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Viewing cable 08DAKAR1246, SENEGAL'S ECONOMIC INDICATORS DROP AS THE GOVERNMENT

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Reference ID Created Released Classification Origin
08DAKAR1246 2008-10-31 07:41 2011-08-24 16:30 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Dakar
VZCZCXRO9782
PP RUEHBZ RUEHDU RUEHGI RUEHJO RUEHMA RUEHMR RUEHPA RUEHRN RUEHTRO
DE RUEHDK #1246/01 3050741
ZNR UUUUU ZZH
P 310741Z OCT 08
FM AMEMBASSY DAKAR
TO RUEHC/SECSTATE WASHDC PRIORITY 1336
INFO RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUCPDOC/USDOC WASHDC
RUEHLMC/MCC WASHDC
RUEHZO/AFRICAN UNION COLLECTIVE
UNCLAS SECTION 01 OF 02 DAKAR 001246 
 
SENSITIVE 
 
SIPDIS 
 
STATE FOR EBB/IFD/ODF, A/EPS AND AF/W 
TREASURY FOR RHALL AND DPETERS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV ETRD EAID SG
SUBJECT:  SENEGAL'S ECONOMIC INDICATORS DROP AS THE GOVERNMENT 
STRUGGLES TO OVERCOME CURRENT FISCAL CRISIS 
 
REF:  A) DAKAR 1190, B) DAKAR 0588 
 
DAKAR 00001246  001.2 OF 002 
 
 
1.  (SBU) SUMMARY:  Senegal continues to struggle to find the means 
to pay off its large stock of internal debt owed to private 
suppliers.  The accumulated effects of financial indiscipline and 
adverse exogenous factors are negatively impacting projected GDP 
growth, inflation, and government deficits.  The IMF is again on the 
scene, but some observers are critical of the Fund's passive 
attitude towards Senegal's current poor economic conditions.  The 
two main employer associations have called for the government's 
immediate and urgent commitments to pay its internal debt as many 
local companies in the construction and service sectors are in dire 
straits.  The government hopes for new financing, perhaps from 
France, and is looking at other measures to solve the 2008 budget 
deficit.  We are not convinced that President Wade is willing to 
acknowledge the depth of Senegal fiscal crisis.  We do not yet see a 
full commitment from the GOS for much-needed budget management 
reforms.  END SUMMARY. 
 
BAD NEWS ON ECONOMIC INDICATORS 
------------------------------- 
2.  (SBU) The large cumulative internal debt arrears, now estimated 
by MinFin officials at up to CFA 323 billion (USD 718 million), 
coupled with the lack of budget transparency -- which caused 
unauthorized and unjustified overspending of at least CFA 116 
billion (USD 259 million) -- and some exogenous factors (world oil 
price increase) have greatly contributed to a deterioration of 
Senegal's economic performance, particularly in the formal sector. 
 
3.  (U) According to Senegal's National Statistics Agency, the 
country is experiencing a significant slowing in the services and 
construction sectors -- where companies are most affected by unpaid 
bills -- leading to a drop in projected GDP growth, now estimated at 
3 percent in 2008 compared to 4.7 percent in 2007.  Inflation could 
rise to 6.0 percent as the result of increase in energy and food 
prices.  Senegal's external current account deficit is expected to 
reach 12 pct of GDP in 2008 compared to 10.5 percent of GDP in 2007. 
 The overall fiscal deficit will rise to 7.0 percent after being at 
5.9 percent of GDP in 2007. 
 
4.  (SBU) The lack of budget transparency is also reflected in the 
government's reluctance to submit corrective legislation for its FY 
2008 budget ("loi de finance rectificative") despite a 
constitutional requirement to do so.  The corrected budget should 
explain the current budget deficit and how the ledger will be 
balanced.  It should also account, finally, for the proceeds from 
the September 2007 sale of Senegal's third telecommunication license 
to Sudatel, estimated at USD 200 million, and last summer's issuance 
of treasury bonds estimated at USD 154 million.  Our contacts at the 
Ministry of finance have been unable or unwilling to clearly explain 
how this revenue has been used. 
 
5.  (U) Given this gloomy, but realistic, outlook, our MinFin 
contacts have questioned the credibility of the IMF's fairly 
positive assessment of Senegal economic conditions (Ref A), arguing 
that "the IMF criticizes the government's financial difficulties in 
private, but presents an optimistic view in public." 
 
ANGRY WORDS FROM THE EMPLOYERS' ASSOCIATIONS 
-------------------------------------------- 
6.  (U) While it has been known for two years that the government 
has been carrying a significant stock of arrears owed to the private 
sector and, even though in July the IMF announced that this internal 
debt was much larger than previously estimated, the bills have not 
yet been paid.  On October 13, both the National Confederation of 
Employers (CNP) and the National Council of Employers (CNES) 
publically expressed their anxiety over the difficult financial 
situation their members are facing as the result of the government's 
non-payment of its debts.  Senegal's "Patronat" blasted the 
government's "passive, wait-and-see" attitude towards the damages it 
has already caused to private suppliers in the service and 
construction sectors.  "We are agonizing and can no longer operate 
efficiently since the government has no apparent viability to pay 
its debts in the near future," noted Abdoul MBaye, CNP Vice 
President and President of the Bankers' Associations. 
 
7.  (U) Mansour Cama, the President of CNES called for a general 
dialogue with the government since the latter failed to keep its 
promise to pay the debt owed to private suppliers.  He claimed that 
"several" companies affiliated to CNES are closing their businesses 
or selling their land, property, or houses in order to meet their 
financial commitments to their suppliers and banks.  "We have lost 
our confidence and trust to the government."  Cama added, "the 
economy is sick and many businesses in the construction and service 
 
DAKAR 00001246  002.2 OF 002 
 
 
sectors are closing or reducing their workforce." 
 
GOS LOOKS TO FRANCE AND ITS OWN ASSETS 
-------------------------------------- 
8.  (SBU) The GOS is reportedly in discussions with France for a 
large (perhaps Euro 300 million) loan (via the French Development 
Agency) to help cover the current arrears.  However, MinFin contacts 
have noted that France has conditioned the assistance on the money 
being used primarily to pay off the GOS' debts to French firms.  The 
GOS is apparently also continuing to explore the possible sale of 
its commercial holdings, including its shares in the 
telecommunications company Sonatel (Ref B), and sale of the Meriden 
President Hotel, with an eye to raising at least USD 952 million. 
The French loan is not yet a done deal, and the government has had 
difficulties for weeks in sorting out the possibilities of selling 
assets.  President Wade has stated that he has given Finance 
Minister Abdoulaye Diop "full authority" to resolve the country's 
fiscal crisis. 
 
THE IMF FACTOR 
-------------- 
9.  (SBU) IMF Missions are in Senegal the week of October 27, both 
to continue their investigation of the GOS's poor budget control and 
for a regularly-scheduled review of the country's Policy Support 
Instrument (PSI) Program.  The two-pronged thrust of the PSI review 
will be to assure Senegal has an actionable plan for getting out of 
the current crisis and confirm commitments from the government to 
implement reforms leading to improved transparency, accountability, 
and management of the country's public finances.  The IMF's 
end-of-mission assessment for the donors will be instrumental in 
determining whether or not budget support pledges and new loans are 
feasible before the end of the year.  Any stonewalling by the GOS on 
the needed reforms could lead to a December IMF Board decision to 
suspend Senegal's PSI. 
 
COMMENT 
------- 
10.  (SBU) There is a great deal of frustration in Senegal among 
donors, businesses, and the general population that a clear action 
plan to solve the arrears has not yet been publicized.  While 
ministry of finance officials are scrambling to make ends meet for 
Senegal's 2008 budget, President Wade appears to be carrying on with 
business as usual.  In an October 28 meeting with the Ambassador and 
visiting MCC Vice President John Hewko, Wade stated that Senegal's 
internal debt was very sustainable, amounting to only CFA 130 
billion (USD 289 million).  This assertion does not match 
information provided by our Ministry of Finance contacts, nor does 
it reflect the massive arrears owed to the private sector. 
 
11.  (SBU) We believe the government is still counting on a big 
bailout from France, other donors, and perhaps commercial financing. 
 That would help in the near term, but will only truly benefit the 
country if it doesn't diminish the momentum for reform. 
 
BERNICAT