Statement by Ali Bourhane at the Board meeting of January 29, 1998

International Bank for Reconstruction and Development 86879 International Development Association International Finance Corportation Multilateral Investment Guarantee Agency FOR OFFICIAL USE ONLY CONFIDENTIAL EDS98-39 January 28, 1998 Board Meeting of January 29, 1998 Statement by Ali Bourhane SENEGAL - Country Assistance Strategy Let me first congratulate the staff for a well written and well documented CAS. Broadly speaking, I concur with the staff's analysis. My Senegalese authorities also agree with the basic conclusions and recommendations of the CAS. I should add, as the staff have mentioned in the document, that this CAS benefited from wide ranging consultations among various actors in Senegal. I am also very happy to note that the quality of the dialogue between the Bank and Senegal has remained very good since January 1994. As stressed in the Executive Summary, following several years of less than optimal economic management, the turnaround of the Senegalese economy came in early 1994, beginning with the devaluation of the CFA franc, on January 12, 1994. Since that time, the authorities have implemented several policy reforms which have led to a marked economic recovery and financial viability. Principal reforms concerned price and trade liberalization policies, including consumer, producer and imports prices; labor and regulatory legislations; public enterprise reforms, including several privatization and liquidation measures; restructuring of public administration; and-reform of the agricultural, energy, transport and social sectors, including abolition of monopolies. Overall, the reforms have had a positive impact on the economy as reflected in improved economic conditions. In 1997, inflation was ten times lower than in 1994. Real GDP, which had stagnated before the reforms began, increased by 2% in 1994 and by an average of 5% per year in the period 1995-97. The fiscal deficit declined from 6% of GDP in 1994 to less than 2% in 1997. The current account deficit declined to 6% of GDP in 1997 from over 10% in 1993, as a result of a combined strong export growth and a slower import growth. Outputs have improved substantially in the industrial, construction and fisheries sectors and exports have expanded. This document has a restricted distribution and may be used by recipients only in the perfom1ance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  2 Despite this positive evolution, Senegal is still faced with a sizable agenda of reforms. The unemployment rate is high, especially in urban areas. The costs of utilities (electricity, water and transport) make the Senegalese economy vulnerable to competition from neighboring countries. Finally, the agricultural sector, and rural areas, in general, have witnessed stagnation over the last three years. To meet the new challenges, the Government has adopted an overall development strategy which is articulated in the "Ninth Economic and Social Development Plan". The plan was adopted by the Parliament in February 1997. Its overall goal remains poverty reduction through the creation of new employment opportunities and the promotion of rural development. To create employment opportunities, the authorities have adopted a strategy focused on a more rapid and sustained economic growth. This, in turn, will require new investment and an active promotion of the private sector. The new agenda, which is formulated in the Government's Policy Framework Paper (PFP), consists of five points: (i) maintain macroeconomic stability, with the support of an IMF /ESAF program; (ii) encourage private sector development; (iii) promote rural development; (iv) accelerate human and social development; and (v) accelerate regional integration. Emphasis will be placed on redefining the role of the State, building capacity and setting guidelines to promote gender harmony and environmental protection. I agree with the Bank's country assistance strategy (CAS). It supports the authorities' development goals and strategies. During its preparation, it benefited from a wide consultation with the various segments of the Senegalese society. It was also guided by a sociological study of Senegalese scholars. Finally, the CAS capitalized on the lessons learned during the implementation of the previous CAS (1995). The proposed lending and non lending operations are capable of stimulating growth as proposed in the staff report. I hope the operations in the pipeline, including a private sector development operation, an energy sector adjustment and agriculture and transport sector operations, as well as the economic studies aimed at making Senegal more attractive for private investment will be implemented in a timely manner. I am also hopeful that the planned financial sector assessment (in Fiscal Year 1999) will accelerate implementation of reforms in the financial sector. The emphasis placed on the coordination of efforts among Senegal's major donors, including the IMF, the World Bank, the African Development Bank and the European Union, as well as bilateral partners, is very appropriate.  3 With regard to the specific case scenarios, I have one comment and a recommendation . As I have observed in other cases of my constituency, the circumstances which justify the Bank alternative strategic options need to be defined more clearly. More specifically, under the macroeconomic performance criteria, the 7-9 annual growth rate that justifies the high case scenario raises some concerns. While my Senegalese authorities clearly want and would take all the necessary measures in order to achieve a high growth rate, the outcome of such actions is dependent on many factors, including external shocks and increased investment. If this is the case, it would be unfair to withhold the level of funding required to achieve higher growth rates. I therefore recommend removal of this type of a trigger, on elements that are beyond the actual control of the authorities.