-7~ ~ ~ ~ ~ E- Report No. 11506-SE Senegal Stabilization, Partial Adjustment and Stagnation September 24, 1993 Office of the Chief Economist Africa Region FOR OFFICIAL USE ONLY M4ICROGRAPHICS Reprt o:11506 SE Type: ECO Docunmet of hWoi'Bk * y- * ' *-> q . A ' ' ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~I, a Thsdomerimthas a restrcted ditribution and miay b used by irecipiensny Art thep' nanco- f 'beiro ofc'aa°dutiesv '-C-, Itscotr "bwis , $jsctos~d w'i bou '' ftnt Way Bn irttv w ,o I,a~ aoth.'. . .a . f,''' . '''t ' '. '' CFAF/US$ Year AW Averge Had Period 1985 449.3 378.1 1986 346.3 322.8 1987 300.5 267.0 1988 297.9 303.0 1989 319.0 289.4 1990 272.3 256.5 1991 282.1 259.0 1992 264.7 275.4 FYscal Year for Government of Senegal July 1 - June 3n = Up to June 30, 1991 July 1 - December 31 (18 months) = For FY 1991-92 lanuay 1 - December31 = Statting January 1, 1993 Acronyms AGETlP Agence d'Bxdcution des Travaux d'Inte Public contre to Sous-Emploi (Public Works and Employment Project) BCEAO Banque Centre des Etats de l'Afriquc de l'Ouest (West Africa Central Bank) BIAOS Banque Intenationale pour l'Afiique Occidentale - Senegal (Commercial Bank) BICIS Banque Internationale pour le Commerce et l'lndustrie du S6negal (Commercial Bank) BNDS Banque Nationale du Ddvelppenent Sdndgalaise (National Development Bank of Senegal) BSK Banque Senogalo-kowitienne (Commercial Bank) CPA Communaut6 Fmnanciere Africaine (African Financial Community) CNCAS Caiss Nationale de Credit Agricole du Senegal (Agricultural Credit Bank of Senegal) CNTS Confederation Nationale des Travailleurs Sdndgalais CP Contrat-plan (Contrc Plan) CPSP Caise de P uation et de Stabilisation des Prix DIRE DEgation I l'Insertion, a la Rdinsertion et I l'Emploi DRSP DElegation I la R6forme du Secteur Parapublic EFF Extended Fund Facility ESAP Exended Stucurl Adjustment Facility PSECAL Financial Sector Adjustment Loan IDA Inernational Development Association IMF Itmenational Monetary Fund NPW Nouvelle Politque Industrielle ODA Official Development Assistance OED Operations Evaluation Department ONCAD Office National de Coopradon et d'Asistance pour Lb Developpement PAGD Projet I l'Appui I la Gestion du Ddveloppement (Development Management Project) PAML Medium-Term Econonic and Financial Rehabiliation Progrm PE(s) Public Enterprisc(s) PPP Policy Fmework Paper PIP Public Investment Progam PREP Plan Moyen Terme de Redrasemnent Economique et Financier (Medium-tenrm Recovery Plan) QR(s) Quant:tqtive Restriction(s) REER Real Effective Exchange Rate SAP Structural Adjustment Facility SAL Structural Adjustment Loan (Credit) SECAL Sector Adjustent Loan (Credit) SMIG Salaire minimum inatprofessionel gsaanti (Minimum Wage) SOFISEDIT Soci&6 Fmanciere Sdn6galais pour Ic D&vcoppement de lIndustri et du Tourisme SPA Special Prgram of Assistance SSA Sub-Sahan Africa TSECAL Transport Sector Adjustment Loan UMOA Union Mondtaire Ouest-Africaine (West African Monetary Union) USB Union Sndgalaise de Banque (Commercial Bank) FOR OMCIAL UE ONLY kThia ro,iozt ka prpmd bY. MusOpha'Rouls (APRCE, wAih e Thisreport revie wus eegl' atustet unot psna4r0UoDasc sinc 1980 fua, thifonis fear Sene dOaUlt*htO4its irst adse progIram. The report da&ahaiyon sevea on the vnous st*Jep8 of h adj uusoimats. 4.vdo~ents Senegal's paziulryrelatcingt implement.ingm poucyaein,m hasz beens m hised Seneg, alid oes,m wiell Iind moetryandosan irTe Mde, pricing and Aetrade,an financi5a 5b setrplces, bteln poody in driprov ted cutry's copetiiveness. The deltisrvesw1policy pursued by Senega ha wnot poduced Seve the moes results tageted in sthe 4yenme' mediumterm s flnanch progsramadPliy Fh ~~ramhewo ~rk Papers Ihe d aetlay policyha le~d to severe fsc.ab Pl compression epandcts in pbipnigi hsreporit areview Snaequaegadm'nstradutiven cpreforhanc sinerl 1980te the yearectSenegalo launchdits fstradjustmicesant program.ible re portifcuseas oen thrsed varoussteps ofth teiienladjusmet process harodsig tot iplemuen theepceercation adomcrenmicnd setoerea bez men rixeld. asenearslt,eprshv o performed well oeayadcei, poesicin andux trade, and comancie agector plcieapiprs, but porlyat inmrvingmethes coutry'st competitienesshe fThe defbliationar plcyhpursed by fasenegagle handos not provdceden the modsts resu lts tageed_ defdlationary policy has led toseverefiscalmpression and cutse i cs ingw ~~, ':.:,, Y Theintdcuernaadutmnprcs has no produced thsrbto n a e expcte depreci ations ony n the pofregal of their offcial duties. Its contents may not otherwise be disclosed without World Bank authorization. Table of Contents Executive Summary I Background and Overview 1 U Dedgn and Impetaon of the Adjustnent Progam 7 A. Macoeconomic Policy and Management 7 B. Pricing and Trade Policies 16 C. Institutional and Other Policies 25 D. Summary 41 m Macroeconomic Outcomes of the Adjustment Program 47 A. Macroeconomic Stabilizaon 48 B. The Compedtiveness of te Economy 53 C. The Supply Response 56 D. Summary S8 IV Seetoral Outcomes of the Adjustment Program 59 A. Agricultura Sector 59 B. Industra Sector 62 C. Public Enterprises Sector 67 D. Social Sectors and Income Distribution 68 E. Summary 71 V LAmons Learned and Reo dations 73 BIbliographIy 81 Boxes 1 Lessons Leaned and Recommendations Xl 2.1 Framework for MoUtay Policy in UMOA Countaies 12 2.2 Government Ownersip: Two Differt Approches to the Revision of the Labor Code 24 2.3 Senegal vil Sevie Volutary Dqep Program: A Policy Failure After A Good Start 40 .* 54 -* ~ ~ ~ ', I^ .. i. -. * i -. -||f vi...i *1 .- 9-. ;s,f ,7 t44ff ~ ~ ~ -4 * f4-. Ilk~~~~~' v . 46 k _ ,, t 49 14 . ~ .-. ..- *s- 35 h. s; . .,& .+ .Q. : w. / ~~~~~~~~~~~1 .9: >.~~~~~k' 23 es. ~ . - .. -. ;- .1..9 * . . )-.s 27 ...' ....-.,...,37 48 - . . i . . . j . . ; - s i , . ws 61 64 65 '4" , *~44; 4; 6*. , As. J 87 .5, . ~ . s . 88 89 90 91 -.5, 5-, .5 ~~~~~94 .5 .' ,X,, tr . 4. .'. .4.. 9 Executive Summay Introdudon 1. This study evaluates Senegal's adjustment performance since 1980, the year Sene_ launched its first adjustment program. In the early years of the decade (1982-85) little structurl adjustment took place and this is referred to as the stabilization or pre-adjustment period. The second half of the decade witnessed some structural changes in the economy, and is refaered to as the period of partal adjustment. The evz!uation covers the government's reorm program in its entrety, and is not limited to Bank-supported lending operations. The report focuses on the variou steps of the adjustment pkocess- from deign to implementation-and on macoeconomic and sector adjustment impacts. The methodology used to evaluate the impact of adjustment on economic performance is the "before and af" approach. The Financia Crisis and Govermm's Response 2. Senegal is a small, semi-arid Sahelian nation with a population of 7.6 milion. It is predominan aly ral with limited naual resource endowments. At the current exchange rate, the 1991 income per capita of US$720 places Senegal at the bottom of the lower-middle-income economies. At independence in 1960, Senegal inheited a relatively well-developed physical and socal infrastructure due to the prominent role Dalar played in the large French West Afrcan colony as a whole. Senegal has enjoyed a high profile in Afican affairs because of its lively democratic system and its highly vocal press. This has helped Senegal mobilize substantial exral resources over the years. Seneal has had a long traditon of African socialismn resultg in widespread govenment participation in the real economy and regulatory controls of the private sector. 3. In the first two decdes following indepedence (1960-80), Senegal's economic perform0c was poor, even by Sub-Saharan Afrca standards. Senegal eerienced the lowest GDP growth rate of any African state not affected by war or civil strife. GDP grew on average by 2.1% in real tem per anum, compared to a population growth rate of 2.8%. In 1981, all key economic indicators reflected serious financal and strucr imbalances: the fiscal deficit stood at 12.5% of GDP (or around 10% if interet payments were excluded), the curent account deficit reached 25.7% of GDP (or about 22%, if interest payments due were excluded), the inflaion Ste soared to 12%, the tem of trade index dropped by 12% from its 1975 level, savings were negative, and total consmption exceeded GDP. Te total stock of debt represented over two-thirds of GDP and the debt service represented nearly one-fifth of total eWorts. ii 4. The need for structul economic changes in Senegal can be traced to the early years of independence when Senegal lost its lae Fnch West Afrcan makeL Key economic indicators pointed to macrenomic imbalances in as early as 1966, when groundnut exports suddenly lost their preferential French market and had to compete in the world market. The ovesized public sector was also characterstic of the Seneese economy at that time. Government was slow to mcognize the need for strucural changes. During the short-lived commodity boom in tfie second half of the 1970s, the government responded by borrowing heavily on commercial terms, extpecing a return to more favorable terms of trade. 5. In the late 1970s, the government began to recognize the shortcomings of its ambitious public sector development plans and nationaliaton policies, and in December 1979 it announced its medium-tenn recovery plan for 198084. This program sought to staibilize the internal and etal financial situation, raise public savings, increse investment in dte productive sctors, libealize trade, and reduce the state rle in the economy. This first attempt at stabilizing the financial sitation and creating the basis for growth did not, however, yield atisfcory results because the reforms were only partally carried out. Renewed efforts were launched in 1984 with the onization of the first Consultative Group (CG) meeting for Senegal, and with the financial support of the donors of the second phase of the adjustment program for 1985-92. The government's reform effort has been supported since 1980 by six Bank adjustment and sector operations, and by a seies of IB arrangements, including a three-year Extended Structural Adjustment Facility (ESAF). A total of five Policy Framework Papers (PFPs) were approved by the Bank and the IMF Boards between 1986 and 1991. 6. Senegal has been a recipint country of the Specal Program of Assistance (SPA) since its establishment in 1988. The adjustnt program in Senegal has been generously supported by the donor community, either directly or as co-finciers of BakMP opeaons. In 1991, Senegal per capita ODA reached US$84 (or 12% of GDP per capita), over twice the average for SSA. Between 1981 and 1991, budgetary supo to Senegal accounted for nearly two-thirds of tetal net disbursement of official development asitn (ODA) which, in turn, accounted for 4.3% of the total amount received by Sub-Sabaran Africa. Design and equendng of the Rfonm Program 7. The intenal adjusment strategy that Senegal adopted relied on policies ot tan devaluation to restore growth, and internal and external lance. These policies conisted of deflary monetary and fiscal policies (demand management policies), second-best trade policies (high tariffs and export subsdies), and s l reforms. The laUtter reforms are deigned to lbealize market and prices, reduce the size of the public sector and rationaize its activities, and encourage private sector investment and development. Reospectively, the internal adjustment policy proved to be more and more difficult and complicated to imp t. This shows clearly the importance of the exchange rate as one of the major adjustment tools. It is not certain that the Senegalese economy could get out of its long recession without a more flexible exchange rate policy. iii Und the internladjutme strategy, if competiivenesst i achieved, it will be &chieved in the fina phe of the adjustment process rater than at the beginning when a depreiation of the red exchange ate is part of the adjustment progrm. 8. Chronologically, the reform pwgam focussed on economic stabiliaton (I.e. reducing the Intnal and extal imbalances and lowering the inflaon rate); agricultul marketng l n; inprovement of public sector management, incuding pubic enterprise and civil service; wage and labor market deegulation; popultion growth, bang ctor uc g; and tasport sector alion. The sequencing and coheence between these varous components of the reform program have been closely montored through the PFP process. Apart from the exchange rate issue, the adjustment program desg would have been comprehensive had the human resources sector, particduy edu , been fuly addrssed. 9. Notwittanding that the design of the adjustment program components has improvd over time as Senegal gined more experience in adjustment, the sequencing Of the rerms has had some setious flaws. The decision to liberae extenal trade before esabishing an efective t administratin, eliminatig labor rigidities, and reducing the cost of production, refiects insufEfcient cn given to the sequencing of rforms. Similarly, the decision to proceed with the civil servce departr program before establishig a robust datase on wages and civil sermats, and a monitoring sstem, also refects a defciency the sewquencing of reforms. Banking sector reform, although well implemented, should have been carried out earlier had the seventy of the cris been kom. Finally, the pv on of public enterprises ought to have been initiated once a good regulatory and incentives framework was in place to encourage prvate so develt. Gvowwtn Cbmmlte 10. Govenment's comitent to the reform program seems to depend on dtee lky elemets: the degree to which a conseu exist among the various interst groups, the stength of instion in charge of formlatig and coordating the reform proam, and the nate of the refms thmselves-the more poically and socially difficut, the more reluctant government is to fully implementing them. Over timre, the government has teded to more widely consult interest pardes on policy measures and to debate tese mea publicly. A case in point is the revision of the labor code whi involved exnsive discusons between the government, labor unions and employer ion, and, more recently, the discussion of the higher education sector. Nowithnding this efot, the involvement of the private sectuor in the design of the reform proam has been far from satsactoy. 11. Th momentum of the goverment's c to the refbrm program seems to have been lost folowing the 1988 elecdon when the technocrats' influence was wealkned as a resut of poliical pressre. During 1986-88, a com team of technocrts were instumental in the implment of refom. Senegal was leas successful in its iv refrm implementain where vested interest was strong and leaderip was weak This was the case in the agicultual pricing reform program, in the libealization of tie labor market, and in refomaing higher education. The lack of Weement between the government and the key donors, including the Bank, on the agricultural SECAL, which has been under prepaation for over three year., is a good example relectig the point discussed above. To deal with the govemment's weak commitment to the adjustment pirt-nften, government implemented the reforms in form rather an in substance-recent adjustment opertions supported by the Bank put heavy e.. phasis on up-front conditionality. Implementaton of the Rform Program 12. Overall, Senegal's performare in implementing its adjustment program has been mixed. This evaluation is carrico out by major policy categories and by major seucors of the economy. Senegal performed well in monetay and credit policy, pricing and trade policy, and financial sectr policy-the latter being an area where Senegal was one of the first countries in the CFA zone to undertake such a far reaching reform. Two caveats are in order here. First, the government began in recent years reversing its import potecdon policy, and second, govemment was not aggresve in recovring the bking sector bad debts owig to its hesitancy to pursue t arge debtors. The unfinished financial reform agenda is mainly in monetary policy where there is a need to shift to a market-based system of money and credit management. 13. Senegal's performance has been exceptionally poor in improving the country's competitiveness in the world market. The real exchange rate has appreciated by at least 20% in foreign currency terms during the partal adjustment period, i.e. since 1985. The labor market has been only marginally lelized libealization of hiring praces, and part relauation of the constraints on the use of temporary employment contracts). A new draft labor code, which diminates the rigidities in the labor market, has been prepared by government in close consultation with labor unions and the employers' association but has yet to be enacted into law. As a result of the peristence of the rigidities in the labor market, labor costs remain a serious impediment to investment, growth and competitiveness. 14. On the fiscal front, the government achieved its main objective of diminating the budget deficit by 1990, but the situaon reversed soon thereafter. During 1986-90, the government imlemented a wide range of tax reforms designed to simplify the tax struc (namely by introducing a global personal income tax and a single tax on corpoate income), modenized the tax astation system, and mobiLized resources by widening the scope of the value-added tax. The government also introduced xeniture control measures, pardcularly in the area of public investment. Govemment tended, however, to focus on short-term financial considerations, such as reliance on windfall revenue from petroleum and nce imports and the intoducton of numerous, ad- hoc tax measures ather than on structural issues. Revenue mobiization and resource alocation were done at the expense of ompetitives and long-term growth, a reflection of the aeceive preoccupation with the short-term. In expendires, government reduced v investment (below appropriate levels for replacement) and asocatins to O&M, but proted wages and salaries, thus jeopadizing future growth and employment. In sum, the required fundamental restucturing has not been achieved. The key fiscal reforms left to be implemented are ngening the t administration, particulaly customs, reducing dependence on rvenues from petoleum, redg the wage bill, controlling tansfe to PEs, and raising investment and O&M. 15. A review of the implementation of the sector reforns also reveals a mixed performance. The implemenion of the agricture reform program has bees limiited to the liberalizadon of domestic tade, price decontrols on most comma :s, and elimination of input subsidies. On the other hand, rice import controls remain a major issue and producer prices for cash crops, namely groundnuts and cotton, continue to have no direct relation to world prices. Liberaization of the domestic market for most commodities has been a necessary, although insufficient conditions to turn agricultura production around. The appreiation of the ral exchange rate and the unfavorable terms of trade for groundut oil and cotton, remain major obstacles to agricultural develomet. A comprehensive reform program addressing the competitiveness of the grundnuts, cotton, and rice sectors is urgently needed. 16. The implemention of the industrial reform program has been very limted. What was supposed tohave been a comprehensive and well-sequenced program tuned out to be only y implemented. The policies effectively implemented were the liblizaion of domestic and international tade, and the decontrol oA most domestic pices. In recent yes, however, government started reversing its trade policy primarily for fiscal reasons, but also to protect industry and to compensate for the appreciation of the real exchange rate. Crocial reforms such as labor deregulation, improvement in the legal and dmive environment, reduction in the cost of energy, and export subsidy schemes were not only partly implemeted, but were implemented late in the adjusment process. Among the measures implemented to improve the regulatory environment were the revision of the investment code and the smplification of investmn procedures. The industri program, conceived as a comprehensive reform progrm, was finally reduced to price and trade liberaliztion. 17. The implemenion of the PE sector reforms has been uneven. Goverment lqidated 21 PEs and privafized, totaly or parily, 26 others, together repreenting 42% of the total number of PBs. These PEs represet only 19% and 11%, repectively in tems of assets and gov ent equity. Divestiture, which is nearly complete in the financial sector, is far from being so in the non-financial PEs. The progress made in the divestitre program is very recent-th-uart of the PEs privatized and liquidated, which ransled into about 80% of their assets and govemment equity have been achieved sice 1989. A total of ten PEs (out of 27 planned) have been restructured. And, a total of 24 (out of 44 planned) contact plans and letters of mission' have been signed between government and selected PEs. The use of contract plas bas imprved transparency and accoulit of the two contracting parties-not a small achievement-but has encountered major problem in its financial implications. On the financial front, the government implemented the refoms in "lette but not in vi spirit.* Te govement rduced direct subsdes to PEs but the benefit of this reform was deftd when the PBs crtousy sought financing through commercial overdrafts and gSermment guantees This loophole was corectd in 1990 by prohibiting tis type of fLa_ing; this in tutn was defeatod by te PEs through the accumuladon of arear. Ihe settement of these arre between government and PEs has ben carried out twice in a comprehsive manner and the problem seeu to be slightly less acute now because of the introducdon of concurret preventive measures. 18. In the human resources sector (education and health), only a limited number of reforms have been implemented. The unfinished reform agenda includes a rtwu',tion in the imbalances between primary education and higher education, and between basic health care and a curtve hedth system. Reforn programs for higher education and health are currently under active considration by the government. 19. Figure 1 presents the major reforms undertaken during the period 1980-91 and those not yet undertaken. Pending reforns needed to inprove the competitiveness and allocation of resources include the depreciation of the nrd exchange rate, the adoptton of indiect instruments of monetary control, the eliminaton of rigidities in the labor market, the impwvement in the legd and adminive fiamework, and the control of the wage bill. A com ve reorm program addressing the groundnuts, cotton, and rice subsectors is urgendy needed. Finally, major reforms are also needed to develop the human capital in Senegal. Mocroeconomlc Oucms f the A4jw men 20. At best, Sened has acheved mixed macoeconomic results during the adjustment period. It esentiaUy achieved financil stabiization with stagnation of the economy-per capita income has registered only a slight increase. Furhermore, even where positive results were achieved, they do not compare favorably with the expeced modest results of adjustment, as envaged in five consecutive PFPs. Ihe key factors expaining this mixed pefmance are the poor refor mplementaion, real exchange rate appreyation, and external shocks (weather conditions and terms of trade). Nonethles, Snegal is now better off than it was in 1981, but it is still faced witi poliy disttons which seriously undemine the country's longer term prospects. 21. By 1990, Senegal eliminated its fiscad deficit (the primay deficit has already been eliminated as early as 1980, and cut its exten imbalance by two-tirds vii Flue Is Jliaam.tiMoa Satus ofMor PeRy Rfodbnmsfa Se&pi, 1960.9 80 62 84 *6 8 90 91 1 Fiscal Policy Rationalize tax system XXXXXXXX XXX XXXX I loprove tax administration XXXx 2 Introduce cost recovery 3 Control wage bill xIxOXXoXooXX I///I 2 loprove pubtic investment programing XX XxI:1x::2111XXui[ 4 Reduce PE subsidy 2 lmprove debt nanagement XX I 1 Monetary and Financial Policies Adopt flexible int. rate & credit policy XXXX I Establish bank supervison body XXXX 1 Restructure the banking sector XX XXI7x JXXXXXXX 1 Develop capital market 3 Shift to indirect instru. of monetary control 3 Reat Exchange Rate Policy Adopt deflationary policy 3 Domestic Prices and Trade Liberalization Decontrol prices XX XXXX XX Xlaj Liberalize input & cereals output marketing XX XXXXXXXXXXX ib1 Reduce fnput subsidy XX XIIIIIIIIXX 1 I Eliminate monopolies (special aoreeents) 3 Reduce cost of production XXXX 2 Labor Market Liberalization Deregulate aog setting system 3 Deregulate labor market XX XX 2 External Trade Lfberalifation Eliminate non-tariff restrictions XXXXXXXX /1/U//Il IC/ Reduc tariff categories and levels XXXXXXXX I/I/lW 1c/ loprove export incentives xx XXXX XXXXI//I 2 PEs Reform Program Restructure key enterprises --------- I larplement divestiture program XX XX XXXXXXXX 4 Rationalize supervision system XXXX XXXX 1 Use performance contracts 2 Enablfng Environment Reform Simplify legal & adcin. procedures 3 Improve investment incentives XXXX XXXX 1i Reform civil service XXXXXX 2 Other reform Popuattfon control XX 2 Reform education sector 3 Reform health sector 3 Reform rice, cotton, & groundnut sectors 3 Adopt social safety net measures XXXX xxXX 2 XXC Policy UVISUMaNIGOs. n MIUA261 III Pocy R . I _ . 2 Not oflSc"ny bnplnsttd. Pdos on 14 how eman coonolled. 3- NGt bmpinted. bl.ice muts mannar oonulebd. 4- Coadnum.K of Giadual policy revmnld Souxc: SA Ta S. yin (current account deficit dropped to nearly 8% of GDP). This was achieved through demand conmprsson in private consumption,o investmetl, and expenditure on priority area. The, intuation rat dropped to leas than 3%, onec-fourth of what it was during the crisis period. This stabifliztion, particularly in the fiscal area, renains fiagile, and unless additiona strucutua reforms in civil service and tax collections are introduced, it will not be Nsusaned and may lead to a deterioration in long-team growth of the economy and in the competitveness of Senega. As a result of the lack of significant stucural reform on the fiscal side, Senegl continues to rely on large petroleum revenues (to the tune of 22% of tax revenue) and large external resources to finace its budgetary deficit. Improemenat in the current accunt was largely due to a sharp decline in prices since 1986 for the country's m4jor import items-petroleum products and rice-and to import compression associated with low investment (at around 13% of GDP) and growth. Export performance has been. erratic with an overal downward trend. 22. Competitiveness of the Senegalese economy has not improved during the partia adjustment period. The real exchange rate has significantly appreciated and the cost of production has remained high. Furthermore, the frequent changes in tarff and taxaton policies and the distortions entailed, together with the poor implementation of export subsidies, have smnt the wrong signals to an already weakeed and uncompetitive industria sector. The Gambias rapid trade liberaliztion, combined with its unique geographic location vis-k-vis Senegal, has further exposed the Senegalese mranufacturing seCtor to stiff competition. 23. The averap annual economic growth rate was 3.2 % during the period of paria stuctural adjustmet (1986-91) compared to 2. 1% in the first half of the decade in relation to population growth rat of 2.9% to 3.2%. This stagntion in per capita income shoud be cautiously interpreted given the poor data qualit of national accounts, particularly for the period under paria adjousmet. In spite of its relatively small shae of GDP?, agricltur, whose promnewas largely determined by weather conditions, continued to have a major impact on overall growth thrugh the multiplier effect on the rest of the economy. While there has been some improvement in public investment progammng,there has been litte diversification in the structure of the economy. Furdthemor, the level of investmnent has dropped to below the minimum level for preserving existigifratutt assets in Senegal let alone for accelerating growth. Sectr Outcwome f the Adjusvnent 24. During the partial adjustment period 1986-91, agiutrlproduction (including forestry, livestock and fishery) registered a modest inraeof 2.9% per annum. The increase in production was largely due to favorable weathe conditions in spite of a drop in cultivated land. While there is indication that interna terms of trade may have shifted slightly in favor of agriculture and away from industry, this shift should be interpreted with caution as it is not statstically robust. Production of food crops increased faster than cash crops, lagely as a result of an expanson of subsistance agriultre,interal tradelbrliain and producer price differentials in favor of food crops. Because of both good harvests and favorable domestic cereal prices, cereal ix imports (rice and wheat) drop dgnificantly during the partal adjustment period. On a per capita basis, cerel consumption declined by 1.7% annually durin the partial adjustment period. This decline does not however imply a drop in food consumption as Senegal has likely incased fish and vegetable consumption. Indicators of production incentives and efficiency show st among the ceals, diough millet and maize have a consideably higher comparative advantage than rice, they have barely adequate protection to sustain production for local consumption because of RER overvaluation. Far too many resources have been devoted to irrigated rice production, a sector which has yet to be sigmficantly reformed. Of the cash crops, cotton had a higher comprative advantage than groundnuts but received barely enough protection to maintain production. The prospects of the agrcultunl sctor remain dependent on the real exchange rae policy, the terms of trade for cash crops, and thie climate conditions. 25. Regarding the manufacng sector, production increased in real terms faster during the parial adjustment period than during pre-adjustment, owing to a vibrant informal sector. There has been a supply shift from formal to informal sectors as a result of trade liberali combined with the lack of progress on the real exchange rate depreciation, energy cost reduction, and labor and wage libealization. Rigidities in a more liberalized policy environment have led to serious difficulties for large-scale firms that had previously benefitted from protection against imports and local competition. The few large industries that did well were mining, chemical, and energy-industies that generally were not diretly affected by the reforms. The partial reform progam led to some of the manufacuring sector. It resulted in both the establishment of a few new firms-mainly small-scale exporft-rented agro-industries,-and the closing of non-performing ones. Small-scale enterprises are more dynamic than medium- or large- scale enterpises. SSEs may have compensated for the decline of large firms in spite of the weak demand growth in Senegal since 1986. A substantial share of small firms have managed to increase investment, output and profits. Manufactuing firms that successflly expanded after 1986 were relatively more flexible in changing the output- mix, purchaing new equipment, and adopting an export-oriented strategy. Overall, the manufacturng sector has been party restructured with medium- and large-scale industries still operating under ptcion. Partly because of the reversal of trade liberalization policies, and pardy because of dynamic small-scale enteis, Senegal has not experenced a major de-industraization as defined by the rapid shrinking of its industrial base-though there has been a shift from the formal to the informal sectr. This shift, however, does not provide a satsfctory bwse for Senegal's long-term growth and employment. 26. The public enterprise sector is now smaller (see para 17) and most likly more efficient than before the adjustment program. There is some evidence of improvement in internal mgement of some PEs as a result of their increased financial autonomy (as in the case of sociWts nationales") and the curtaiment of the role of the supersoy agencies. For some key enterprises, such as the power company, the port authority, and the railway authority, there seems to be some improvement in their financial and management performance. However, to provide a definite answer to the questio of efficiency, more detailed information on individual enterpises is needed. x 27. Despite sagnant and decning real per capita public extpenditures on educatlou and health duing the 1980s, pimary education and basic healtfi statw has slightly improved and regional differences have nanowed. In education, the government trained teacher salarie, allowing more teaches to be hired. Teachers in administrative postons were re-deloyed and major innovations were introduced in primary education such as mixed-grd classes and double shifts which allowed more efficient use of classroms and teachers. In health care a reallocation of resources in favor of pdmary health care, increased private and donor financing, and the increased effectiveness of peventive health services contributed to the overall improvement. It should be noted, however, that thse achievements in social indicators ae not only poor in comparison with counties at Senegal's level of income but, more importantly, represent short-term gains which camot be sustained given the current pattern and level of resource allocations to the social sectors. 28. Has Senegal succeeded in reducing poverty and in protecting the most vulnerable groups of the socety during the reom process in the 1980s? This is a difficult question to answer in the absence of hard data. However, it can be argued that poverty may have worsened in Senegal during the 1980s as a result of economic stagnation which, in turn, is a reflecton of the of the intenal adjustment stategy that Senegal chose to follow. Had Senegal fully implemented its adjustment program, including a substantial RER depreciaton, poverty would most likely have bee reduced. This study has also found that the cost of stabilizaion and partial adjustent has not fillen di onately more on the poor than on other social groups. T.here has been slight ipvement in the rural-urban terms of trade in favor of the runl sector. This is due more to the drop in utban incomes than to increases in nual incomes. Public wage eamers had declining real income over the 1980s, with incomes of the unsilled labor declining less rapidly than those for skilled labor. Thus there has been a move towards a less skewed wage income distribution. 29. The impact of adjustment on employment is hard to assess given the scarcity of data It is etmated that about 8% of tota employment in the modern sector would have been lost since 1986, largely in the modern manu sector and the civil service. Most job losses in manu ing were due to the liquidation of a few companies which were bound to be closed with or without adjustment reforms. There is evidence that the loss of employment in the modern sctor was offset by job creation in the informal sector. The social safety net progams have contributed marginally to an increase in employment. Lessons Lrned and Recmmendaons 30. IBMTrATMoF INTERNAL ADltSDm . The deflationary policy pursued by Senegal has not produced even the modest results tageted in the government's medium-term financial program and PFPs. In retospect, the deflationary policy has led to severe fiscal ession and cuts in public spending in priodity areas; inadequate adminitative capacity has sevey limited the effectiveness of second-best trade policies; and no credible income policy has been pursued. Consequently, the internal id adjustment process has not produced the expected depeiatn in e real exchange rate and, as a result, eWorts have not performed well, domesfic industry could not compete against cheap imports, and private invesment has at best stgnated. Senegal still needs to achieve a rapid, substantial, and sustained depciation in the real exchange rte. 31. The financial stabilizadon achieved so far is fragile and does not provide the basis for long-term financial equilibria and sustined growth. It has inceasingly relied on higher taxation at the exense of competitiveness and has led to a reduction in investments, in operations and maintenance expendiu, in expenditure on human resource development (mainly primary education and health care), and in the provision of adequate public services-all crucial elements for longer-term growth and development. The small increase, if any, in per capita income and slightly favorable social indicators are essentially modest, short-term achievements which are far from being satiscory for a meangful development of Senegal 32. PUBLC SBTR MANAGBNT. This has improved somewhat, but misallocation of public resources remains a problem. Wages and salaries continue to be dispoportonate with respect to expenditumes on maintenance and operations and invesment, and unless the size of the civil service wage bill is reduced drastically, the fiscal situation as well as the productivity of the civil service sector will deteriorate rpidly. 33. While inter-sector allocations appear satisfactory, intra-sector allocations rmain a problem in agriculture, education and health. Expenditu on irrigation were made at the expense of extension and research services, those on higher educaton were made at the expense of primary education, and those on a health curative system were made at the expense of preventive health care. Inluding the agricultural sector, where a proposed goverment sector reform program has been under discussion with the Bank and major donors for the last treeyears, the adjustment process has yet to deal with the social sectors -n a more comprehensive manner. Given the scarcity of resources in Senegal, alternative ways for the govemment to deliver social services have to be found. 34. More vigorous state enteprise sector-shrinking is imperative. The recent progress in privatizing public enterprises in Senegal, which can be attributed to a change in govemment stategy towards being prAgmatic while avoiding the syndrome of 'soft budget,' (e.g. subsidies) should continue vigorously. It is recommended that key companies, including the gromdnut processing company and the utlity companies, be next in the privatization pmcess. 35. ADDICION TO BUDwETARY AssisTANCE. Senegal has become addicted to budgetary external assistance which accounts for the posponement of hard economic and social changes such as the doinsizing of the ciil service, the adoption of a new labor code, and the restructuring of the agricultural rice sector. The lack of real sancdons by donors, including the Bank and the Fund, has been a major factor in Senegal's slow progress in adjustment. Further adjustment support for Senegal should xii be selective and conditional on the implementaton of up-front key policy meures. Over ime, extenal asie hould shift back to investment. 36. THE ENARLNG ENVIRONMENT FOR THE PRIVATE SBCTOR. While macroeconomic stabilization and relaitve price reforms are necessary, a healthy busness environment is essential to a quick recovery of private investment and growth. The enabling environment is determined by the following elements: the degree of certainty about government policies, the quality of the legal and regulatory framework, the state of physical infrastructure, and the efficiency of labor and financial markets. While progress has been made in all four years, only in the financial sector has it been fully sadsfactory. In the case of trade policy and civil service reform, policies were reversed in recent years. The deficiency of the labor market, the civil sevice and the regulatory environment (namely the judiciary system) are the most important areas needing rapid reform. 37. GovE,NmT ComrMENT. For any reform progran to be successfully implemented, it must be accompanied by consensus-building efforts among the various interes groups. This has not always been the case in Senegal. The government's resolve to take actions agreed under the program has weakened over the years, as the adjustment program became increasingly biting and decision-makers became reluctant to oppose the interest groups (rligious groups, civil service, labor unions) who stood to lose most from the reforms. 38. THE ADJUsTmeNr PRocES Am SEQUENCiNG. This process has proven to be more complex than stabilization. The packaging and sequencing of the reform measures are as crtical as the policy content of the adjustment program itself. As suted in paragraph 9, the sequencing of the reforms has been seriously flawed in the areas of real exchange rate policy, labor markets, the privatization of PEs, the wage bill reduction, and the civil service reform. These flaws could be largely corected if the real exchange rate depreciates, and if the regulatory environment and the institutional capacity improve. 39. In desiging the adjustment program, it is imperative to take into account the longer-term objectve of poverty alleviation and the temporary social costs of adjustment. In Senegal, this was done on a trial and error basis rather than as part of the overall macroeconomic framework. This deficiency was due to lack of infornation about the people expected to suffer the most from the reforms-a shortcoming which will be overcotme with fte results of the ongoing household surveys. 40. A summary of the major lessons learned and recommendations is presented in Box 1. . 4 4 #. III 115 II 3. U: Eli I rus 4. 'A if  k hI'i 41% U #11 Ii :N.K. .... I tli .. ,., run III bti' ULIMfti R Sn sea - *4 ,,.~Afle W 4I4swamaw tS, .4A *a Wu. vw- msdv .a ia. __" - i_ &flg@ a at p i be Iq -+ _* ;~ A *ka* r' %ar * aafthmci tW bsd*wvmc so.~~W~l *V'4wai* 4w 60" t 44AFI bM U it ,tafl4t "S SWU't f* WY *S AX kms as cvss nd 4 e * .:; 4 ft.n.t rffl-M a dm o a4^d umuu e.a J * c e *4i * X -1a (a apclhn wi.aa W$*'Sijt%}z ^W *£ * St" f .4A4 L#;lS ..: J~~ }~ ,P >, *$ W ,, g¢' + tFl Has w4 oft caccmi 4-" obtiM # Jw ti l 'w .*a I b4 ci t mot O 4a XaSk 'B; f *.f ?r'.t' *C0 Xn ?*44 Isat* 'w ib XW b*i tva :$*4 ? raqpi 4 %4g kiv.;ftfA* 4 sw * subsS ah kiti. ito ,~~i h4t4 twk4 r gW4c at t' @0UIfl '*J a 'to-~ c 4 ; iar+* *1. A'~.s I4*LThe bw a pvvba viab t4l. A .JX.*.X y,4', *0 ibs>8s P pvaiawc xm ,-a r .X W'+*4sit *4wWIkt$tat *0 4t4A In gunaz <+'>'** *i' bf &..wf ti"'*. ij #r4 tea*.bns Stil bt R X Background and Overvew Introducton 1.1 This study evaluates Senegal's adjusument perfonrance since 1980, the year Senegal launched its first adjustnent progrm. The evaluation covers the govenment's reform program in its entirety, and is not limited to Bank-supported lending opeaions. In reality, given the Bank's long association with structural adjustament in Senegal, ar- the IMF's long association with stabilization, an evaluation of the government's reform program is almost synonymous to an evaluation of World Bank/MP adjustment lending operations. The report focuses on the vaious steps of the adjustment process-from design to implementtion (Chapter 2), and on the macroeconomic and sector adjustment impacts (Chapters 3 and 4). Lessons learned from the Senegalese adjustnent experience are discussed in Chapter 5. This study is one of several country case studies being prepared by the Africa Region in parallel to the African Adjustment Study currently under preparation by the Policy Research Department (PRD). 1.2 This report draws on the findings of several recent studis on economic developments in Senegal, particularly those related to the adjustment exience (see Bibliography). Three studies are worth ngling out: *The World Bank and Senegal, 1960-87' (1989d); 'Senegal Maeno mic Update Report (1993a); and wenegal Public Expenditre Review' (1991b). 1.3 The present chapter gives a brief background on the perormance of the Senegalese economy during the period 1960-80. It highlights the oriin of the financial imbalances that led to a serious cisis in the late 1970s, and consequently to the adoption by the government of the adjustment program for the decade of the 1980s. The 1980s conisted of two distinct sub-periods. The first half of the decade (1980-85) was a period when litle structral adjustment took place, and, for that reason, is referred to as the stabilization or pre-adjustment period. The second half of the decade witnessed some efforts towards the reform of the economy, and is referred to as the period of partidal adjustment (or adjustment for short). 1.4 The methodology used to evaluate the impact of adjustment on economic performance (n Chapters 3 and 4) is the 'before and after approach. The main flaw of this approach is that it relies on the assumption that other things are being held equal which is highly implausible. To complement this approach, it is suggested that future work focus on othr methodologies which have been followed in the literate. The 'control group' approach allows, in principle, to overcome the inability of the 'before and after apprach to distinguish the dfect of adjustment per se and the effect of other factors. It compares the performance in adjusting counties with performance in a refrence group of non-adjusting counties to esimate what would have happened in the adjusting counmtes had adjustment not taken place. The control group approach would 2 be the most appropriate approach for this kdnd of analysis, but the lack of reliable dme series data precludes any attempt to quantify the impact of the reforms. lhe Emic Sening 1.5 Senegal is a small, semi-arid Sahelian nation with a population of 7.6 million, predorinny rmal, and with limited natural resource endowments. The mainstays of the traditional economy remain millet cultivation and nomadic cattle ramsing for domestic consumption, and groundnut cultivation for exports. The modern sector includes fisig, phosphates, chemical industres, and tourism, and is concentrated in Dakar and on the coastal belt. At the current exchange rate, the 1991 income per capita of US$720 places Senegal almost at the bottom of the lower-middle-income ecnomies. 1.6 At independence in 1960, Senegal inherited a relatively well-developed physical and social infrastucture due to the prominent role Dakar played as the capital of the large French West Afrcan colony. Senegal has enjoyed a high profile in African affairs and has been, until recently, the only Sahelian country with a lively democratic system, including a vocal press. This has helped Senegal mobilie substantial external resources over the years. Seegal has had a long tradition of 'African socialism' resulting in widespread direct government intervention in the economy, and regulatory controls. Cultural values still play an important role in social, economic and political spheres. 1.7 During the first two decades following independence (1960-80), Senegal's eonomic performance was on the whole poor, even by Sub-Saharan Africa standards (Table 1.1.) GDP grew on average by 2.1% per amum compared to a population growth of 2.8%. Senegal experienced the lowest GDP growth rate of any African state not affected by war or civil strife. This period can be divided into four distinct sub- periods. Until 1966 when Senegal lost the preferental tment accorded to its agicdultal exports to the EEC, the economic management was relatively sound and the eonomy grew at about 3.5% p.a., surpasing the population growth rate. Between 1967 and 1974 when the world oil price quadrupled, GDP grew by only 1.3% p.a., and groundnut producton fell by almost half. During this period, Senegal actively pursued a n lion policy and an industrial import-substitution policy. During the third period, 1974 to 1978, the average GDP growth rate was roughly the same as population, largely explained by favorable weather conditions and a very favorable terms of trade, reldting from higher world prices for phosphate and groundnuts. 1.8 During the fourth period, 1978 to 1981, Senegal experienced two major droughts together with a substantial fall in groundnut world prices and, corespondingly, a GDP growth rate of 0.8% p.a By the end of this period, aU key economic indicators reflected serious financial and st rl imbalances. The fiscal deficit and the current account deficit reached 12.5 % and 25.8% of GDP, respectively. Savings were negadve and total consumption exceeded GDP. The inflation rate soared to 12% and the tenns of tade dropped by 12% between 1975 and 1982. The total stock of debt represented 967.4% of GDP and the schedled debt seri represented 18.5% of total ports of GNFS. 3 TWs 1: MUMMAo k&AW 196041 RSWGM"& Rat. (%) shaawefGDlP( 196i70 19M70 19I75-80 1060 1970 198 GDM 2.5 23 1.8 100.0 100.0 100.0 GDP par capIta 0.2 .OS -1.0 - - - Prdmay Secmort 3.0 0.9 1.0 24.3 24.1 17.8 Export GNY4 0.1 6.0 -0.7 39.6 27.4 32.1 Up" of GNPS 0.2 7.4 1.4 40.6 32.0 51.4 ODI 1.4 4.4 0.6 15.6 IS.7 12.6 0Ds 2.1 5.2 -2.8 14.6 11.1 -6.5 GovanCOnto 0.8 S.3 5.8 17.3 14.9 20.4 PMAW Corpti o 3.0 2.6 2.7 68.1 74.0 863 tnflatlonte (GDP deflor) ... 7.4 9.1 ... REER (198S-100) ... 5.6 -3.2 ... Fbcal defict bl ... ... ... ... -0.6 -12.S CurmnaocouJt dieict e/ ... ... ... ... 410.4 -25.8 Debt vice scheduled ... ... ... ... IA 7.4 ai Inluding aqlcul, Uveac fatry ad fierq bI On a c - bais A and ecluding ra8 c/xludn officiltanfr -Ekiber not railal or not aplicble Soue: World D data Sfl ad aff e_mes. 1.9 The need for strucural economic c in Senegal can be traced to the early years of independence when Senegal lost its large French West African market, and ended up with oversized industies and public sector. The key economic indica pointed to macroeconomic imbalances as early as 1966, when groundnut epot suddenly lost their guaranteed French market and had to compete in the world marlkts. Government was slow to recognie the need for strucual changes. To make mater worse, the government responded to the short-lived commodity boom in the early years of the second half of the 1970s by borowing heavily from foreign commci banks in expectaton of a return to more favorable terms of trade. The 1987 Country Economic Memorandum observes that wadjustment became unavoidable at the end of the 1970s, when a combination of poor financial and investment policies, woened terms of trade and successive droughts plunged an aleady weakned economy into a severe crisis.0 The Goverwn a's Response to die Financi Cisis 1.10 In the late 1970s, the govemment began to recognize the sotcomings of its ambitious public sector development plans and na lion policies and in December 1979, it announced its medium-term program for economic and financial adjustment, 4 known by its French acronym PREP (Plan a moyen terme de redressement economique et financier), covering the perod 1980-84. This program was designed in close collaboration with the Bank and the Fund and sought to stabilize the financial situation, raise public savings, increase investment in the productive sectors, liberalize trade, and reduce the state role in the economy. This first attempt at stabilizing the financial situation and creating the basis for growth did not, however, yield satisfactory results because of lack of implementation of agreed adjustment measures. The IMP three-year Extended Fund Facility (EEF) arrangement, which was approved in August 1980, was shifted to a simple one-year stand-by a year later, which in turn was canceled in 1983. Something similar happened to the Bank's first structual adjustment loan-it was approved in 1980, but its second tranche was cancelled in 1983. 1.11 Renewed efforts were launched in 1984 with the same broad policy objectives in mind. The first meeting of a Consultative Group (CO) for Senegal was organized by the Bank in December 1984, after which Senegal prepared a medium-term adjustment program for the period 1985-92 which was endorsed by the donors. This was followed by a second CG organized in 1987. The government's adjustment effort has been supported since 1980 by four Bank SALs (1980, 1986, 1987, and 1990) and two SECALs (financial sector in 1989, and transport sector in 1991), and by a series of IMP arrangements (EFF in 1980, followed by five standbys, a two-year SAP and a three-year ESAF). Senegal, along with Kenya and Turkey were the first countries to receive an adjustment credit or loan from the Bank. A total of five Policy Framework Papers (PFPs) were approved by the Bank and IS Boards between 1986-91. Senegal has been a recipient country of the Special Program of Assistance since its establishment in 1988. The adjustment program in Senegal has been generously supported by the donor community, either directly or as co-financiers of Bank opeaions. Between 1981 and 1991, adjustment support to Senegal accounted for nearly two-thirds of total net disbursement of official development assistance (ODA) which, in tun, represented 4.3% of the total amount received by Sub-Saharan Africa. This contrasts well with the small weight of Senegal in SSA as measured by the shares of its population (1.5%) and gross national product (GNP) (0.3%). In 1991, net aid flows per capita to Senegal amounted to US$84 or 12% of GDP per capita. Senegal Database 1.12 The analysis of Senegal's economic performance is complicated by significant weaknesses in the country's databas. The recent Macroeconomic Update Report (1993a) points out that official s.tastics are paricularly weak. Senegal's national income accounts sistics continue to experience long delays in publication. Some evidence for the poor data quality are presenied here. There are unexplained discrepancies between the performance of agriculture and industry as measured by crop output or production indices and the national accounts figures. The composition of sectoral output raises serious concern. The tertiry sector in Senegal accounts for over 60% of GDP, a figure more likey to be found in industal economies than in developing countries, particularly at Senegal's level of development, which ranges from 35% to 50%. As much as 40% 5 of total GDP b on exralions of data obtained from old baseline surveys. Finally, agie's cotribution to nominal GDP seems to be overestated due to the pactie of valuing local coare gains at official prices while official purchases accout for less tha 10% of total output Senegal's balas.ce of payments data, parcularly data on mradi exports, as show major siortcomings. Consequenty, th figum underlying the analysis in this report awe peliminary esmat and may be subject to sgnifict alteations. This challenges the accuracy of Senegal's actal economic peomance, which may in fact be much lower than the official figures. 2 Design and Implementaion of the Adjustment Program 2.1 This chapter 1' deals with te desin and implementation of policy reforms in Senegal during the 1980s. The intnal adjusment stgy that Senegal adopted rlied on policies othe ta exchange rate adjustment to restore growth and internal and external balance. These policies consed of dexlationr monetary and fisc poliies (demnad management policies), second-best trade policies igh tariffs and exort subsidies), and structual refonns. The latter reforms ae designed to liberalize markets and prices, reduca the size of te public sector and rationalize its activities, and encourage private sector investment and development. Retrospectively, the interal adju*ement policy proved to be more and more difficult and complicated to implement. This shows clearly the importance of the exchange rate as one of the major adjustment tools. It is not certain that the Senegales economy could get out of its long recession wthout a more fleible exchange rate poLicy. Under the intemal adjustment strategy, If competitivene is achieved, it will be achieved in the final phase of the adjustment process rather than at the beginning when a depreciation of the real exchange rate is part of the adjustment program. 2.2 This chapter is organized in four sections. Section one covers fiscal, monetary and exchange rate policies; secton two covers pridng and trade polices as well as labor and wage policy; and section three covers key sectors in the economy (financial, public entepises and social sectors) as well as the institutional and legal frameworl Finally, sectn four provides a summary assesment of the adequacy of the reform program in Senegal in terms of ooverage and sequncing, and the progress made in implementation. A. Macroeconomic Policy and Management Fisca Poliy and M hntr"oduct ki 2.3 As in most countries undergoing adjustment programs, fiscal policy was used in Senegal as a primary insument for reducing aggrgate demand and conecting major disequilbria in the economy. The frmework for fiscal policy in Senegal is, however, affected by several facts which not only complicate the design of the refonn program jI A longer version of this chaptr make up the enir report wrien by tbio author wi& coauthor Brian Ngo entitled Mesig and of Adjusmeat Pograms in SenegaL. 8 but also render the assessment of the peface more intricate. Some of these factors are spedfic to Senel; others are reated to the nles that rguate fiscal and monetary poUces within the West Afican Monetary Union (mown by its French aconym UMOA) of which Senegal Ii a member. 2.4 Becs. Senpl belongs to UMOA-which among other tins regulates the money suply by a4ustng crits-Senegal has relied on fiscal policy for its I4ustmmt effort. While the French Tresury's "operations accounte provide UMOA countries the 8une of fincing balce of payments shortfa, safeguard featur idopted by the Banque Cetae des Ea de l'Afrdque de l'Ouest (BCEAO) (the regional cental bank) to prvent monetary expansion impose a statutory act wherby the maximum level of BCEAO advances to the Senegalese Govemment may not exceed 20% of the previous year's ordinary budgetary receipts. While there are several sources of leakge to this overdraft rule, the rule does impose a limit on the financing of govment deficits from the central bank. Thus, while Senegal's membership in UMOA may help limit th reat dof inflaton, the system is prone to liquidity ctises. 2.S The stcu of the public sctor in Senegal further complicates the man_gement of public finances. In addition to the consolidated central government operains, the Treasuy maintains divers specia and corespodent accounts. Until changes intoduced in July 1991, these accounts were not int into the budget and we not subjected to normal budgetauy procedures. Thus, the lack of effective control on these accounts could cause large yearly variations in the Treasury's liabilities vis-i-vis these accounts. The design and management of fiscal policy was also more complex because of the close assocation of key fiscal measures with the industrial policy, parcularly those related tf tariff reforms and production costs. 2.6 Some of the policy conflicts reflect the constant prccpation with the short-tum and, to some extent, a conflict of objecdt among donors, particularly btwen t DIP, wbih gave p to issues of stabiliztion and thus the overwheing cono about rvue mobilizmon at tbe exense of growth promotion, and W od k which put geater empha on longer-term issues such as reducing tbe costg k inpu and th corpt tax e. Also large inflows of official assistance fom m l agen and bilate donors (Prance in partcular) made it possible for Senegal to postpone "hard-budget" choices (see paras 3.10 and 3.11). Desgn of the Rgfbnn Prgram 2.7 The reform of fiscal policy in Senegal covers a broad range of objectives, the most im ant of which is to inWoe govemmm nces. Senegal began the decade of the 1980s with in ovUrall budget deft (on a payment order basis and eluing grat) of 12.5% of GDP (dmary defict of about 10% of GDP) and a total public aedture of about 32% of GDP. The civil ce wage bill, by far the largest epedtre item. accounted for 40% of total ependi. A key fiscal objective was to nance the buoyany of the tax ytem to increase revenue. Following the of an ItP fiscal mission which visited Senegal in May 1985, the 9 government adopted a fiscal reform program aimed at modernizing the tax system, creating a more effective and less distord tax regime, and widening the tax basn. 2.8 The government also pursued a restricted expenditure policy. It recognized the need for a two-pronged approach-to control the wage bill and to limit transfers to the Public Ent:prise (PE) sector. Measures were takm to contain the wage bifl either within a ceiling or as a share of total expenditures, and to reduce the number of civil servants. These measures (such as the avoidance of general salary mereases and the limitation of advancements and promotions of civil servants) were mostly ad-hoc in nature and not until 1990 did the government adopt a coherent civil service progam (see pam 2.85). Another important component of the fiscal reform was to improve the financil performane of public enterprises so as to reduce the budgetary burden of that sector and to increase the sector's efficiency (see para 2.69). With a few exceptions (road maintenance and primary school teachers recruitment under SAL IV), no specific measures to protect key social sectors, to provide adequate exenditures on opetions and mainteance, and to protect a core public investment program were built into the reform program. 2.9 Another important objective of the fiscal reform progam was to improve te pubikc inwesment program (PIP) by adopting a thre-year urollingw PIP. This was done in 1986 and has since ben updated on a yearly basis. The objectives of the PEP reform package were to: make investment projects consistent with the macoeconomic famework and sectorial priorities; improve project prepation and appraisal; monitor systemadcally the physical and financial aspects of project implementation; incorporate the investment budget into the government's overall budget (keeng recurrent cost and indbtedness implications in mind); and strengthen technical ministries' capcity to identify, prepare, and monitor their respective projects. 2.10 The third fiscal objective was to improve the extenal debt management system. A computeaized debt management system was established with IDA-financed tchnical assistance to provide data on outstanJing debt, arrears, and scheduled debt evice and to issue computerized payment orders. To improve the strre of its exnal debt, the government also implemented several measures to discontinue commercial borowing, curtail public guarantee to private borrowers, and stop the tansfer of proceeds from debt relief negotiated by the government to the final borrowers. implmeadon of the Rform Program 2.11 The implementation of the fiscal reforms varied across policy areas. Since 1986, the government has initiated wide-ranging tax reforns. A general tax code was introduced in early 1987 aimed at changing specific dties to an ad-valorem basis, and widening the scope of the value-added tax (VAI) to trzde and constrution sectors. The VAT was genelized to sevices and the transport sector in 1991 and VAT rates wore revised to simplify and reduce the rate structure. Refrms of foreign trade taxatioi, included simplifying the tariff struct-c annd the lifting of QRs (see pam 2.29). In September 1989, the govemment instituted a withholding tax on professonal and 10 propety income, a glob tax on personal income-replacing a variety of sctedular taxes, and, in Januay 1990, it placed a single tax of 35% on corporate income. Another effort to widen the tax base consisted of corapledng the fiscal cadastre for the Dakr region; follow-up meases to institute the tAx have, however, suffered much delay. Finally, efforts were continuing to be made to raise tax revenue fiom the informal sector. 2.12 In parallel to reforms aimed at modenizing the tax system, sevel other measures were introduced to mobilize additional revenue. , The design and implementaton of this plethora of new measures was particularly taxing to the- limited administrave capacity and the government tended to focus efforts on short-term consideions rather tan on structural issues. The new measures also resulted in additionaldistortions to an already ratier elaborate tax system. The predominance of short-term revenue considerations over longer-term growth promotion measures have prevented a meaningful reduction in the energy cost and the sustainability of the custom tariff harmoniztion and reduction. 2.13 The implementadon of measures aimed at reducing the size of the civil sevice and controlling the wage bill encountered serious slippages (see pam 2.86) and as a resdt the wage bill st represented the lion share of government revenues and recurnt expenditures. The lack of significant progress in the control of transfers (direct and indirect subsidies) to the PEs reflects the complex situafon in this sector and the lack Of commitment of those in chwge of the reform to undertake politically sensitive decons to reduce the amount of transfers from the budget to this sector (see pam 2.74). 2.14 Management of the PIP has improved, particularly in eliminating conflicts between capital investment and sector strategies. Prtects are also generally better prepared. Institutional capacity buiding must continue to be strengthened or else progress achieved so far will be iheatened. To do this, the cpacity of technical misties to identify and prepare projects in their respective sectors must be strengthened and coordination between services in charge of the PIP and Treasury staff enhanced so that recurrent cost and debt implications of the PIP are clearly reflected in the budget. Without this coordination, there is a high risk of insufficient allocation of operatons and maintenance for new projects and, consequently, poor project economic rates of retun. 21 /iorwt maae introduced in the lat three Yas include: Oi a S percent ine in coms duty tax (Au 1989); (0) the Intrduction of minimum assosed tan imports (September 1989) and their extnion to a much largr group of commodite (July 1990); ( an increase in a number of stamp duties (by between 50 and 100 percent) and an nreaed excise tax on cigaettes, alcoholic beverages, tobacco products, soft drinks, coffee, and tea (August 1990); (v) an inoduction of an ad-valoem toms fee of 3 percen (August 199I) (v) a reduction of deferrd customs payments (1990.91); (vi) an Ireaso in personal income tax rates by S pret (Ocber 1990) wAich was later rescinded becae of strng polica resitnco; (vii) an incrse in raes and covee of stamp t and fees (August 1990); (viii) the inrduction of a tax on sugar (March 1991); ( tho tion of a transaction fee of S pe¶cent on sales of used motor vehicles and of 2 percent for nw vebicles Mach 1991). 11 2.15 As discussed in Chapter 3, the financi position of the government improved duing the 1980s, though not without serious problems left to be resolved. Poor tax adminion was magnified by the need to design and implement numerous new taxes within a short time perod. Equally important, the decision to proceed with the liberzaion of the economy before the establishment of an effective tax administration and before subiliaion results were conolidated reflect insufficient considerion given to the sequencing of the reform program. Oter reform measures have seen their impt drastically reduced because of poor implementation. For instance, efforts to combat under-invoicing through computeized customs declaration have so far yielded few significant results because concrete efforts to improve the funcioning of the value assessment section, without which under-invoicing remains mostly undetected, have not been rigorously undertakn. Recent experience with the Societe general. de surveilance offer some hope for improving customs receipts. Deficiencies in revenue mobilization and in controlling the wage bill affected the other expenditue items which fiurther undermined the success of fiscal adjustment. Monetay Policy Design of Monetary Policy 2.16 Within the institutional framework described in Box 2.1, Senegal's monetary policy aims at three objectives: to manage overall demand to correct extnal imbalances; to gain a competitive advantage by keeping the level of inflation below that of major trading partners; and to strengthen the management of liquidity and reinforce bank supervision. While the first two objectives mentioned above were achieved mainly through restrictive credit policies, a more comprehensive set of measures was undertaken in the banldng sector including the introduction of market-detemined interest rates. 2.17 In September 1989, Senegal adopted, with other members of the UMOA, a comprehensive reform of monetary policy instruments designed to replace the administive controls over money and credit with an indirect and market-oriented system of monetary instruments. In particular. (a) the preferential rediscout rate was abolished; the central bank's refinancing rate was set above the money market rates-at levels slighy gher tan those for the French franc-and bank were given more flexibility in determining their rates on deposits and loans; (b) conditions for acce to centr bank rinancing were tightened and crop credit will be refinanced by the central bank only if it is within general refinancing limits and under the overall credit ceiling of the commercial bank; (c) rigorous controls were placed upon state guarAntees for borrowing of public and private enteprises. Government- 12 guaranteed non-performing loans will be Imputed to the overall credit ceiling set for the government; (d) the system of secoral credit allocatn was elimnted and prior autoization will be used only as qualitative credit control instrument; and (e) the BCEAO's bank inspection and supervision were sharply reinforced with the creation of the union-wide bank supeMision body (Comssion banWcaire). u gu l a8t 4E t&Nf N, Gu Na Ibj Dls.~ 19ZVO S E !~~~~~~g . .... . . ~~~~~~~~~~~~~~~~~~~~~~~~~~~. .. g .. .. . 4qatoIV*EeN o$tD m4Sofb E>o~a - !;~ 4as'~~aq 13 2.18 In a subsequent phase of reforms, the introducdon of reserve s is envisaged. Duing the transition period, the conduct of monetary and credit poicy will contnue to rely maily on intre te policy and overall credit ceilings. Implemetadon Of dX RfornM Progr8m 2.19 The heavy involvement of the BCEAO, and the need to re-etablish confidence in the banking sector, after the ailing banks were liquidated, led to a foreful and timely implementaton of monetary and credit policy reform. With minor diffeences, most of these reforms applied to all members of the union, thus givin more impotance to their implementation. The reforms have led to a sounder environment where government interference in the proces of credit allocation is limited. The government's reliance on bowng from the bankng sector has been cured due to stricter controls on government's borwing tough sate-owned entepris. 2.20 The BCEAO's adherence to a restictive monetary policy in the Last few years has improved Senegal's extra accounts. a This policy has, however, severely cons*tained domestic credit to the rest of the economy. During 1986-91, crdit to the non-government sector (excluding crop credit and the refinancing of ONCAD debt) increased on average by only 0.7% per year (in terms of money supply at the beginin of the year); in real tms it declined substantially. The money supply (M2) has folbwed a similar trend although the decline has been less severe. As a result of these trends, the ratio of M2 to GDP which measures the degee of fnancial deepeniq has fallen from 0.28 in 1984 to 0.23 in 1991 (see Table 2.1). 2.21 The BCEAO polic appeared, in the context of the fixed exage rate, appropriate to maintain a ssaiable external position, particularly given the lack of success in contrling the fiscal situation. it is questionable that this policy can be maintained without an adverse impact on the growth of the economy. This issue will at n view of its sianc in ft dermInato of money and credit policy, dveopment of Segl's ot externa poston warrants a brief descit at this Jure. h oxternal at positio boga to saIlie n 1989 following wide flucuon expienced durt 1983488 ac cout of a mared Ih the externl curmt acount betwe 1983 nd 1985, folowed by sinfat privat capil outhowi 1987 nd 1988. As a result, Senel's egav position In t operations account rubed a peak of CPA? 97.2 blin in Jun 1986. The ddetioration of Senga's eral acounts tbrough 1985 smmed from high Im t, a direct refction of fte hig lvol of ovell demand. A stgficat improvement in th exteral acco be in 1986. Mst of ths improvemet ca be atrbuted to the pursuit of strict mneary polcy. Tbefiscal situato, which improved significantly from 1982 through 1987, worsened during the peod 19870. As hw in Table 2.1, BCEAO's nt oims on the Govermen declned shaply 1 1987. Teso d.vel fnt reflet dhe availability of lager extl budgetary asistace In support of the country's strctua a4stment program. The was o evidence of efforts to reduce net leding to the govenment, irrepecv of th dstatu oyl defined in the BCEAO's ro and regulons which mits total advances to theo Goem t to 20 perc of fical revesaus collwcted h tho previous year. This development was even mao nlo if oe ca0sa tho series of measures desgned to curta government borrwig via the proviion of guammos for borrwing by publi entep from the banin sector. 14 Tabb 21: Sumaof Monday Indicaor (Annal cho I % uept MGDP) Cred to Mono NOnalr RualO Yer GvRnem /g Ecoomy I (M2) Ig GD?P M4/ODP 1984 5.5 2.0 5.2 8.1 0.28 1985 7.5 8.6 4.5 13.4 0.26 1986 1.6 1.3 11.2 12.S 0.26 1987 -1.7 3.5 0.2 6.1 0.24 1988 2.3 9.6 0.5 7.3 0.23 1989 -7.2 1.3 10.3 0.1 0.25 1990 -5.2 8.6 -4.8 7.0 0.22 1991 0.6 -4.3 5.8 2.5 0.23 It Change in p_erntag of the money ulmf;y at the begining of the peiod. Source: Senegal - Mwacmwonomic Update Report (SA Table 48), June 1993. be discussed in more detail in the next secdon of tis rep. The policies have also been successful in controlling fte rate of domestic inflation which has stabilized at below 3% in recet years. Better control of inflation has helped Senegal recover a cerin degree of competitiveness. 2.22 One of the results of the monety and credit sector reform has been the libealiztion of the interest stcte. By eliminating the preferntial discount rat- which formerly applhed to agriculture, the eot sector, small- and medium-sized companies and residential constrction-and the libealiation of margins and commissions, lending rates for prime borrowers curntly stand at 16% to 18% while the inflaton rate remains at less than 3%. Banks' lending continues to reflect the prefeence of short-term trade-related activities at the expense of longer-term investment projects, thereby undermining the growth prspects of the economy. Between 1985 and 1991, the share of short-term lending increased from 60% to 67% of cumulative bank lending, while loans to industial proects have fallen from 22% to less than 15%. 2.23 The conduct of monety and credit policy in Senegal has been desined and implemented in a firm, timely and consstent manner. These measures have helped in keeping infladon low, curtailing overall domestic demand, providing the basis for a more robust banking sector and restictng government intervention in the allocation of credit. They have not, however, succeeded in creating tie foundadons for sainable growth. IS -_ UME .-ea.w of t 1A.%A, SecgaJ has enjoyed, since 1948, a convertible 4 - ' M t fa p *ith thec Frnc h frac (CFAF 50 per French franc). 4^ >.a.. > . 4.ULV s AZtu t smpkru and transferability of capital. The ..**. ,, +., ,> ; s- S rnA& biiils duwn t an implicit effort to depreciate the 1e4&49 fS~44 #w , 4U M*Aftf WOM-CU -'t -^v4m t 9dn, Senegal has witnssd a swing in its terms .i .,;-cA -,... £ . r. d h..h infUitary rtes and low productivity gains. *} 1t~' ii .+: *+t .2--iv ; < i mir by 4.5% per year compared to Senegal's ." 'L . s ; *-- 2* t - >< , eclrwxI vsnce. This development, together with z$48 J :> . ^$.&, t XfN..< utof nonCFA neighboring countries and the >', .A- .f. l, ' _' W¶, htc ,+i 46a, eicvcrely eroded Senegal's competitiveness %"$V UA tflwt V."&~ Ra3 JIM - 100) T;m oxf Rrim.e 8awe 'GDP) -5.2 -14.5 4 ;,.-19.3 .4.4+ r: u -12.3 -12.3 .4Ly . * % 9.5 -11.2 IA s 8 t .8 -5.6 )ts 44 1 ls -5.0 V The budget deficit (on a commitment basis and excluding grants) was reduced from 8.8% of GDP in 1983 to 4.3% in 1990 and was completely eliminated in 1991. If interest payments were excluded, the budget position would register a better improvement, from a primary 21/ This sectin dw hveaiy on the recent Bak economc report on Senegal: MAcroeoonomic Update June 199,3. 49 Figure 3.1: Senegal Key Macroeconomic Indicators, 1980-91 GDP & Sector Growth (%) Investment, Savings (% of GDP) 30 tA 10 O S ts H 5 * O "FZ os {@S t3 t . . . . . 5\ . . . . . . ., $ U1 S 3 SS $4 SS 85 S7 SS 99 91 30 81 3 8 SS 358788 I9 90 91 Year T">* 8 $8Sar 8199 -OW +AL-Mrass t-lvstestt^ +8^"V&SO Public Finance (% of GDP) External Sector (% of GDP) 40. PoO - e e .. " , _ .......... e-~~~~~4. *s~~~~~~~~~~~ o .' ... . .@ . . . -e -so .16 -Fie BaL +BzP*-L We *se a -Czffstra ooa +ap*M of8 OP aN-Ipom of GNP$ Tors of Trade & REBR (8S-100) Inflation, Interest Rates (41)4:ICOR 40 *0 S20 to8 38 SS 73 9~ 130S 23 46 43 83 09 Sa . se * t * 4 SS eT ST St 94 e Tem f td &lE (510 'nf Atln Ineet ae %)&I I 2 33 34 85 34 37 ii 39 90 e1 -o e iS *a Is *4 SS as 87 0i *9 90 91 -T.o" +-taItl 0- *l5bt 11t 1IatoIt Rat 43.a :stogoI t at* -lcot (S-Y*at) 50 deficit of 5.6% of GDP to a surplus of 2.6% over the same period. The current account deficit (excluding official transfers) experienced a similar trend-from 18.6% to 7.9% of GDP during the sane period. On average, the internal and external imbalances were reduced by half during the period under review. This stLilization, particularly in the fiscal area, remains fragile, and, unless additional structural reforms necessary to accelerae and sustain growth are urgently introduced, it cannot be sustained. Fiscal Improvement 3.5 The manner in which Senegal stabilized its fiscal situation during the 1980s raises serious concerns about the sustainability of its achievements, and the negative impact on competitiveness and long-term economic growth. As discussed in Box 3.1, the fiscal improvement was not continuous throughout the period nor was it based on real structural reforms, a clear indication of the govemment's stop-and-go adjustment policy and lack of commitment to fiscal refonns. A review of the fiscal policy in Senegal highlights a number of critical issues. The first is the lack of sustainable fiscal reform. Senegal's poor revenue mobilization (i.e. the tax elasticity declined from 0.8 to 0.6 during the period under review) S- has caused the adjustment program to focus on reducing public expenditures, often priority expenditures. This situation has become increasingly difficult to sustain as evidenced by the recurring fiscal crises. Nominally lower fiscal deficits in recent years have been achieved through arbitrary cuts in public spending (including O&M expenditures and direct export subsidies) and ad-hoc revenue measures in the absence of a balanced structure between tax and non-tax revenue. The continuation of past policies could indeed lead to a worsening situation as the tax burden becomes increasngly more severe to a smaller number of taxpayers, thereby encouraging attempts to "informalize" their economic activities. 3.6 A second issue is the continuing conflict between revenue mobilization and growth promotion objectives. The issue stems from the fact that Senegal continues to rely heavily on windfall revenues from petroleum (to the tune of 22% of total tax revenue) and rice imports to finance its current expenditures. This reliance on petroleum revenues erodes Senegal's competitiveness (domestic petroleum prices are 2.3 times world prices) and undermines the stability of the revenue structure given the potential volatility in world oil prices. Therefore, increases in fiscal revenues must come from improved tax administration efforts and a reduction in exemptions and fraud. With less than 14% of GDP, the current tax revenue in Senegal compares poorly with countries at Senegal's income level-the average for Sub-Saharan Africa is about 16% and for low- middle-income is about 17%. 2I Tax elasticity is defined as the percenage varation in tax revenue expressed in terms of changes in GDP, but excluding the impact of discretionary measures. Several factors accounted for the decline in the tax elasticity. Most noteworthy were the arrowing of the tax base, reflecting a weak economy, and the infomalton of the economy as the informal economy expanded rapidly away from the stagang formal sector. The reasons for tax variation include hig tunover, dteclining salaries in the formal sector, low business profit, and a decrease in imports, adversely affectig tax collection. 51 l i S1 e;9eqbp "I hadjustametWa A $Io.anM i9rw* kV Sig)epoe to hvQfomsdwel o te 6@e font4uu 19V44 (t m& a dtoe wby@ W*Welt du itsav nie)o ulwM to Beu aadthe Pt w pd 1o 874t8o yaerfordu w oh drauh. d,* to laqe 4X8* (o Winbasis d @6 oludlzat te w tde ad wn cwioed us oed $ adswete pobudget tefic , it acbltW I .6 pOwho w!WAbs a -justnan we , l d t and dom In a way onw ing y to hWnmvIq of :enaga), ti o w ad no po lod buytan gm h. d3us w tg a6i sile by w d W elubr Iitet -nd .P eogr) nd bs rh g ni p*bw y frm 0 4 na of 9 p7erentage p '$ of "D?, otarti 198546) end fi c in . he e ue wlndid frt n the govewuiwot's policy o niulonin dcweae pto of petretuni produtshen wn dd pdfesa decl asply. Curnty ..donasto rces re rseth abO 4tW worl prices. Tb. h.evy4nonphtdust.V5tWOIdO1Io e at*icU It i ssos cost of po tio and maes the revensuce jectto the volatli ieteum rdprs .., ., . . . . .. . . . . . . . - - -~~~~~~~~~-A - ,"" .:Wifdi the wubstata rvueu wndas were iwislyw used to reduce the bamdget d.tlc (unlike In naidl?O whe e windfa fom grw were used to Iease eanla d ibo a: *f trde), 4me wese n~*coinjac_edby aa loprvd fieireeu posiin in spite 4fa nume*dlscre4oaagrwxese :nrdue wder dWte a djutnnpcr TDe shr of tax revenu in GDP de1e fiom 18.1 pern bi ;844o i:43 :;~Qn :> 1 9874.miy as mal oUkoIs *hatartstrate gy, atlenbtheX economy. and poo az amosttot peuaree. npanlulasi ahacustoms depa:.'.. .:tment,:..;.. ".>2..s.>......... . S, . . . . . .. . ,, , /....... Tb.* silii re u * fiscal dafIckistbs jperiodi enwnt~vrslame. indn oitaltl: ib. 1 b tjusd torha h hugei IXbo i* lofebiting~e.taf .ibce i.g na.%utta. 1stn h baitin ytt. So-m5 CPAE: 253 bilin equivaetto 16% of GDPu to 92% of overnmnevmie .n 1:98$ <' '..... ,, ere ,ede 'o restru.......tur .e th S,nn sys,,m.: , 1182 81.0 16/8 OA/8 ;4/ 09 3fl14 00 Jav..... 19.; . ' .' ..S " ' ''' - ' :5; ;,nv .. .: . :. .. -.M . i T t -. 64 -,., , .. ; :% 28.1 . 2..: :1 - , ., . I.7 - . . ., 4.. ~~~~44 4 2* 2 2* ;* 4* -1. .. 1'slwy4 .:c ' 4.6 4.0. 0. .4 0. 4.8X 2.6 1.2 .* 22* ...... ' ; i i t i ;lil t ij B> ~~~~~ ~ ~~po0t a- ~~~~~na dwotroe Tihere w ilhin _aitr ofthek traut, qWantirebu*a aid tthe p" n t b ei I *, u tg Xp 1 q '~~~~~#1ernwttrenaunsdaemajoo~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~eradlUareItean.,~~~~~~~~~~~~~~~~~~~~~~~~~~ 52 ,. fkioflIt, **m~loto ecron, U4,*WII '*.4 o.nudoW'ams eaeof ge,o 'l au.he :rgm aywtmet.a aytWo oa :." sex,b ^itswp fr i the i pauyt e of oulndtesi194. .r' tulitie,tu eseene~ wtmenm eoAitb u a tfdi of totl t''ax esou. l'.y 'a*t4a( WOOalIAPWVe 4ospad or ndareas tikdi orwBobed 3.7 Third, little PrOgres in the civil service reform has led to a situation where the wage bill continues to be a heavy burden on the country's limited resources. 22' Given the government's budgetary constraint, a significant reduction in the wage bill is vital because the resource savings are needed both to reduce the heavy dependence on petroleum revenues and to increase expenditures on basic social sevices (such as primary education and preventive health care) and to maintain the country's infrastucture which, due to lack of proper maintenance, is rapidly deteriorating. It is cnbcal, from the long-term growth point of view, to increase the share of investment in GDP. One of the findings of the second review of the Banks own experience with structural adjustment (RAL It) shows that growth in the private sector is somewhat linked to mcreases in public investment. For non-wage, non-interest expenditure, there is etainly room for improvements in efficiency and sector reallocation, but in the aggregate, the level achieved prior to the austeity year (1990-91) could not be compressed further short of adversely affecting the functioning of the economy. External .ctor 3.8 Allowing for debt relief, a major source of foreign exchange fimancing, the balance of payments has registered surpluses in four out of five years of 1986-90 due to an improvement in the trade account. The trade deficit which had deteriorated up to 1985, has since improved, particularly in 1986 when prices for the country's major imports (petroleum products and rice) fell sharply. With the exception of phosphates, exports have been stagnant or falling. Between 1982 and 1990, Senegal's two key exports, fish and groundnuts, increased by only half a percentage point per year in L7I Even in the abnce of budgetry onatn, the civil servie neesto be downsied to improve its efficiency as Sonegal inhenitet a large admintrton when Daka was th cpitl of the French West Arican colonie. 53 volume terms-a dismal performance. w Senegal's trade balance improvement was the result of import compreion whi cannot be pursed further without adversely affecting long-term growth. The diversified export base, seemingly achieved during the partial adjustmet period, is more a reflection of key traditional export items having lost their momentum in recent years tan a vigorous increase in non-traditional exports. Estmae Fandng Asi'= 3.9 As a result of the lack of significant structural progress on the fiscal side, Senegal continues to rely heavily on external budgetary financing. As discussed in Box 3.2, Senegal received generous extenal financial support from the donor community, with little interruption since indqpedence. The amount of externl support increased rpidly dring the 1980s, especially during the second half, and the terms also became increasingly favorable. It is difficult to assess the contribution of external financing to the overall performance of the economy during the 1980s. One thing is clear, however, the increase in external assistance during the adjustment period (1986-90) was associated with a slightly positive per capita income growth, an almost constant ratio of investment to GDP (this is in spite of the fact that publc investment is donor driven), and high public consumption, pardicuarly the wage bill. Had it not been for -soft- extera budgetary support (i.e. with less stringent conditionality attached), Senegal would have had to cut its public wage spending dmstically in order to reduce its budget deficit while damping infonary pressures. 3.10 From the balance-of-payments side, the increase in extemnal resources can be jusfied in principal on several grounds: to compensate for the real cost of adjustment, to offset the deterioration in the terms of trade, and to improve the level of reserves (i.e. the operations account position). The main objective is to maintain highly needed imports to sustain economic development. However, in the case of Senegal, the justficaion is very weak as both te terms of trade and the value of merchandise exports improved dunng the partil adjustment period in comparison with the pre-adjustment period. B. lhe Competitiveness of the Econory 3.11 As discussed in Chapter 2, the compedtiveness of the Senegalese economy has not improved during the adjustment period. The real exchange rate has significantly appreciated and the cost of production has remained high. Real wages and salaries haove declined dgnificantly during fte period 1980-85 and then recovered somewhat during the partal adjustment period and remanWed uncompetitive compared to other countries. In 2W Aunmg tbo main explntory factr for tho poor p mance of dte two export itm, one can menion Xt resurce deplo aud the agg fihing Ret in the came of the fisy ector, and the keea vegetable oil bsitution in the case of grount oil. 54 S.$ h , h i blee a dfavotoury for donors since independence, largely for politia eass. Po ;a long time It has boo ene of the w democracies in Africa. uring th-e 198s, net dlsbummemnt f official develo-me (s ODA) to Senegal Mon: than doubled, reaching $641 mIb:ni 1991 or iabiout- 27 e of OGP. Not only did Senegal receivO S much larger sare i per thanbefor, bt the ap betwn Seneg sad other SubSaharan Afria couties widened time. letwen 1980 and 1991, pe capitaL ODA (net of pripal) we fm $59 to $S4 ($111 in 19P(: In the c of Seel d firomn $20 too $37 for Sub-Saun Aicaf Senegal currenty receies eaterum financial upport from 27 donors, with Fan, th0 EEC, -DA, Japan and the USA accounting r the buk. Of the obA dsb"usmet during the peiod under revinw, grants representd on average abont 50l multilateral 27%, and technicl assi e 21% of total. Senegal's debt has stabuild A t :yer aftr e as ga rapid increas between 197943 end 19$$-#7. Th. stock of utstandingpublic *nd pUblly'uarnteed debtreacibed $4.0 blionln 1937 ; fterdb smclai it fll tio $3.5 bilo at the ed of 199*, eivalent to 64X -of 01)?. Aftr debt fo'rivees,deb t ilaea nmliatera surc. ow w ruhy equa. Thesrcueand trm ntSega debtbaaafr become ore favorable. mediumin*ad long-tm dobt accouts now for 90% cotumitmeats fell from 5.9% in 1980 to 3.79 in 199s1,0 withe, veraetrit edfom 20 yem to 29 years. T average grace period also rose 6om 6t yearo to1ye during the same period.: }etwe981 and 1991 e¢igtypercent oexter finain was channeled through the intr enth e eit e or i e ) orfornl but supportt(60%). BThelatterbeame flct ldd half of t 1980s in sppt of tho adju effort Debt nehe~ hic cconte fo hee a3bugetr support,, averaed ab milion annually, or 26 ofttlbdgtfnnig.Senealasbeeltdfo seeal roiunids ofreohdligy bilaterlceditoru (sane 1'arla Catb rmhedulins) and commerial bean Club recedulig)- Total deb reahdhu tine bySeegl nceaed austatly duin te Sf,PA'perid and, umlatiey woGned t $90 ndlio durng he 160. fea Ta . S3aX .~gaO .lw .:d Ber (17 ;:.ss *06'-: ~~~~~~~~~~~~~~~~~~~~to - ";.05w zW f $W.$g$i:::; h: g g s EE E l | | i E E6L 81 Bibliography Berg, Elliot and Assocats. 1990. "Adjustment Postponed: Economic Policy Reform in Senegal in the 1980s," USAID, Dakar. FAO. 1990. "The Impact of Stabiliation and Strucral Adjustment Policies on the Rural Sector: Case Studies of COte d'Ivoire, Senegal, iUbetia, Zambia and Morocco," FiO Economic and Social Development Paper. Jones, David and Cindy Holleman. 1991. 'Senegal's Structure of Protection and Comparative Advantage in Cereal and Export Crop Ptoduction," Agriculture Division, Sahel Department, Washington, D.C.: World Bank. Ka, Samba and Nicholas van de WaLe. 1992. "Study on the Political Economy of Adjustment in Senegal, 1980-91," (mimeo). Ne=is, John. 1986. "Public Enteprises in Sub-Saharan Africa," World Bank Dicussion Paper No. 1, Washington, D.C.: World Bank. . 1989. "Public Enterprise Reform in Adjustment Lending," Country onomics Dqarmnt, Policy, Planning, and Research Working Paper No. 233, Washington, D.C.: World Bank. Parker, Ron and William F. Steel. 1992. "Small Entepises Under Adjustnent in Senegal," Industry and Energy Department Workdng Paper No. 55, Washington, D.C.: World Bank Svejnar, Jan and Katherine Tenrell. 1988. Indusral Labor, Enteiprise Ownershp, and Gowunent Polcies in Senegal. Universi of Pittsburgh. World Bank. 1984. "Senl - Country Eonomic Memorandum," Report No. 5243-SE Washington, D.C. . 1985a. "Program Performance Audit Report: Senegl - Strucur Adjustnent Loan and Credit," Loan No. 1931-SE/Credit No. 1084-SE, Washington, D.C. . 1985b. "Senegal Struct Adjutment Loan and Credit," Operations Evaluation Departm=t, Program Performance Audit Report, Loan No. 1931- SE/Credit No. 1084-SE. Washington, D.C. 8ˇ 1. 986. 'Sene - Firt Structural Adjustment Credit-SAL I,' Report No. P- 4213-SE. Washingt, D.C. -. 1986-1991 'Senegal - Policy Famework Papers," (vadous issues), Waington, D.C. . 1987a. 'Senegal - An Eoonomy Under Adjustnent, Report No. 6454-SE, Wahngton, D.C. . 1987b. Senega Second Strctural Adjusment Crodit-SAL II, Report No. P4213-SB, Washington, D.C. . 1989a. 'Development Credit to the Republic of Senegal for a Financial Sector Adjustment Progam," Report No. P-5183-SE. Washigton, D.C. 1989b. wRepublic of Sea - Parapublic Sector Review,' Report No. 7774- SE, Washigton, D.C. -_ J1989c. 'Republic of Senegal - Second Strucual Adjustmt Creit (165- SE) and tid Structal Adjusment Credit (1802-SE), Program Completion ReporL Washington, D.C. 19894. *The Word Bak and Senegal, 190-87,' Word Bank Opeaons Evaluation Department, Report No. 8041. Washington, D.C. -=_ __, 1990L Development Credit to the Republic of Senegal for a Srcturl Adjustmwt Proam (SAL IM,. Report No. P-S185-SE. Wangton, D.C. . 1990b. 'Senegal - Agricultural Sector Adjustment Opertion (AG SECAL) niaing o u, Washingtn, D.C. . 1991a 'Seneg - Fouti Struct Adjustmet Credit (IDA Cr. 2090-S, Rdease of the Second Trche,' Rept No. P-5185-SE, IDA/Sec M91-458. Washington, D.C. . 1991b. 'Senegl - Public Expenditr Review,' mimeo, Washington, D.C. .1991c. -SAL IV Spevison Mision Aide Memoi, Waington, D.C. - . 1992a 'Evaluatio de la nouve polidque industrielle au Sgal," Apdl, 1992, mimoo, WashIngt, D.C. . 1992b. 'Revitaliti Highr Educaon in Senegal: The Challenge of Rdfom,' Report No. 10466-SE. Washington, D.C. 0*~~~~~~O 1. 1. 1. 1111 Xt #IU P 85 STATISTICAL APPENDIX TABLES 87 1980 192 1982 1983 1944 194 1986 1917 1908 1989 1998 1991 8045 149 A. GDP & Sector GrowtA () GDr .3.3 -1.2 15.3 2.1 .4.0 3.8 4. 4.0 5.1 -0.4 4.5 1.2 2.1 32 Asdtcufm -18.2 -5.7 24.8 4.8 -17.5 1.0 10.1 2.7 9.6 -10.2 9.8 -2.5 -0.6 3.3 Ma _hct -4.5 123 10.9 1.2 .0.2 1.7 5.4 8.9 10.0 3.1 4.7 1.2 3.6 5.S S. nvwa ent & Sai*s (as % GD?) 1J_wal 11.9 12.6 12.0 12.6 12.4 10.5 11.7 12.4 12.7 12.7 13.3 13.7 12.0 12.8 SIgs -2.6 *6.7 *0.2 03 9 40.7 63 6.8 7.7 73 8.6 8.8 -1.2 7.6 C a_nmpm tL02.6 106.7 101.2 99.7 97.1 101.7 93.7 93.2 92.3 92.5 91.4 91.2 101.2 92.4 C PubUc Ftnasce (as % GDP) R1nnuc 23.0 19.4 20.1 19.7 19.4 11.8 17.9 18.8 17.5 16.8 16.9 18.9 20.1 17.8 Eiiadiw 28.S 31.9 28.1 28. 25.2 23.5 21.7 21A 20.1 20.9 21.2 18.7 27.6 20.7 Wages 113 12.1 11.0 10.4 10.3 9.8 9.1 9.0 8.S 8.6 8.2 8.1 10.8 8.6 Fsal balac -5.5 -12.5 48.0 *8.8 -5.8 .4.6 -3.9 -2.6 -2.6 -4.1 .4.3 0.2 -7.5 -2.9 D. EBtUNal Sectr (as S GD?) Cattt AcowW -18.5 -25.8 -19.6 -18.6 -17.6 168 -12.1 -11.6 -10.8 49.8 -7.5 -7.9 -19.5 -10.0 S=p"of aNm 27.9 32.1 34.2 329 37.9 29.7 26.5 25.0 25.2 26.7 25.2 25.2 32.4 25.6 JWos of GNFS 42.4 51.4 46.5 452 47A 40.9 319 30.6 30.2 31.9 29.9 30.2 45.6 30.0 itaaurgbalae -14.5 -19.3 -12.3 -12.3 4.5 -11.2 ..4 -5.6 -5.0 -5. .4.7 4.9 -13.2 .4.4 F. Teraw oqf w Ind"x (U8-1W) TOWs! 94.5 100.7 88.3 85.6 98.4 100.0 105.7 103W5 101.6 106.5 1063 103.3 9.6 104.7 Gawuidmol 83.4 1032 61.0 623 102.7 100.0 55.6 47.1 54.2 73.1 97.5 92.2 85.4 70.5 IW&hmm 68.7 128.6 11.9 107.8 101.5 100 644 96 85.9 57.9 S8.9 58.4 103.9 69.7 RIM 1033 91.0 93.4 919 89.6 100.0 125.7 133.6 120.5 113.9 122.2 119.9 94.9 1226 F. Oder Indicaonw bnlailamm(%) 11.8 7.8 93 8.8 127 9.1 76 2.0 2.1 0.6 23 1.3 9.9 2.7 Read 1uet n(%) 1.3 2.7 3.0 1.5 -23 1.4 0.9 6.5 7.4 9.6 8.1 8.9 1.0 6.5 ICOR (S-Yawkw 13.8 -24.6 5.2 3.0 6.8 3.7 2.7 53 4.2 3.5 3.3 43 7.9 3.9 Scum: 8mg!- aonsoaioso Upd,, 1w99 1.d 3UD P0b, 1992). 88 ? PM PW 1W9 1 PMW PJ 394 195 A. GDP Gm.* Xat (I) ACta 42 4. 5i 40.8 3J t3 23 "Pi 4.1 4a 3.7 3. pP)a 4.4 4.2 3. 3J PFPm 4.4 4.2 5. 3. 3.8 PFP IV 0.6 44 3.7 3.8 3.8 PFP V 3.6 13 5.1 3.7 3.8 3.8 LThFindDo* (dt(z4* Vwa. %6 VQDP) d Ama 4.3 4. 44 A1 4.3 0.2 .1.0 PPI 43 40. 4 0.7 PPP aIA .05 0 1.3 PFPM 4.0 0.2 04 1.9 2.7 PFP IV .4.0 -2 -1.5 03 23 PFPV .4. 0.1 13 18 .2.1 2.2 C Cm" AcWu Dt*d (Mdfa qa UWS % OGDP) Atu 154A 113 -l.4 .10.0 4.4 -8.9 8.4 PFPI -13.2 4103 416 .6.6 PIIP a 10 -9.2 4.2 -73 PIPE -9.9 -9.1 -7.3 -6.5 -5.4 PFP IV 94 83 46.9 .6.1 -5.2 PFP V -48 -7.2 -6.2 -53 4.4 -3.9 D. I WaawamI (I) Ao 14.12 U . 13.J 1 134 127 133 JlXPI 143 13.7 1 U.8 13.8 PIP1 14.0 14.0 14.0 14.0 mPI 14J 14.5 14* 14.9 14.9 1P IV 15.0 15. 16.2 17.5 17.S PP MT2. 12.9 12.3 124 12.4 12.S Afts 41 . 7.1 7I 85 88 8.5 FPII S.* : 7 IQ11.1 fPIP 8.2 9. Q5 11.5 PFP M 10.2 10.6 11.8 13.2 14.1 PFP IV 8.9 0.10 12 14.1 14.7 PFP V 83 9.2 9.4 10.1 10. 10.9 F. Export Vollmc Grwth (9) Acul 14.0 2.9. -24 5.7 3.8 -2.8 -3.2 PIP 1.4 I1A 73 3.0 PIP a 7.9 14. 7.8 6.7 PIPm 163 9*. 6.8 6.1 6.5 PFPIV 4.0 42 5.7 5.4 5.1 PFPV .73 7.9 7.6 7.8 43 3.9 bwi - PslaUsTdkmIaWam dbT £ whkoo ImCy gf Ha..!dds Yld__* ' dab&Ch 89 SA Tale 3s S _au GDP & IKe Ewald FPam Y4w MP GMAh rom R'2TM& FandIa& Odwr M IN-lO0 R4b at Supp, bl Fad,_ 197S 7.5 tOo Good 1976 8.9 91 Good 1977 -2.7 102 Aveae 1978 .3.9 106 Good Election !979 7.0 100 AVeg SBA 1980 -3.3 9S poor EFSAL I 1981 -1.2 101 Avae SBA 1982 15.3 88 Avere SEA 1983 2.2 86 poor SEA/SAL I cae Ecton 1984 -4.0 . 98 Aveae CO 1985 3.8 100 Avetep SEA 1986 4.6 106 Averap SEA/SAP/SAL2 1987 4.0 104 Averag SBEASAP/SAL3/CO 1988 5.1 102 Good ESAP Eloction 1989 -0.4 107 Good ESAP/FSBCAL Bordcr ptoblem 1990 4.S 106 Good SAL 4 1991 1.2 103 Good ESAPMECAL a/ POWQs" (leatan 600mm of re, Average $dwen 600 and SW0mn), Good (mm tha 80 nm). b/lSA - Standby au net, SAL - Stuctua A_juus Lam CO - Couttv Group, (K) SAP - (Etended S_tnal AJuahuerwFacli, FSaul - Plaal Sewr A4 _atment Loan, TSal Tra1po Secor Adjudment Lon. Someo: Ma_raccommc Updde (un 199) an SATa 1. , .. . .~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~1 N ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ # '# ^.* VI.i ' ;. . 1. 9o Sk Tabl 4% &Sqal %An & Im. r1nia &yWm of Comrent Adjuabmest YVogtIn 49 >e4wnw C7.sbag Amwus. . c ihbr of - ' ~~~Date Date Coon* v1 2wha A DA ($ MU"rn) SAL! 3/81 6183 60 2 SALU 21X6 6/87 64 2 SALlm 5/87 2/90 85 3 FSECAL 12/9 2/92 45 2 SALIV 2/90 1/92 80 3 TSBCAL 22 1196 3 ToW 349 A. IBP (SDR m#*,s) Stnby At. 3179 I1 xtded Atr. 8/80 185 Stmdby Air. 9/1 63 Stal-byAir. 11i82 47 Slaod.byA r. 9,83 63 Slady At. tin 77 Stany Art. Ili86 34 SAPI(VW ) 11/86 17 Sand-by An. 10/7 21 SAF (ya2) 1081 26 BSAP (yi) 11/8 60 ESAM( 2) 12/89 43 ESAP (yw 3) 69t 17 TaOal 662 Socru: Woed Bak and DI P iama dwuanmota a/ Dta ounded up. - 41 III~~~~~~~~~~~~~~~H IFLI III FIEI" ll t 0, I t t E jF~I I 8 E E2 t t~~~~f U a Xa aXWW 92 Refom Measures lmplaenton Date statu Decontwo met pifes £98 mplmeed Deconto lcal price of nic (Wh proid an adequa dqe of proton for Not Implemented local coreab - Link poduc puic Of grunArt and coUct to WOr pcea, whas enuing Not Implemened adquate Inentie to produe - Link doumec peoem product pice to wol prim 1991 Not Effectively Inpl. * Dertegul Agricuud Marketing - Libealiz domsic martng Of ag lual npus Olnuldtlou ofSONARl) a 1986 bmplemented cer outpu ohe ftan rice (reduce he rO of foo sec_iy c wmmson - Elind'nte SERAS monopoly on ks and bIdes 1987 n plemetd Eliinat gttrad y agriuual Input gondntw seeds fertlie sbsi 1980.8649 Implemented - Curail the reol of rural developmA gcies (SAID, Sodagri, SODEVA, Sodofitex, 1980.1986 Implemenued and Somvac) - Pivatize tbe raudt Oil Procsin Compn, SONACOC# Not Implemented * Elimne sea aeents (oopoy particulal f sugaa , cemnt, ad petroe Not Implemented * Reduce Cast of Prducdin - ReduceEnegPac(%-25%),telephoarifspoandlig i991 Not Effively Impi. E. Labor and Wae Polq * Liba e Labor Markes - Revise labo" law and regulations (aboB n inesme coe, ZPID chart) to liberalize &981,1989 Not Eftively Impl. biring wad firiAg polics. Abo g _overnmnt labor office aov - Stop govenment tomat hi policy from tning oolb Not Implementd * Move Towads Ma*et Deemine Wag * Revise labor laws ad regulatio Not Impleteted - Inplement a nwt remueato syembadon prdviyotc vim Not Implened F. E al Trade _LheraUdt * Reduce Non-TarffRedfictons - Eliminat por auhorizaton of impoa, oemite efeace prices 196-1988 Imlementd bl (Veleus meurials) elmina Impot ba - Eimnt impot monopdy n rce, uWr ad petolm (ogh t revision of spei Not Implened Sateement • hntoduce Tadff Reform - Rteduce the nubrof tarff tegoea to four (reduced rate, ordinry rate, increased 1986-1988 ImpeImentd bt rate and special rate) - Reduce the tadff levels (avage EIP went from 165% in 19 to 89% In 191 - 19"6-1988 lmplemnted b/ the trend reversed subsequenly) * Improve Eott ncen:tives - Adopt a duty dwback shem 1980. Iplemened . - Adopt ar4ruqda direct export subsidy 4scheme 0%of export viltr ad coverng a 19S0, 1986 Not Effethiely I. lis of about 100 itemu). Strhe es potpo oa winurance qagiez G. Pbblic EA ds Ret ::' * Improve the Fnna Rarloshp BDwee Governnt and Pgs - Reduce In nominal tems govmt diect sbidy to P.. 1.96-1991 Not Effctively bmpt. - Reduceidirect subid (ovdraf, subsidized i ret) 1986-1991 p. - Setle allroate btsn Gaovem t nd PEs 1987,1991 _1ma e - Adopt preventive maus for the recur e ofoes.dsbt Not Efcty Impl. * Rercr the PE Sector - Implent a diethi progm (to aonly 12% ofle tb- 1980, 86-91 Contiuouw financil ore towl ae ha ben ethw aquidte or privatized (partially or ttally). A total of 36 eqds olved. 93 Ret fori MeagnsurJs - Piva key _utoqile sc as SONAO Qpaadlita, oi pmoasai ai Not lIaUd Claiy the reaortalbitisotvemtam"" PU 1960,9841 NOat fftetvely 1nMl. vis--vis u odo nch dot tun othof ot__o (to des 24 PCs out of 44 planned have beem uisi - Rehabilitate pbysically and _mnaly key PM. (a totlO f 0 Ph ou of 19*1991 b aplaed 27 planned have boen completd so f&) * Iniprove the Regulatory and Indsttoal aIkreo - Amend extlug lw s Wad reultons 1987,1990 Iu ad * Restrict the role of supervis bodies (Audit Conmillaa, No.) to a 190) iplementd pomseri role - Transform all commelal public sabllhnut Ino elhetauononaa 199 ilented or adm_naaivo entities H. lopro.e the E UaNhg awlvrammn * Simpliy the cubroe legal ai adIItraie rgatos(cormrll nod Not Jiupleiei judicW system) * Improve inv esttacenlas sys.m. - Revise iwvsmtmend with emhas on bor4ealvet.ahnAlandanm 19",190 k meNd exports. Exten the gcncp ofe zone (ZIFD to 'pilr %us Establ. it a onwgdsp wido ( Uniu) to _ y app Wroa ofpate Invstment prjects. 1. Sector Refrms * Reform th Educatio Seo - Rbiaupr hoh educao sysem tocate eosahto ptigm edeatm Not Iamheted * Reform the Healt Sector - Reallocate esour to bac hat a ed * Caotrol Popultion Growt - Adopt a popula poliSy and IlWm the polic 19I8 N Eatvely Imp!. - Reform the Agriulua Seco - Reform the Rioc, Cotton and Gr _des Smd - Establish a l tenure system N Ib mpmnd J. Socal Safety Neb * Adopt socisafstynetmurstorduehtmadmoo f _st 4ame - Establish a nation emplamt xtiad utoasslaid4off wode In sunatpr s 1987 - Implmenpublic w orsp mausi_labar Iftsahiva m_nds. 1990 - Retucethwbadeto b eadequatsrow afetnootroesssagSy ee Nurs and piMy educatio * inwwe the databason t dm v ml a e _b 196? Cinu survey) a1 PiCesa f 14 hems nm 0co01oie b/ Mhereisa ben a gad poliy mel d s 1989 Souces: Wodd Ba* SALc and Secb docunts, Piat FrU work Noter, GivnmtMMdTaium-Term Pogam fr Naoi mic =d ROOM A4utMe JEW) 94 SA Tale 6 Ssd Ael Dlvu te _as 1984091 AI ONWem* tI er AUcV awe* aowsdvu as (CQAF b.. JM$) Awa * ?4os4naa.al -36 23.0 8.8 38% 1utviasd 21 17X 7.0 40% lquidatd i5 Si 1.8 33% * Pimnnebl it 174 7.8 44% PAvazd 5 9.3 3.0 32% Liqui"d 6 8.3 4.8 57% * Tat e47 40.6 16.6 41% Pdntlasd 26 26.8 10.0 37% Uquidaed 21 13.8 6.6 48% Of which SALIV 28 22.2 8.3 37% PSICAL 7 11.4 5.9 51% * Told (P so) 113 217.7 157.0 72% Noa4auscI 99 197.7 147.1 74% Fblanc 14 20.0 9.9 49% Souana: Staff esimdebado. AWS AL dumu 95 SA Table 7s Govemut Transfes to Public Foteim CFAP bi) 19M8I9 1990/91 Diet Govermea TTransfers (net) 14.2 n.a. Operating Subsidies 12.3 83 (To Commntruis PFs) 0.9 0.1 Equipment Subsidie 1.9 n.a. lndiect Trwfans (Private and Public) 80.0 a/ n.a. (rax and Import duty exemptions) 58.0 at n.a.4/ (Franial pefni tratment) 18.0 / nA..dI Gross-debt Arms (nnafcial PEa) Owed by PBs to Govermt 57.4 b 5.6 et i Owed by Govenment to PEs 48.9 b 1.2 o Accmuate Overdrafts to dtablsen publics" 16.7bl n.aN a(F4IAtd annual Increa) 2.0 0.0 gt Bankin Borowws 188.00/ n.aWt (Aa S of tot crdittoothec