Private Sector Adjustment Credit

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The Private Sector Adjustment Credit (PSAC) aims to support the Government of Senegal in the implementing subsector reforms to improve the investment climate and accelerate private sector growth and employment. Specifically, it (i) supports the implementation of a private enterprise tax regime that stimulates investments through leveling the playing field and lowering taxes, and allocates user fees for private sector promotion purposes (ii) restructures the edible oil sector by improving the competitive environment in which it operates, that is, through eliminating or reducing policy distortions associated with non-tariff barriers and other domestic protection mechanisms, and public interventions; (iii) reforming postal services by introducing greater competition, restructuring the postal enterprise so as to enhance its sustainability, and creating an autonomous financial subsidiary that would provide savings, and payment and transfer services; and (iv) changing the pension system to make it financially sustainable and improving its corporate governance. The last two reforms entail substantial financial restructuring, involving clearance of arrears, that would need to be financed by the public budget. In the same vein, the proposed tax reforms may entail revenue shortfalls in the short term. The Credit aims to provide budget resources through counterpart funds generated by balance of payment support it provides, and thus help ensure that social and poverty alleviation programs are not disrupted. The first tranche of the proposed four-tranche operation would help initiate these reforms. The other three floating tranches would support specific reforms in each of the above areas, except in the edible oil sector, which will be fully covered by the first tranche. A possible risk includes imperfect implementation of the reforms, which would undermine their sustainability. Political risk due to opposing vested interests has been offset in a number ways-undertaking diagnostics studies to strengthen the analytical basis of the reforms, following a broad participatory process to ensure stakeholder buy-in; focusing on outcomes through project design simplicity, .The second risk is institutional in nature. To avoid the risk of imperfect implementation due to lack of capacity, insufficient analysis and absence of consensus, the parallel Private Investment Promotion Project (PIPP) assists in designing and implementing the reforms. The third category of risk is specific to the four areas of reform within the program. One such risk concerns the privatization of the groundnut operator, which is very advanced and is not expected to materialize. Other risks are considered manageable and are mitigated through a combination of upfront actions being taken, implementation support provided by IDA and consensus building in favor of the reforms.