the points of synergy between the principal environmental concerns and the wealth of sectoral plans already prepared in Senegal. The NEAP has a number of strategic objectives around which implementation will be organized: - sustainable management of environmental resources, including drylands management activities, proper management of urban and industrial environmental concerns, and improved institutional and legal instruments for environmental management; * improved performance of the public sector in the provision of basic services and infrastructure, such as sanitation and waste disposal; * coordination and effective implementation of the international environment-related conventions which Senegal has ratified; * focus on decentralized execution and management of environmental activities through integrated regional development plans, which include the regional and local environmental action plans as well as the decentralization of development planning activities. 11. These broad strategic objectives are translated into a series of tables which identify Senegal's principal environmental problems region by region. They identify the priorities which should guide cooperation with Senegal and the design of a future environmental support program (ESP). They are: * degradation of soils through erosion, desertification, and salinization; * loss of forest and vegetal cover;  Attachment VI Page 4 of 7 * loss of faunal biodiversity due to habitat destruction; * lack of basic infrastructure, particularly in urban areas, and resultant decline in social health; * reduction in water resources and inadequate access to water; and * coastal zone management problems, in particular reduction in maritime resources. 12. Based on the respective ranking of the above priorities by region, as expressed in the regional environmental action plans, the Government plans to call donors and international agencies together to develop, on the basis of the above, a coherent program to support those elements deemed as priorities by each region. They intend for NEAP implementation to be done in a way which will support the decentralization program, empowering local development agencies to implement ESP activities spiecific to each region.  Attachment VI Page 5 of 7 SENEGAL Cross-cutting Issues to be addressed with IDA Lending Instruments (FY98-FY2000) Project Gender Capacity Building Environment Urban Dev. & Enhance health centers, community centers, Provide opportunities for consultants and Facilitate sustainable improvements in living and working Decentralization maisons de lafemme directly targeted at entrepreneurs to strengthen their technical and environment of Senegal. Ensure that physical components have (FY98) women. Also markets and infrastructure for administrative skills. Also train a pool of a positive impact on urban environment. Include an beneficial impact on women. local consultants to carry out financial/urban environmental impact checklist in the preparation of the audits elaborated during project preparation. municipal contract. This checklist has the dual advantage of: (a) Establish a training program for small scale screening sub-projects in a more operational manner than with an enterprises to improve performance of public environmental assessment; (b) enhancing the pedagogical value works enterprises. Finance revenue- of raising local governments' awareness of the environmental generating facilities, i.e., markets and bus soundness of their investment programs; and (c) promoting stations, if sound management of the facilities greater local involvement in the management of natural and is included in the municipal contract. environmental resources. Integrated Health Address gender issues through reproductive Support to academic and continuing training Indirectly, address environmental causes. (FY98) health activities including maternal and child activities, recruitment of personnel and health, family planning, AIDS and STD management system design and operation. prevention, and management of high risk pregnancies. Energy Sector These projects address three gender issues: Projects will build community capacity for Promote environmentally sustainable supply and consumption of Adjustment Credit women's time constraints, women's health, resource management. woodfuel and charcoal. (FY98) and women's low income-generating capacity. and Energy Sector The project will reduce women's time Investment constraints by reducing the need to collect (FY99) fuel; it will improve their health by supplying cleaner fuel; and it will increase women's income by increasing their control over fuel management. Agric. Export No gender issues addressed. Support to private producers and their Assess potential impact on natural resources. Promotion professional organizations, mastery of product (FY98) quality, and focused training would lead to important capacity building benefits. Ag. Services This project addresses the specific The project will strengthen the capacities of The project will induce holistic range-land management with Producer Org. technological needs of women farmers. producer organizations, of the Ministry of herders' associations; it will generate and transfer technologies to (FY98) Agriculture, and of research and extension control land and water degradation, restore forest cover, and stop services through training, communication, and the depletion of marine resources. consultant services.  Attachment Vl Page 6 of 7 SENEGAL Cross-cutting Issues to be addressed with IDA Lending Instruments (FY98-FY2000) Project Gender Capacity Building Environment Transport II This project addresses the limited access of Modernization of sector; promotion of small Integrated environmental consideration in road management. (FY99) women farmers to market places: and medium construction enterprises. Develop capacity to monitor impact on environment. 1. The rehabilitation and periodic Training center will provide skill training in maintenance of rural roads opens up farm-to- all aspects of construction as well as seed market roads which benefits women because money for small associations to undertake most of the farmers and most of the market initial activities. vendors are women. 2. This project includes the preparation of the Rural Transport Project. Representatives of women's groups and associations will participate in preparatory workshops at the village, regional, and national level. Ag Sector The project will support village level The project will strengthen the rural The project will finance land and water degradation control Investment investments in agroprocessing infrastructure. communities' capabilities and support the infrastructure (for example, antisalt small dams). (FY99) These mostly benefit women. Government's strategy of decentralization. Private Sector No gender issues addressed. Support to Competitiveness Review Group An ongoing project will help review government regulations for (FY99) (CRG) as well as to government institutions protecting environment from industrial pollution. The new already provided under an ongoing private project might build on this review to strengthen environmental sector capacity building project will continue protection. under the new operation. Urban Transport Women are important users of public transport Will help in strengthening capacity of leasing Will help reduce traffic pollution in urban centers. Reform Project for access to markets and of health and social companies. (FY99) services. The increased efficiency of the urban transport system will therefore benefit women.  Attachment VI Page 7 of 7 SENEGAL Cross-cutting Issues to be addressed with IDA Lending Instruments (FY98-FY2000) ProJect Gender Capacity Building Environment Education Sector In basic, middle, and secondary education, Intensify capacity building in the areas of Support many literacy programs which include environmental (FY2000) target increased female enrollment and management and monitoring and evaluating protection/education components. academic performance, in particular, the learning outcomes. performance of girls in basic education in rural areas. Long-term Water - Project would ensure women's participation - Involve community based organizations - Support measures of groundwater and surface water protection, (FY2000) in decision-making process. (CBOs) in selection process, design, and in particular for non point pollution by fertilizers and pesticides - Women would be primary target audience implementation of water supply and sanitation of the Lac de Guiers. for hygiene and sanitary education program. technologies. - Support environmental health education programs, including - Women would be actively involved with - Strengthen capacity in following areas: (i) public hygiene education, targeting on the positive effect of NGO related activities. regulatory capacity to monitor private sanitation facilities on property values and on reduction of operators; (ii) long term financial management prevalence of waterborne diseases. of sector; and (iii) water resource management. Social Sector/WID Main target group will be women's groups. The project will help to address weak To be decided. (FY2000) Project will support the implementation of institutional capacity of entities dealing with part of the Government's' five-year Action social actions. It will also help to build up the Plan for Women's Development. One project institutional capacity to manage the collection component will support income-generating and analysis of poverty and social data and the activities of women's groups. establishment of an appropriate monitoring system. Trade Adjustment No gender issues addressed directly. Project will have a component for training of Credit trade officials, customs, and exporters. (FY2000)   Attachment VII SENEGAL Country Assistance Strategy Standard Annexes Annexes Al Senegal at a Glance B2 Selected Indicators of Bank Portfolio Performance and Management B3 Bank Group Program Summary, FY98-2000 B4 Summary of Non-lending Services B5 Poverty and Social Development Indicators B6 Key Economic Indicators B7 Key Exposure Indicators B8 Status of Bank Group Operations B9 CAS Summary of Development Priorities  i  Annex Al Page I of 2 Senegal at a glance 11t5197 Sub- POVERTY and SOCIAL Saharan Low- Senegal Africa Income Development diamond, Population mid-1996 (nimNons) 8.7 600 3,229 GNP per capita 1996 (USS) 560 490 500 Life expectancy GNP 1996 (billions USS) 4.9 294 1,601 Average annual growth, 1990-6 Population (%) 2.7 2.7 1.7 Labor force (%) .. 2.6 1.7 GNP / . 0 Gross Most recent estimate (batestyearavailable since 1989) per primary capita enrollment Poverly headcount index (% odpopulaIon) Urban population (% o totab populafton) 42 31 29 Life expectancy at birlh (years) 50 52 63 Infant mortality (per 1,000 MWm births) 62 92 69 Child malnutrition (% of childen under 5) 20 .. .. Access to safe waler Access to safe water (% ofpopulaton) 51 47 53 Illiteracy (% of populaton age 15+) 67 43 34 Gross primary enrollment (% orsdchoo-ae populatfon) 57 72 105 Senega/ Male 64 78 112 Low-Incomegtoup Female 50 65 98 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1875 186 1996 1996 GDP (bilions US$) 1.9 2.6 4.9 5.2 Economic ratlos Gross domestic InvestmentlGD1 17.8 10.5 15.6 16.5 Exports of goods and services/GDP 36.6 29.7 31.7 30.8 Openness of economy Gross domestic savings/GDP 12.5 -0.7 10.4 11.4 Gross national savings/GDP 9.1 -5.9 9.5 10.0 Current account balance/GDP -10.2 -17.4 -6.1 -6.5 Interest payments/GDP 1.0 2.0 1.2 1.9 Savings Investment Total debtGWP 18.4 99.4 79.0 71.5 Svn Total debt service/exports 5.8 20.7 17.6 14.5 Present value of deWGDP Present value of debt/exports Indebtedness 19769S 1988-96 1996 1996 1997-06 (average annual gowth) GOP 2.0 1.9 4.8 5.6 4.4 Senegal GNP per capita -1.1 -0.7 2.3 3.1 1.9 -Low-incorne gmup Exports of goods and services 2.2 3.0 9.4 4.8 4.6 STRUCTURE of the ECONOMY 1975 1986 1996 1996 Orowth rates of output and Investment (%) (% of GDt'J Agriculture 26.9 16.5 18.0 18.5 30.. Industry 20.3 15.6 17.1 16.9 20 Manufacturing 16.4 11.3 11.8 11.5 10 Services 41.8 56.0 55.7 54.4 *0 Private consumption 72.2 83.9 78.4 78.2 20 2 General govemment consumption 15.2 16.8 11.2 10.4 Imports of goods and services 41.8 40.9 36.9 35.9 -G D ---GDP (average annual growth) 197S-85 1986-96 1996 1996 Growth rates of exports and Imports (%) Agriculture -1.4 1.5 -0.2 6.2 20 Industry 2.1 2.9 8.5 5.7 15' Manufacturing 2.5 2.7 8.7 3.6 10\ Services 3.1 1.8 3.5 3.3 5 \ Privateconsumption 3.0 1.0 3.1 6.1 0 General govemment consumption 5.3 -2.7 -4.7 -0.8 -5 \ S 9204 95 9t Gross domestic investmed -4.8 4.5 14.6 10.6 .10* Imports of goods and setvices 3.3 -0.3 5.5 6.5 Gross national product 1.7 2.2 4.9 S.9 *-Expts -Imxorts 'The diamonds show four key Indiators In the counitry in bokd) compared with its income-group average. If dala are missing, the diamond will be incomplete.  Annex AI Page 2 of 2 Senegal PRICES and GOVERNMENT FINANCE Domestic prices 1976 1985 1995 1996 Inflation (%) (% change) 40 Consumer prices 31.7 13.0 8.1 2.8 30 Implicit GDP deflator 11.5 9.1 7.6 2.8 20 Govemment finance 10j (% of GOP) 0 Current revenue 18.9 18.2 16.9 15.6 -10 91 92 93 94 ss se Current budget balance 2.6 -0.5 3.8 3.8 GDP der. C PI Overall surplus/deficit -0.4 -3.5 -1.0 -1.1 TRADE 1976 1985 1995 1996 Export and import levels (mnill. USS) (miltins US$) Total exports (fob) 503 515 969 986 1.60 Fish 209 53 102 80 1400 Fuel #NIA 58 33 38 1 200 Manufactures 13 36 45 104 10001 Total imports (cif 612 904 1,383 1,440 S00 Food 190 197 394 398 am Fuel and energy 46 173 138 176 . Capital goods 129 83 180 186 a3 Export price index (1987=100) 83 74 90 91 90 91 92 93 94 95 9g Import price index (1987=100) 48 75 125 131 OExports rimports Terms of trade (1987=100) 173 99 72 69 BALANCE of PAYMENTS 1975 1986 1996 1996 Current account balance to GDP ratio (%) (Millions US$): Exports of goods and services 688 851 1,544 1,588 0 Imports of goods and services 782 1,165 1,797 1,852 90s 91 1921 93 94 95 96 Resource balance -94 -314 -253 -264 2 Net income -76 -127 -155 -130 |4 Net current transfers -24 -6 110 58 Current account balance, before official capital transfers -194 -447 -298 -337 Financing items (net) 189 434 380 390 .10 Changes in net reserves 5 14 -82 -54 -12 Memo: Reserves including gold (mill. USS) ... 16 283 303 Conversion rate (localUS$) 214.3 449.3 499.1 511.6 EXTERNAL DEBT and RESOURCE FLOWS 1976 1986 1996 1996 1, (M011ons US$) Composition of total debt, 1996 (nill. USS) Total debt outstanding and disbursed 349 2,563 3,845 3,686 IBRO 10 89 35 24 IDA 43 232 1,126 1,240 Total debt service 42 190 296 251 F 120 G: 48A: 24 IBRD 1 10 16 13 V . e1240 IDA 0 4 14 17 Composition of net resource flows E: 1255 Official grants 44 96 371 0 Official creditors 39 130 48 96 Private creditors 19 -5 -25 -30 Foreign direct investment 23 -16 1 0 C c318 Portfolio equity 0 0 0 0 0:6 82 World Bank program 3 2 2 Commiments 31 25 219 42 A - IBRO E - Bilateral Disbursements 19 33 70 89 B-IDA 0-Other mulrlateral F - Private Principal repayments 0 6 17 18 C-IMF G - Short-tern, Net flows 19 27 53 71 Interest payments 1 8 12 12 Net transfers 18 19 41 59 Development Economics 12115197  Annex B2 Page 1 of 1 Senegal - Selected Indicators of Bank Portfolio Performance and Management Indicator 1995 1996 1997 1998 Port'olio Assessment Number of Projects under implementation' 17 19 20 17 Average implementation period (years)b 3.64 4.16 4.15 2.98 Percent of problem projects" by number 5.88 21.05 5.00 5.88 by amount 5.43 29.36 2.76 3.15 Percent of projects at risk8 d by number 29.41 62.50 7.14 5.88 by amount 33.92 74.15 4.26 3.15 Disbursement ratio (/o)e 15.31 15.81 30.44 3.69 Portfolio Management CPPR during the year (yes/no) YES (June 12-13, 1997) 6/97 Supervision resources (total US$ thousands) 781.07 1,305.17 1,055.87 260.56 Average Supervision (US$/project) 45.95 68.69 52.79 18.61 Memorandum item Since FY80 Last five FYs Projects evaluated by OED by number 57 20 by amount (US$ millions) 1036 485 Percent rated U or HU by number 32 30 by amount 28 38 a. As shown in the Annual Report on Portfolio Performance (except for current FY). b. Average age of projects in the Bank's country portfolio. c. Percent of projects rated U or HU on development objectives (DO) and/or implementation progress (IP). d. As defined under the Portfolio Improvement Program. e. Ratio of disbursements during the year to the undisbursed balance of the Bank's portfolio at the beginning of the year: investment projects only.   Annex B3 Page 1 of 3 Senegal - Bank Group Program Summary, FY 1998-2000 Proposed IBRD/IDA Base-Case Lending Program, FY 1992000' Strategic rewardb Implementationb FY Project USs(M) (HAM) risks (HML) 1998 ENERGY SEC. ADJ. 100.0 H H INTEGR.HEALTH S.DEV. (APL) 50.0 H M PILOT AG.EXP.PROMOT. 8.0 M L URB DEVT & DECEN PRO 75.0 H M AGRSERVICES&PROD.ORGS (APL) 47.0 H M Subtotal 280.0 1999 AG. SECTOR INVEST. (APL) 30.0 M M ENERGY SEC. INV. PRO (APL) 30.0 M L TRANSPORT II (APL) 55.0 M L URBAN TRANSPORT II 15.0 M L PRIVATE SECTOR DEV. 35.0 H L Subtotal 165.0 2000 EDUCATION SECTOR (APL) 20.0 H M LONG TERM WATER SECT (APL) 40.0 M M TRADE REFORM ADJ. 35.0 H M SOCIAL DEVELOPMENT/WID 20.0 M M Subtotal 115.0 Total, FY 1998-2000 560.0 a. This table presents the proposed program for the next three fiscal years. b. For each project, indicate whether the strategic rewards and implementation risks are expected to be high (H), moderate (M), or low (L). APL = Adaptable Program Loan  Annex B3 Page 2 of 3 Senegal - IBRDIIDA Lending Program Past Current Planned' Category 1995 1996 1997 . 1998 1999 2000 2001 Commitments (US$m) 218.9 41.9 39.0 280.0 165.0 115.0 25.0 Sector (%)b Agriculture 20.6 6.7 4.6 19.6 18.2 0.0 0.0 Education 0.0 93.3 0.0 0.0 0.0 17.4 0.0 Electric Pwr & Engy. 0.0 0.0 26.9 35.7 18.2 0.0 0.0 Environment 0.0 0.0 13.3 0.0 0.0 0.0 0.0 Multisector 19.7 0.0 0.0 0.0 21.2 30.4 0.0 Popultn, Hlth & Nutn 8.3 0.0 38.2 17.9 0.0 0.0 0.0 Public Sector Mgmt. 5.7 0.0 0.0 0.0 0.0 0.0 0.0 Social Sector 0.0 0.0 0.0 0.0 0.0 17.4 0.0 Transportation 0.0 0.0 16.9 0.0 42.4 0.0 100.0 Urban Development 0.0 0.0 0.0 26.8 0.0 0.0 0.0 Water Supply & Santn 45.7 0.0 0.0 0.0 0.0 34.8 0.0 TOTAL 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Lending instrument (%) Adjustment loansc 40.3 6.7 4.6 42.9 0.0 24.1 0.0 Specific investment loans and others 59.7 93.3 95.4 57.1 0.0 75.9 0.0 TOTAL 100.0 100.0 100.0 100.0 0.0 100.0 0.0 Disbursements (US$m) Adjustment loansc 35.0 34.8 22.5 0.0 0.0 0.0 0.0 Specific investment loans and others 35.5 54.4 90.9 * 12.3 43.9 32.6 20.7 Repayments (US$m) 17.2 17.1 15.5 6.4 0.0 0.0 0.0 Interest (US$m) 12.2 11.3 10.5 4.7 0.0 0.0 0.0 * Ranges that reflect the base-case (i.e., most likely) Scenario. For IDA countries, planned commitments are not presented by FY but as a three.-year-total range; the figures are shown in brackets. A footnote indicates if the pattern of IDA lending has unusual characteristics (e.g., a high degree of frontloading, backloading, or lumpiness). For blend countries, planned IBRD and IDA commitments are presented for each year as a combined total. b For future lending, rounded to the nearest 0 or 5%. To convey the thrust of country strategy more clearly, staff may aggregate sectors. C Structural adjustment loans, sector adjustment loans, and debt service reduction loans.  Annex B3 Page 3 of 3 Senegal - IFC and MIGA Program, FY95-98 Past Category 1995 1996 1997 1998 IFC approvals (US$m)a 0.00 1.37 18.85 0.00 Sector (