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Back on Track

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As year-end draws closer, Senegal hosted the Presidential Council for Investment (CPI) in November to draw conclusions on the macro-economic performance of the country as well as to formulate recommendations for the year ahead.

The CPI was created in 2002 to implement Senegal's strategy of streamlining investment procedures and make Senegal a top investment destination. Although the country was given a high mark by the recent 'Doing Business 2009' report by the World Bank, the ways in which public funds have been managed have proved to be a drag on the local economy.

During the 8th session of the CPI, which started on November 12, President Abdoulaye Wade minimised the impact of arrear payments in the public sector towards private-sector companies, arguing they represent a small fraction of the government's total budget. He estimated the total amount of public debt at between CFA130bn and CFA174bn, out of a government's budget of CFA1800bn. Wade fixed the end of January 2009 as the deadline for payment.

The estimation of total government debt by President Wade contrasts sharply with estimates ventured by businessmen. According to the head of the banking association and head of Attijari Bank Senegal, Abdou Mbaye, the debt could reach CFA350bn, while Former Minister of Finance Moussa Touré has alluded to CFA500bn.

The overspend is said to have been highest in public institutions and independent state agencies. As a sign of political will, state agencies received the directive not to spend a single cent without formal approval from the Ministry of Finance.

President Wade said the debt burden was partly attributable to the subsidies put in place in 2007 in an effort to cushion the social implications of high food and oil prices. He qualified them as "temporary and accidental" budget slippages.

The buildup in payment arrears by the state has caused speculation as to the health of public finances. The largest source of fiscal revenue for the state is indeed port taxes on imports. Given that construction companies account for a large part of imports, the arrears in payment have caused a slowdown in imports of construction equipment, and a subsequent fall in revenue from taxes at the port.

The World Bank and the International Monetary Fund (IMF) have both rung alarm bells, while many donor countries are watching the upcoming IMF board meeting on December 18 very closely to determine their strategies for the year to come. However the CPI emphasised the role of private sector projects currently underway, ones which will not necessarily be affected by the public finances situation.

These large-scale projects include the Arcelor Mittal investment in the iron ore mine in south-eastern Senegal (worth CFA1,100bn), the new Blaise Diagne airport south of Dakar (CFA260bn), the Expresso telecoms investment (CFA100bn), the toll road out of Dakar (CFA40bn), the new trans-shipment port by DP World (CFA300bn) and the new special economic zone run by the Emirati company JAFZA International (CFA400bn) among others.

In an effort to break the vicious circle of increasing government spending and declining tax collection, the state is in the process of investigating ways to raise funds. It is confident it can raise CFA200bn , partly by selling 6% of its shares in Sonatel on the regional stock exchange - though preserving its strategic 21% stake in the company. This move should raise an estimated CFA22bn in addition to the expected CFA26bn in dividends. The state also expects to raise CFA20bn in treasury bonds from the commercial banks in Senegal. Finally, the government is in negotiations with the IMF and other donor countries (including France) to raise over CFA100bn.

Meanwhile, all public subsidies have been phased out on goods other than gas. The latter has been capped at CFA32bn and is meant to be entirely phased out by July 2009, reducing the drag on public finances.

These initiatives, together with the increased oversight and control by the treasury should ensure that there will be no further budgetary slippages in the years to come.

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