Final report : evaluation of the economic support fund (ESF), USAID/Senegal program grant years IV and V

Counterpart funds are used by the GOS to repay arrears to the private sector. The ESF program addressed several major policy reforms between 1985 and 1989: rice import privatization/marketing liberalization; phasing out price compensation; raising the efficiency of agro-industry and reducing the fiscal burden; increasing coarse grain consumption and reducing rice imports; and maximizing receipts from wheat imports. In addition, conditionality aimed at eliminating arrears to the GOS and bringing about transparency in financial relations with agro-industry. Of 59 policy measures, the GOS has satisfied 43, not satisfied 8, and 8 are pending. (Appendix A shows the status of each conditionality/objective.) The GOS has proceeded on reforms when the political consequences were considered tolerable. The program succeeded in clearing up arrears owed to the GOS, in bringing about reforms in certain parastatal operations, and in reducing the costs to the GOS of certain private companies. The program has not succeeded in introducing reforms where GOS strategic interests were affected, as with eliminating price compensation or the monopoly on broken rice imports. However, USAID/S could not present a convincing case that its recommended reforms would bring about economic advantages. The program fully succeeded in providing a vehicle for high-level policy dialogue and for carrying out studies on difficult policy issues. Program management has been smooth and efficient. Dollar deposits helped the GOS alleviate its foreign exchange deficit, and counterpart funds have helped it reach IMF targets by paying off some arrears with the private sector. Failure to meet certain objectives (e.g., privatizing rice imports, eliminating price compensation) can be traced to the CFA franc's overvaluation. The GOS is unlikely to change its policies while this overvaluation continues. These 2 reforms are no longer sought by donors, although changes in peanut pricing will be sought. International price trends suggest that price compensation will be in approximate balance in 1989, vs. a loss of about CFAF 27 billion in 1988. While the program has generally succeeded, budget support through the gift of counterpart funds had the opposite effect of that desired; it has hindered structural adjustment rather than fostered reform in at least 2 areas: reduction of the excessively large civil service payroll, and privatization of loss-making parastatals. Civil service reduction has been a World Bank conditionality since 1984. Budget support, however, has made it possible for the GOS to avoid or postpone these key reforms, and to maintain and even increase public expenditure patterns. ESF disbursements should be redirected to job-creating private sector activities, especially small and medium enterprises. If counterpart funds can be utilized only for budget support, consideration should be given to terminating this program in favor of project assistance. The USAID/GOS working group on policy reform should continue regardless. (Author abstract, modified)