African Development Bank

EMERGENCY COVID-19 RESPONSE SUPPORT PROGRAMME (PUARC)

APPRAISAL REPORT

Date: May 2020 Team Leader: Y. ARVANITIS, Principal Governance Officer ECGF Team co-leader: M. DIOP-LY, Health and Social Sector Protection Officer AHHD

Programme Team: O. BEGUY, Principal Country Economist ECCE D.E. DIOUF, Macroeconomist ECCE S. KEITA, Chief Regional Finance Management Coordinator SNFI.2 S.C. DIOP, Financial Management Operations Officer SNFI.2 W. DAKPO, Chief Regional Procurement Coordinator SNFI.1 C.D. DIOUF, Senior Procurement Operations Officer SNFI.1 M. KEI-BOGUINARD, Chief Counsel PGCL1 N. GAHUNGA, Chief Gender Officer RDGW F. FAYE-BA, Principal Disbursement Officer COSN B. OMILOLA, Manager AHHD Appraisal R. OFFEI-AWUKU, Chief Development Economist AHHD Team R. TRAORE, Socio-Economist AHHD O. STOULLIG, Principal Industrial Policy Officer PITD H. FELLAH, Principal Agronomist COSN M.S BA, Young Professional ECGF C. SARR, Financial Expert ECGF A. BELLA-CORBIN, Environmental and Social Coordinator RDGW

Sector Directors: Abdoulaye COULIBALY (Governance) ECGF Martha PHIRI (Human Development): AHHD Emmanuel PINTO MOREIRA (Country Economist) ECCE Director General: Marie-Laure AKIN-OLUGBADE RDGW Deputy Director General: Serge N’GUESSAN RDGW Country Manager Adam AMOUMOUN (OIC) COSN

Carina SUGDEN, Chief Governance Expert, ECGF Toussaint HOUENINVO, Chief Country Economist, SNFO Peer Khadidiatou GASSAMA, Principal Country Economist, ECCE Reviewers Mamadou KANE, Chief Irrigation & Rural Infrastructures Engineer, AHFR2 Solène ROUGEAUX, Senior Social Protection Specialist, World Bank (external review)

AFRICAN DEVELOPMENT BANK

SENEGAL

EMERGENCY COVID-19 RESPONSE SUPPORT PROGRAMME (PUARC) Public Disclosure Authorized

PROJECT APPRAISAL REPORT

sure Authorized sure Authorized

Public Disclo

RDGW/ECGF/AHHD/ECCE/COSN/PGCL

May 2020

Translated Version

TABLE OF CONTENTS

I. INTRODUCTION: PROPOSAL ...... 1 II. CONTEXT ...... 1 2.1 Economic, Governance and Social Context ...... 1 III. JUSTIFICATION AND KEY ELEMENTS ...... 2 3.1 Justification ...... 2 3.2 Collaboration and Coordination with other Partners ...... 2 3.3 Compliance with Eligibility Criteria ...... 3 IV. PROPOSED PROGRAMME ...... 3 4.1 Country Programme Goal and Objective ...... 3 4.2 Programme content...... 3 4.3 Financing Needs and Mechanisms ...... 5 4.4 Programme Beneficiaries ...... 5 4.5 Prior Actions...... 5 4.6 Policy Dialogue ...... 5 4.7 Impact in Terms of Gender, Poverty and on Vulnerable Groups ...... 6 V. IMPLEMENTATION AND LEGAL DOCUMENTS ...... 6 5.1 Implementation, Monitoring and Evaluation ...... 6 5.2 Financial Management, Procurement and Disbursement ...... 6 5.3 Legal Documents ...... 7 5.4 Compliance with Bank Group Policies ...... 7 5.5 Risk Management ...... 7 VI. RECOMMENDATION ...... 8

ANNEX 1: RESULTS-BASED LOGICAL FRAMEWORK ...... I ANNEX 2: ELIGIBILITY CRITERIA ...... II ANNEX 3: GOVERNMENT POLICY LETTER ...... IV ANNEX 4: ENVIRONMENTAL AND SOCIAL COMPLIANCE NOTE (ESCON) ...... IVI

CURRENCY EQUIVALENTS May 2020

Senegalese Currency = FCFA

UA 1 = CFAF 824.112 UA 1 = USD 1.366 UA 1 = EUR 1.256

WEIGHTS AND MEASURES

1 tonne = 2204 pounds (lbs) 1 kilogramme (kg) = 2.200 lbs 1 metre (m) = 3.28 feet (ft) 1 millimetre (mm) = 0.03937 inch (“) 1 kilometre (km) = 0.62 mile 1 hectare (ha) = 2.471 acres

FISCAL YEAR January - December

ACRONYMS AND ABBREVIATIONS

ACRONYM DESCRIPTION AFD French Development Agency ARMP Public Procurement Regulatory Authority BCEAO Central Bank of West African States CENTIF National Unit for the Processing of Financial Information CFRA Country Fiduciary Risk Assessment CNGE National Epidemic Management Committee COSN Senegal Field Office CRBS Crisis Response Budget Support ESP Emerging Senegal Plan ETC Epidemic Treatment Centres FDI foreign direct investment GDP gross domestic product GMS Gender Marker System IGE General State Inspectorate IIAG Annual Ibrahim Index of African Governance IMF International Monetary Fund ISS Integrated Safeguards System MEPC Ministry of the Economy, Planning and Cooperation MFB Ministry of Finance and the Budget OFNAC National Office for Combating Fraud and Corruption PAIMRAI Institutional Support Project for Resource Mobilization and Investment Attractiveness PAMRER Resource Mobilization and Reform Effectiveness Support Programme PAUVS Senegal Virtual University Support Project PFM Public Finance Management PMF Public Procurement Code PNBSF National Family Security Grants Program PRES Economic and Social Response Plan PSSD Digital Health Strategic Plan PUARC Emergency COVID-19 Response Support Programme RCF Rapid Credit Facility RFI Rapid Financing Instrument RNU National Single Registry SENELEC Electricity Corporation of Senegal SME small and medium-sized enterprises TFP technical and financial partners UHC universal health coverage VAT Value Added Tax WAEMU West African Economic and Monetary Union

PROGRAMME INFORMATION

BENEFICIARY : Republic of Senegal SECTOR : Multi-sector INSTRUMENT : Program Based Operation (PBO) PBO DESIGN TYPE : Crisis Response Budget Support

EXECUTING AGENCY: Ministry of Finance (MFB)

2020 financing plan in budget support

Source Amounts (2020) AfDB EUR 88 000 000* World Bank Amount to be confirmed European Union EUR 150,000,000 IMF USD 442,000,000 * Or the equivalent of UA 70,000,000

AfDB Financing Information Loan currency: Euro Type of Loan: Fully flexible loan Maturity: To be determined (maximum period of 25 years) Grace period: To be determined (maximum period of 8 years) Weighted average maturity**: To be determined (depending on amortization profile)

Repayment: Half-yearly instalments at the end of the grace period

Interest rate: Base rate + Funding margin + Lending spread + Maturity premium This interest rate must be greater than or equal to zero.

Base rate: Floating (6-month EURIBOR reset on 1 February and 1 August or any other acceptable rate) A free option is available to set the base rate

Funding margin The Bank’s funding margin revised every 1st January and 1st July and applied every 1st February and 1st August with the base rate

Lending spread: 80 base points (8.8%)

Maturity Premium: To be determined:  0% if weighted average maturity <= 12.75 years  0.10% if 12.75 years < weighted average maturity <= 15 years  0.20% if weighted average maturity > 15 years

Front-end fees: 0.25 % of loan amount Commitment fee: 0.25 % per year of non-disbursed amount Starts to accrue 60 days after the date of signature of the loan agreement and is payable on the set interest payment dates.

iii

Base rate conversion option:* Besides the free base rate conversion option, there is the possibility for the borrower to revert to the base rate or reset the rate for all or part of the disbursed loan amount. Transaction fees are payable

Rate cap or collar option*: The borrower has the possibility to cap or collar the base rate for all or part of the disbursed loan amount. Transaction fees are payable

Loan currency conversion The borrower may change the currency of all or part of its option*: disbursed or undisbursed loan to another loan currency of the Bank. Transaction fees are payable

Timeframe – Main Milestones (projected) Activities Dates Appraisal April 2020 Approval May 2020 Effectiveness May 2020 Disbursement May 2020 First supervision September 2020 Completion June 2021 Closing date June 2021

I. INTRODUCTION: PROPOSAL 1.1.1. Management submits the following proposal for the award of a loan of EUR 88 million from African Development Bank (AfDB) resources to finance the Emergency COVID-19 Response Support Programme (PUARC) in Senegal. It is crisis response budget support as defined in the COVID-19 Rapid Response Facility (CRF). 1.1.2. As of May 14th, 2020, the country had 2105 confirmed cases, of which 21 died and 782 were cured. The first case was reported on 2 March 2020 and since then the curve has been rising with the first death recorded on 31 March 2020. Given the current context of a growing epidemic in the country, and a world economy brought to a halt by the pandemic, Senegal has requested for Crisis Response Budget Support (CRBS). The objective of the operation is to support social response and contribute to the mitigation of macroeconomic risks engendered by the COVID-19 pandemic. PUARC is aligned with the Economic and Social Response Plan (ESRP) deployed by the authorities to address the health, social and economic aspects of the crisis. II. CONTEXT 2.1 Economic, Governance and Social Context Economic Context 2.1.1 By hitting hard on main partner countries and spreading rapidly in Senegal, the pandemic has also affected the economy through various external and domestic channels. On the one hand, it is affecting Senegal's economy by disrupting the supply chain and reducing external demand, curbing the flow of foreign direct investment (FDI), undermining government efforts to revive the tourism and transport sectors (5% of GDP in 2019), and reducing remittances from migrants (10% of GDP in 2019). On the other hand, the restrictive measures adopted weigh heavily on economic activity and this is evident in the decline in the supply of labour, the closure of businesses and rising prices. 2.1.2 As a result, after several years of robust growth, projections suggest a drastic deceleration in economic Table1: Macroeconomic indicators activity. Before the crisis, the macroeconomic outlook was 2019 2020 2020 favourable with growth projected at 6.8% in 2020. However, (rev.) GDP 5.3 6.8 3.0 since the COVID-19 outbreak, the various scenarios show a Budget balance (% of -3.2 -3.0 -5.6 deceleration of growth that could reach 3%. The budget deficit GDP) Inflation 1.0 1.5 2.0 would widen to 5.6% of GDP relative to the 3% projected, Current account (% of -9.2 -10.7 -11.3 mainly due to an 8% increase in public expenditure. Public debt GDP) is expected to rise from 64% of GDP in 2019 to 67% in 2020, although the debt distress risk remains “moderate”. Social and Health Context 2.1.3 Apart from the impact of the crisis on the real economy, Senegal is experiencing pressure on its national health system, which is already under strain due to structural deficiencies. With an average of 27.6 confirmed cases recorded daily (and ~500 tests/day undertaken), health services could be rapidly overwhelmed. Indeed, Senegal is ranked 95th out of 195 countries under the Global Health Security Index in terms of epidemic preparedness and response. Its score of 37.9/100 is below the world average (40.2) and is driven down by deficiencies in infection control practices, equipment and testing capacity1 (Technical Annex 1). 2.1.4 On the social front, the country has relatively limited social security coverage, although the foundations exist for mounting a response to the crisis. Since 2012, the social protection system in Senegal has been organised around four programmes, namely: the National Family Security Grants Programme (PNBSF), Universal Health Coverage (UHC), agricultural subsidies and electricity subsidies.2 Although the State has instituted UHC as a mechanism to guarantee access to a minimum package of care for the poorest households, attainment of the goal of covering 80% of the target population by end-2021

1 Global Health Security Index 2019 https://www.ghsindex.org/wp-content/uploads/2019/08/Senegal.pdf 2 A fifth important programme relates to university scholarships and student’s welfare. 1

should be accelerated, considering that a segment of the most vulnerable population is still at risk. The State has also set up the PNBSF, which has made cash transfers to the 250,000 poorest households to date. This system is based on consolidated targeting within the National Single Registry (RNU) that can serve as the basis for a response to the crisis. However, the use of the RNU is not systematic in the different responses to shocks and should be standardized.3 The agricultural inputs subsidy programme contributes to food security through subsidies for seeds, fertilizers and equipment. Lastly, the electricity subsidy helps to even out sales price variations and offer protection to consumers (Technical Annex 3). Governance Context 2.1.5 In general, state systems and institutions meet acceptable standards of governance. The long- term efforts made to consolidate the legal and institutional framework for promoting good governance and, in particular, combating corruption have resulted in the establishment or strengthening of key institutions such as the Court of Auditors, the General State Inspectorate (IGE), the National Financial Information Processing Unit (CENTIF), or the National Office for Combating Fraud and Corruption (OFNAC), among others. On account of these reforms, Senegal is ranked 8th out of 54 countries in Africa under the "Transparency and Accountability" category of the IIAG in 2018. However, given the context, it is important to ensure the effective involvement of these institutions in the control of pandemic-related expenditure in order to guarantee the necessary transparency. III. JUSTIFICATION AND KEY ELEMENTS 3.1 Justification 3.1.1 The use of Crisis Response Budget Support (CRBS) is justified on the basis of the criteria retained in the operational directives relating to the programming, design and management of budget supports (ADB/BD/IF/2014/40), specifically on the (i) economic criterion, defined as a situation “threatening a sustained decline in GDP growth”, and (ii) humanitarian criterion, defined as a “situation in which there is an exceptional and generalized threat to human life, health or livelihoods”. 3.1.2 Linkage with national policies: The first phase of the Health Response Plan against COVID 19, financed exclusively with domestic resources (CFAF 6.5 billion), made it possible to set up an emergency mechanism as soon as the first case was identified. The second phase, currently being developed, should receive an allocation of CFAF 64.7 billion to support epidemic containment measures. These efforts are accompanied by broader emergency support measures for the economy under the FORCE-COVID-19 Fund which should receive an endowment of CFAF 1,000 billion4. This Fund is the financial vehicle of the ESRP whose four main pillars are: (i) health sector support; (ii) strengthening the social resilience of the population; (iii) macroeconomic and financial stability to support the private sector and jobs; and (iv) regular supply of hydrocarbons, medical products, pharmaceuticals and basic necessities. PUARC is based on the first, second and third pillars of the ESRP, and is also consistent with the High 5 on “Improve quality of life for the people of Africa”. 3.1.3 Comparative advantage of the AfDB: The Bank's comparative advantages stem from its experience in implementing reform support programmes in emergency contexts (Guinea-Bissau, The Gambia, etc.). Lessons from those responses, as well as from the Ebola response, have been applied to the design of the proposed operation (see Technical Annex 6). These include: (i) government ownership of the reforms proposed in the programme; (ii) disbursement conditions that can be fulfilled within reasonable timeframe; and (iii) coordination with other donor interventions to avoid duplication. Moreover, with an ongoing programme (the Resource Mobilization and Reform Effectiveness Support Programme (PAMRER)), the Bank was already a privileged interlocutor on issues related to macroeconomic stability, as well as measures related to competitiveness and fiscal issues which PUARC partly addresses. 3.2 Collaboration and Coordination with other Partners 3.2.1 The Bank, through its country office (COSN), has played a key role in coordinating the actions of Technical and Financial Partners (TFPs). PUARC was prepared in close collaboration with TFPs, notably

3 In order to have a greater impact on poor households, but also to make substantial savings. See Rougeaux S. et al. (2019) Improving the Equity and Efficiency of Social Spending and Public Subsidies in Senegal, World Bank. 4 This amount includes a budgetary component of CFA 566.4 billion divided into credits executed by the various departments. These expenditures are executed according to the budgetary and accounting procedures of the public financial management framework. They will be controlled by the authorized organs of the State, according to the procedures in place. 2 the IMF, the World Bank, the European Union and France. The Bank participated in the various coordination meetings between partners that included Germany, Japan, Canada and the Islamic Development Bank (Technical Annex 4). In addition to exchanging information, a common dialogue matrix is being developed and will serve as a basis for dialogue throughout the year, in particular on questions relating to transparency. 3.3 Compliance with Eligibility Criteria 3.3.1 The proposed operation, which is a crisis response budget support (CRBS), is consistent with the Bank Group Policy on Programme-Based Operations adopted in March 2012 (ADF/BD/WP/2011/38). With the Emerging Senegal Plan (PSE), the country has a medium-term poverty reduction strategy. As regards the criterion of macroeconomic stability, despite the negative impact of the crisis, macroeconomic aggregates remain stable. With regard to the political stability criterion, Senegal enjoys long-standing stability bolstered by strong democratic institutions. The fiduciary framework has benefited from major reforms over the past few years to upgrade them to international standards. However, Decree No. 2020-781 of 11 March 2020 on exemptions from the Public Procurement Code introduces a risk that will have to be mitigated through specific transparency actions linked to public procurement. Finally, harmonization efforts are maintained within the framework of the Group-50, which brings together all the country's TFPs. Annex 2 provides a detailed analysis of the eligibility criteria. IV. PROPOSED PROGRAMME 4.1 Country Programme Goal and Objective 4.1.1. This operation has a dual objective, namely: (i) support the social response phase; and (ii) contribute to the mitigation of macroeconomic risks. 4.2 Programme content 4.2.1 The project is based on two components, namely: (i) support for health response and community resilience, and (ii) mitigating macro-economic risks. Component 1: Supporting the health response and community resilience Context 4.2.2 The State of Senegal has taken bold measures to curb the spread of COVID-19. The flagship measures directly linked to the health system are: the deployment of technical, material and financial support to affected regions, or the continued mobilization of resources to finance a response plan. The response plan revolves around: (i) case detection; (ii) rapid isolation of suspected and confirmed cases; (iii) strengthening of prevention measures in health structures and communities; (iv) communication on the risk of infection and finally coordination of the response. 4.2.3 Although these measures are relevant from the health perspective, they have undermined the income-generating activities of the most vulnerable households, especially those dependent on the informal sector. The eventual rise in the prices of staple foods could also be felt even more strongly in certain regions where the movement of goods is likely to be affected. Similarly, the decline in contributions from family members who are immigrants or settled in Dakar, and the fall in remittance income from abroad should also contribute to the fall in purchasing power. 4.2.4 For households dependent on the formal sector, the drastic drop in activity is expected to impact thousands of workers who would be made redundant or placed on short-time work under conditions that do not always guarantee a minimum wage. Information from the Labour and Social Security Inspectorate shows that remuneration methods in the event of technical unemployment differ greatly from one establishment to another.5 Furthermore, the International Labour Organization Convention No. 122 on Employment Policy recommends the protection of vulnerable workers and the reduction of poverty through the protection of minimum wage levels.

5 Technical unemployment does not impose an obligation on the employer, except otherwise provided for by an individual or collective agreement (Article L.65 of the Labour Code) 3

Government measures supported by the programme 4.2.5 Sub-component 1.1 – Support to the health response: The first supported measure will be (i) Update and implementation of the health contingency action plan to be financed for CFAF 64 billion. The regular update of this plan to adapt to the evolution and epidemiology of the disease will make it possible to review urgent needs and continue mobilization of the resources needed to monitor and contain the pandemic. A second measure will focus on patients’ case management. Thus, PUARC will support (ii) the strengthening of care facilities, specifically with a commitment to put out 3 new Epidemic Treatment Centres (ETCs) and upgrade 7, as well as an increase in the capacity of resuscitation ventilators from 50 to 100 by June. 4.2.6 Sub-component 1.2 – Support to community resilience: From the social standpoint and in a bid to address the urgent needs of the affected communities, PUARC will also support (iii) the distribution of food kits and (iv) the payment of the electricity (SENELEC) and water (Sen' Eau) bills of vulnerable households for 2 months starting in May. The distribution of kits worth FCFA 66,000 containing basic necessities is expected to reach a total of one million households6. Bill payments are expected to benefit 975,000 households for electricity and 670,000 households for water. These emergency measures should enable both rural and urban households to make up for the loss of income caused by the crisis. The Government also organizes cash transfers for the poorest households who are registered with the PNBSF. 4.2.7 With regard to households dependent on the formal sector, PUARC will support (v) the adoption of measures granting waivers from dismissal and technical unemployment during the pandemic, which should also ensure that workers receive remuneration that is not less than the guaranteed minimum interprofessional wage and 70% of the average net wage of the last three months of activity. Expected results 4.2.8 On the health front, the State of Senegal is expected to strengthen response capacity to emergency health situations, as measured by the Global Health Security index (in particular on its Detection and reporting; Rapid response; and Health systems notations) by raising the country from 37.9/100 to the world average of 40/100. On the social side, the percentage of households covered by social protection programs is expected to increase from 20% to 40%. Component 2: Macroeconomic Risk Mitigation Context 4.2.9 Growth is expected to decelerate to 3% in 2020 due to a slowdown in the tertiary sector (especially tourism (-60%) and transport (-9%)). Against this backdrop of crisis, the public deficit would widen to 5.6% of GDP. The fiscal impact in terms of reduced revenue is estimated to exceed CFAF 300 billion and would stem mainly from the closure of borders leading to a drop in customs revenue; and the slowdown in economic activity due to a reduction in labour supply and the closure of businesses. Government measures supported by the programme 4.2.10 Sub-component 2.1 – Macro-fiscal support: Given the significant drop in revenue, efforts must be made to readjust expenditure. In this regard, the first step will involve the (i) prioritisation of investment projects in order to reallocate resources to cope with the impact of the crisis, with the objective of releasing CFAF 105 billion which could be allocated to meet urgent needs, especially in the health and social sectors. This measure puts off the commencement of new State projects and programmes, based on the profitability of investments, to avoid compromising the impact of future growth. The second measure is (ii) the streamlining of recurrent expenditure through measures aimed at suspending the procurement of vehicles and freezing expenditure on missions, conferences, congresses and seminars, thus releasing CFAF 54 billion. 4.2.11 Sub-component 2.2 – Support to the productive sector: To avoid a decline in economic activities, the government undertakes to support the private sector and maintain jobs through a cash injection programme including fiscal and customs measures. In this regard, PUARC will support (iii) partial forgiveness of the tax debt of about CFAF 200 billion recorded on 31 December 2019,

6 Using the RNU as a basis, targeting of eligible households was the subject of a dialogue with partners, including the Bank, the World Bank, the IDB and WFP. See also prior action # 1 of this operation. 4 transforming it into investment support; (iv) extension from twelve (12) to twenty-four (24) months of the overall deadline for payment of the suspended VAT of about CFAF 15 billion collected by the Customs Administration and the Tax Services. Apart from the fiscal aspects, PUARC will support (v) the clearance arrears owed by the State to the private sector in the amount of CFAF 302 billion. Such a measure will enable formal businesses which have signed contracts with the State to reconstitute their cash flow during the current economic downturn. Expected results 4.2.12. Of the 84,000 taxpayers identified, it is expected that around 15,000 (or 18%) will benefit from the tax measures put in place, in order to save production structures and jobs. More specifically, the measures will allow certain key sectors of the economy such as tourism and transport, hard hit by the crisis, to rebound in 2021 thereby saving 104,000 and 85,500 jobs respectively. 4.3 Financing Needs and Mechanisms 4.3.1 In view of the above-mentioned macro- Table 2: Financing Needs (CFAF billion) economic effects, overall revenue was revised 2020 2019 2020 LFI downwards by about CFAF 314 billion compared Reviewed Total Revenue 2,789 3,122 2,808 to the initial projections for 2020. Similarly, to Tax Revenues 2,410 2,675 2,370 address the health and social crisis, expenditure Other Revenue 379 447 438 was revised upwards by CFAF 50 billion with a Total Expenditure 3,326 3,575 3,626 Current Expenditure 2,166 2,132 2,289 CFAF 150 billion budget line reallocation. The Investments 1,160 1,443 1,338 additional financing gap, relative to the initial Overall Deficit -537 -453 -818 projection is CFAF 365 billion and will be offset Financing 537 453 818 by budget support from TFPs. Domestic Financing -100 56 46 External Financing 637 397 772 4.4 Programme Beneficiaries including project loans 392 501 426 Including budget 263 82 288.4 4.4.1 The programme is expected to directly support including the ADB 49 49 57.6 benefit one million households through food Financing GAP 0 0 0 distribution kits. It will also benefit 975,000 Source: IMF/MFB households through the payment of electricity bills and 670,000 households through the payment of water bills.7 Ultimately, the most vulnerable Senegalese households are expected to experience income stabilisation. Meanwhile, the economic measures should safeguard jobs and enable businesses to quickly resume activities as soon as the crisis eases. 4.5 Prior Actions 4.5.1 Three prior actions were retained for this operation. These actions were agreed upon with the authorities during consultations in accordance with best practices on conditionality. Table 2: Prior Actions Actions Measure Proof Terms of reference of the targeting note detailing the methodological approach and the responsibility of the Elaboration of a targeting note on the 1 1.2 targeting committees at different administrative levels, from distribution of food kits. the Ministry of Community Development and Social Equity. Payment of electricity and water bills for Copy of the press release(s) detailing the terms and 2 1.3 vulnerable households. payment periods. Limitation of dismissals and, in the case 3 of technical lay-offs, set-up of a 2.4 Copy of the presidential ordinance. guarantee of minimum pay.

4.6 Policy Dialogue 4.6.1 The country’s authorities and the Bank should pursue dialogue on 6 themes: (i) the impact of the fiscal measures developed by the country’s authorities, especially with regard to the Bank's involvement in the tax sector through the on-going PAIMRAI and PAMRER operations; and (ii) the use of the National Single Registry (RNU) as a basis for targeting social benefits, especially to ensure the effectiveness of

7 Non-cumulative figures since some households are impacted by several measures at the same time. 5 distribution actions and other allocations (Technical Annex 3). The dialogue will also focus on the use of the RNU with respect to access to care through UHC. Issues pertaining to (iii) food and nutrition security, with special attention to the launch of the 2020-2021 agricultural season by securing access to seeds and fertiliser in general and, more specifically, to the governance of agricultural input subsidies by improving beneficiary targeting; (iv) structural transformation and industrial competitiveness, mainly by focusing on the Industrial Policy Upgrade Support Project (FAPA grant). It is also important to highlight the dialogue on (v) transparency measures. For the latter, it was agreed to have the Court of Accounts carry out an audit of Covid-19 pandemic-related procurement activities under the Programme, in accordance with the Borrower's Procurement System for the year in which disbursement took place. Finally, (vi) the Bank, in collaboration with the other TFPs, will engage in the dialogue on reviving the economy after the crisis. 4.7 Impact in Terms of Gender, Poverty and on Vulnerable Groups 4.7.1 Social protection under PUARC specifically targets the poorest. The RNU has been adopted as the basis of response for social protection measures because of its capacity to target the most vulnerable people. Lastly, regarding gender, the distribution of food kits, including to female household heads, will have a special positive impact. The operation is classified in category 3 according to the Bank's gender marker system. V. IMPLEMENTATION AND LEGAL DOCUMENTS 5.1 Implementation, Monitoring and Evaluation 5.1.1 Overall responsibility for PUARC implementation lies with the Ministry of Finance and Budget (MFB) and the Ministry of the Economy, Planning and International Cooperation (MEPC). The MFB and MEPC have satisfactorily coordinated past operations financed by the Bank and other TFPs. The action of these Ministries will fall within the framework of Decree No. 2020-884 establishing and setting the rules on the organisation and operation of the Response and Solidarity Fund against the Effects of COVID-19 (FORCE COVID-19) and which organises the Fund’s governance. Indeed, the ministerial and sector representativeness within this framework will make it possible to coordinate PUARC-supported actions and all measures taken by the authorities to deal with the crisis. The Bank also notes the presence of the nation's active forces, including the civil society, in the Fund's strategic monitoring committee which helps to enhance its transparency. 5.1.2 The program has a built-in robust M&E system designed to help in generating and reporting reliable and accurate data required to report on performance and effectiveness of measures aimed at strengthening the health system, economic resilience, and the social protection system. The Bank will use the quantitative and qualitative indicators in the Program Results Based Logical Framework and Operations Policy Matrix (Appendix 1) to monitor program performance. Additional governance related performance measures outlined in section 4.6.1 of the report will also be monitored. The Bank will carry out rigorous monitoring and supervision missions in coordination with the IMF, WB and other Development Partners to review implementation progress and agree future actions to address any identified challenges. A program completion report will be prepared to evaluate progress against the Results-Based Logical Framework and draw lessons for follow-up operations. 5.2 Financial Management, Procurement and Disbursement 5.2.1 Procurement: Assessments conducted by the Bank concluded that the risk level of the national procurement system was moderate. However, for the operation currently being appraised, this fiduciary risk level has been readjusted to "High" for public procurements considering the government's adoption of Decree No. 2020-781 of 18 March 2020 to exclude COVID-19 related procurements from the scope of the public procurement code. 5.2.2 Country Fiduciary Risk Assessment: The Bank's 2019 Country Fiduciary Risk Assessment concluded that the fiduciary risk was moderate. The risk assessment analyses components of public finance management through the budget formulation and execution process, cash-flow management, accounting and reporting, internal audit, external audit and corruption. Overall, besides internal and external controls, which need to be further improved, the country’s public finance management reform is conducted with a view to greater transparency and efficiency (Technical Annex 6).

5.2.3 Considering the evaluations of the procurement system and the risk in terms of financial management, it was agreed to have the Court of Accounts carry out an audit of the procurement of the Covid-19 pandemic-related activities under the Programme in accordance with the Borrower's Procurement System for the year in which disbursement took place. This report will be shared with the Bank no later than nine (9) months after the end of calendar year 2020. 5.2.4 Disbursement: The Bank's budget support for the COVID-19 pandemic emergency will be disbursed in a single tranche into the account opened at the national branch of the Central Bank of West African States (BCEAO) in Dakar to receive TFP support to Senegal for the pandemic. 5.2.5 Audit: The MFB will be responsible for the operation’s administrative, financial and accounting management. The financing allocated to the programme will be included in the Amending Finance Law 2020 on a separate line. A copy of the Finance Law will be sent to the Bank for information. The fund flows audit will be conducted by the Court of Auditors by 31 December 2020 based on the terms of reference agreed and approved by the Bank. The Court of Auditors' audit report shall be submitted to the Bank no later than nine (9) months following the end of the financial year. 5.3 Legal Documents 5.3.1 The legal instrument to be used will be a Loan Agreement between the Republic of Senegal (the Borrower) and the African Development Bank (the Bank).  Conditions Precedent and Entry into Force: The entry into force of the Loan Agreement is subject to the fulfilment of the conditions set out in Section 12.01 of the General Conditions Applicable to Bank Loan and Guarantee Agreements (“General Conditions”).  Conditions Precedent to the Submission of the Programme to the Board: The programme's presentation to the Board of Directors is subject to the prior actions set out in section 4.5.  Conditions Precedent to Disbursement: In addition to the coming into force of the loan agreement in line with the provisions of Section 12.01 of the General Terms and Conditions, the disbursement of loan resources shall be subject to the Borrower fulfilling, to the Bank's satisfaction, the following condition precedent: provide the Bank with proof of the existence of an account of the Borrower's Treasury at BCEAO intended to receive the Bank’s loan resources as well as the resources coming from TFPs’ support to the Borrower within the framework of the COVID-19 pandemic. 5.4 Compliance with Bank Group Policies 5.4.1 PUARC is consistent with Bank Group policies and guidelines on Crisis Response Budget Support (CRBS). It is also consistent with the operational priorities of the Bank's Ten-Year Strategy 2013-2022, the High 5s and Senegal’s CSP 2016-2020. No waiver of the Bank's guidelines has been requested. 5.4.2 Environmental and social safeguards: This operation is listed in category 3 because of its urgency. It therefore benefits from the exemption from due diligence required by the Bank’s Integrated Safeguards System (ISS). The planned activities or measures involve low environmental and social risks which will be taken into account and mitigated by the program implementation structures in accordance with national regulations. 5.5 Risk Management 5.5.1 Table 3 below outlines the risks that could impact programme implementation as well as the mitigation measures. Table 3: Risks and Mitigation Measures Risk Mitigation Measures Risk 1: Spread of the pandemic beyond the Regular expenditure monitoring, especially to cope with a change in the scale estimated time frame and/or straining of the health- and duration of the crisis; on-going dialogue between the authorities and care system over the long term. partners; ongoing dialogue between the authorities and social actors. Updating of the analysis of the socio-economic impact of COVID-19 based on Risk 2: Inadequate social measures to deal with the the pandemic's development. Adjustment of the measures taking into effects of COVID-19. consideration the multi-sectoral aspects. Risk 3: Fiduciary risk related to emergency Launch and conclusion of a review of procurement and contract performance in procedures relation to COVID-19 by the Court of Auditors. 7

VI. RECOMMENDATION 6.1.1 Management requests the Board of Directors to approve the award of an ADB loan of EUR 88 million to the Republic of Senegal for the purposes and subject to the conditions stipulated in this report. 6.1.2 Within the context of the Bank Group COVID-19 Rapid Response Facility (CRF)8, in particular, Management’s commitment for a graduated approach to the increase in the cap for budget support operations funded from the ADB window, Management informs the Board of Directors that a request for supplemental financing may be submitted to the Board of Directors for consideration in accordance with the provisions of the Bank Group Policy on Program-Based Operations, subject to an increase in the Management-imposed cap of budget support operations in accordance with the terms and conditions outlined in the CRF Document.

8 See Document ADB/BD/WP/2020/72/Rev.3 - ADF/BD/WP/2020/49/Rev.3 entitled “The Bank Group’s Covid-19 Rapid Response Facility (CRF) - An Innovative, Scalable and Debt-Sensitive Approach to Assisting Regional Member Countries Deal with the Crisis”; and Resolution N° B/BD/2020/08 - F/BD/2020/04 8

ANNEX 1: RESULTS-BASED LOGICAL FRAMEWORK A PROJECT INFORMATION ❚ PROJECT NAME: Emergency COVID-19 Response Support Programme (PUARC) ❚ COUNTRY: SENEGAL ❚ OBJECTIVE: Support the social and economic response phase of the COVID-19 pandemic a) Response and Solidarity Fund against the Effects of COVID-19 ❚ PROJECT ALIGNS WITH: b) COVID-19 Rapid Response Facility (CRF) Framework Alignment indicators: (i) GDP per capita: USD 1,522 (2018) (ii)% of the population in multidimensional poverty: 52% (2016); (iii) hospital / inhabitant ratio: 402,777 / inhabitant. B RESULTS MATRIX MEANS OF RESULTS CHAIN AND INDICATORS UNIT BASELINE TARGET REPORTING VERIFICATION ❚ OUTCOME 1: Mitigating the social and health impact of the crisis % of households covered INDICATOR 1: Income stabilisation of by social protection poor households (including % of female- 30% 40% programmes ANSD Annual headed households) as a result of measures  15%  20%  - Including taken to support vulnerable households. women INDICATOR 2: Enhanced emergency Global Health Security Global Health 37.9/100 (2019) 40/100 Annual health response capacity. (GHS) index Security (GHS) ❚ OUTCOME 2: Mitigation of the impact on the productive fabric INDICATOR 3: Taxpayers benefiting # 0 15,000 DGID Annual from tax measures. INDICATOR 4: Tourism sector growth % -60% (2020) -5% (2021) ANSD Annual (most affected by the crisis). ❚ OUTPUT 1: Planning for health response INDICATOR 1.1: Update and Existence of a plan in implementation of the specific contingency June 2020 No Yes MEPC Quarterly action plan to be financed up to CFAF 64 (Yes/No) billion. INDICATOR 1.2: Epidemic Treatment Number of CTEs built 10 (3 built and 7 Ministry of Centres (CTE) built or upgraded to 0 Quarterly and/or upgraded upgraded) Health standards. Ministry of INDICATOR 1.3: Respirators available # 50 (March 2020) 100 June (2020) Quarterly Health ❚ OUTPUT 2: Provision of cash or in-kind support to the most vulnerable households INDICATOR 2.1: Distribution of food kits Number of households 0 1,000,000 ANSD Quarterly through RNU-based targeting. INDICATOR 2.2: Payment of electricity 975,000 SENELEC / (SENELEC) and water (Sen' Eau) bills for Number of households 0 (electricity) / Quarterly SEN’EAU vulnerable households 670,000 (water) ❚ OUTPUT 4: Mitigation of macro-fiscal imbalances CFAF 100 billion INDICATOR 4.1: New prioritisation of No prioritisation CFAF billion released through MFB Annual investment projects. (March 2020) prioritisation INDICATOR 4.2: Rationalisation of current expenditure (procurement of Rationalisation plan No Yes vehicles, freezing of expenditure on (Yes/No) MFB Annual missions, conferences, congresses and CFAF billion 0 54 billion seminars). ❚ OUTPUT 5: Mitigating the effects of the crisis on companies INDICATOR 5.1: Partial forgiveness of the tax debt recorded as at 31 December CFAF billion 0 200 DGID Quarterly 2019. INDICATOR 5.2: Extension of the deadline from 12 to 24 months for the CFAF billion 0 15 DGID Quarterly payment of the suspended VAT. INDICATOR 5.3: Acceleration of the clearance of government arrears owed to CFAF billion 0 300 MFB Annual the private sector.

ANNEX 2: ELIGIBILITY CRITERIA

Criteria Comments on the current situation The authorities remain committed to implementing structural reforms aimed at supporting growth and poverty reduction through the Emerging Senegal Plan (PSE). The three pillars of the Strategy, through their synergies and their convergent and cumulative effects, create the conditions for emergence. The strategic guidelines that orient the initiatives to be taken to translate this vision into actions and tangible results for the population's benefit are based on three pillars aimed at: (1) structural transformation of the Government economy: through the consolidation of current engines of growth and the development of new wealth- commitment to creating, job-creating, socially inclusive sectors with a strong capacity to export and attract investments; reducing (2) promotion of human capital: through a significant improvement of the population's living conditions, a poverty and more sustained fight against social inequalities while preserving the resource base and promoting the promoting emergence of viable communities; and (3) good governance: to strengthen security and stability, protect inclusive rights and freedoms, consolidate the rule of law and create the best conditions for social peace. growth. While the PSE remains the reference document in the medium term, the authorities have developed an emergency plan to deal with the COVID-19 crisis. The COVID-19 Response Plan is based on the economic and social resilience programme whose main financial vehicle will be the Response and Solidarity Fund against the Effects of COVID-19 which will have three main components, namely: (i) health system strengthening; (ii) household support (food aid, etc.); and (iii) business support. Overall, the macro-economic framework is deemed adequate for the proposed operation. Despite the crisis, the Government remains committed to fiscal sustainability by reprogramming investments and using concessional loans to fill the additional financing gap. Growth is expected to accelerate in the medium term, driven by robust private consumption and investment. As for monetary policy, it remains prudent and anchored in a credible monetary union framework. The macro-economic policy framework, reassessed Macro- by the government following the COVID-19 crisis, was discussed with the IMF which supported the economic programme. Despite the crisis, the debt sustainability analysis points to a moderate debt distress risk. Stability To meet additional financing needs, the government has requested emergency budget support from traditional donors such as the World Bank and the African Development Bank. Additional financing is expected from other donors, especially the Islamic Development Bank and the European Union. The country is also benefiting from IMF financing of about CFAF 266 billion under the Rapid Financing Instrument (RFI) (2/3) and the Rapid Credit Facility (RCF) (1/3) to meet budgetary and balance-of- payments needs. Senegal enjoys long-standing political stability bolstered by strong democratic institutions and borne out by the country’s three peaceful and democratic changes of government. In 2016, a constitutional referendum reduced the presidential term of office from seven to five years. President Macky Sall was re- elected for a second term in February 2019 in the first round. The elections were held in a generally peaceful Political atmosphere, with a high turnout of 66%, although they were preceded by challenges to the introduction of Stability a law on sponsorships in April 2018. According to the Ibrahim Index of African Governance (IIAG), Senegal is ranked 8th on the continent in terms of "Safety and Rule of Law" with a score of 67.1/100 in the 2018 edition (+9.6 points since 2010). It holds the same ranking in the "Participation and Human Rights" category with a score of 67.8/100. Although Senegal has largely been spared the violence that has plagued the region, the threat of terrorism remains a significant risk. Regarding financial management, the overall fiduciary risk is deemed moderate. Apart from internal and external controls which still need to be further improved, the country’s public finance management reform is proceeding along a path towards greater transparency and efficiency, and results-based management. However, significant efforts are still required to achieve the target of 1 January 2020, the date set for the commencement of the full implementation of WAEMU Directives on Harmonized Public Finance Management Framework. Regarding public procurement, the legislative and regulatory framework is generally satisfactory, although Fiduciary Risk there is a need for improvement. As for the regulatory framework, it generally respects the principle of separation of management, control and regulation advocated by WAEMU directives. However, the regulatory body (ARMP) is exposed to a potential conflict of interest due to its involvement in disputes between the DCMP and the Contracting Authorities (CAs) over responsibilities and procurement exemption methods (direct agreement, restricted bidding). However, the Bank notes that procurement practices at the country level are satisfactory. Lastly, procurement monitoring is relatively effective. However, there is a need to strengthen the public procurement units and to set up a mechanism for the monitoring and implementation of recommendations and, lastly, for a strategy to effectively enforce sanctions against public officials involved in prohibited procurement practices.

For the operation currently under review, the fiduciary risk level was readjusted to "High" for public procurements given the government's adoption of Decree No. 2020-781 of 18 March 2020 to exclude all COVID-19 procurements from the scope of application of the public procurement code. The overall risk (including public finance management and the public procurement and governance system), initially deemed "Moderate", was therefore readjusted to "Substantial" to take into consideration the impact of the exemption measures introduced by the new Decree No. 2020-781 of 18 March 2020 on the national procurement system. Based on the assessments of the procurement systems and financial management risk, an audit of the procurement of Covid-19 pandemic-related activities under the Programme will be carried out by the Court of Accounts in accordance with the Borrower's Procurement System, for the year in which disbursement took place: not later than nine (9) months after the end of the calendar year. Harmonisation efforts in line with the Paris and Busan principles on aid effectiveness have been maintained within the framework of the Executive Committee (COMEX) comprising five members responsible for Harmonisation taking the dialogue to the senior officials, the Group of Fifty (G50) that brings together all the country's TFPs, and the Group of Fifteen (G15) comprising 15 of the most active TFPs and the thematic groups.

III

ANNEX 3: GOVERNMENT POLICY LETTER

REPUBLIC OF SENEGAL ------A People - A Goal - A Faith ------MINISTRY OF ECONOMY, PLANNING AND COOPERATION DEVELOPMENT POLICY LETTER (April 2020)

1. The COVID-19 pandemic is already having a significant impact on the Senegalese economy, both through the rapid deterioration of global economic conditions and the spread of the disease, giving rise to an urgent need for funding. Real GDP growth projections have been revised down from 6.8% to less than 3% for 2020. 2. At the national level, measures to close borders, curfew and social distancing have accentuated the impact of the pandemic on certain sectors and led to the cessation of activities in others. The sectors, which are very intensive in foreign inputs and / or export content, are affected by the fall in global supply and demand. Sectors such as tourism, land and air transportation, trade and education are therefore directly affected by the crisis. The same is true of foreign trade and migrant remittances. 3. These negative shocks will wipe out the gains from improved terms of trade, mainly stemming from the sharp drop in world oil prices. Public finances are under pressure due to the expected loss of tax revenue, induced by the decline in economic activity and imports combined with health and other additional expenses required by the fight against the COVID-19 pandemic. 4. Faced with the urgent need to take measures to mitigate the effects of the COVID 19 crisis, the Government has set up an Economic and Social Resilience Program (PRES) in order to strengthen the health system, to support households, the Senegalese diaspora as well as businesses and their employees. This program is divided into four pillars: (i) Support for the health sector through a response plan; (ii) strengthening the social resilience of populations; (iii) preserving macroeconomic and financial stability by supporting the private sector and maintaining jobs; (iv) ensuring the country's regular supply of hydrocarbons, medical products, pharmaceuticals and basic necessities. 5. The financing of this program will be provided within the framework of the Response and Solidarity Fund against the effects of COVID-19 (FORCE-COVID-19) which will benefit from an endowment of 1 000 billion FCFA through budget reallocation efforts, support from development partners as well as contributions from the private sector and public good will. Economic and social measures envisaged include emergency food aid to one (1) million vulnerable households for a financing of sixty-nine billion (69 billion) CFA francs, bill payments water and electricity for vulnerable populations, as well as targeted support measures for businesses operating in the sectors most affected by the crisis, including SMEs, in particular partial reductions in the tax debt recorded on December 31, 2019 as well as a reschedule of payment deadlines for certain taxes. In addition, companies that commit to retaining their employees will benefit from discounts on payroll deductions. The total clearance of arrears due to the private sector from the Senegalese State is planned for a total amount of 302 billion FCFA in order to contribute to the financing of the private sector, to support the economy and to ease liquidity constraints for companies and the banking sector. Also, a financing mechanism of 200 billion FCFA in partnership with local banks will be put in place in order to support the impacted companies to cover their incompressible charges, in particular wages as well as water and electricity bills. 6. The measures announced by the BCEAO on March 21, 2020, while preserving the stability of the financial sector, will also help to support the economic fabric of the country by increasing the liquidity available to banks on preferential terms, a mechanism for postponing loan repayment deadlines in collaboration with banks, and expanding the supply of digital means of payment while reducing their cost. Other measures could also be studied with a view to supporting the state’s planned bank financing mechanism. IV

7. To support the health sector, the government has drawn up a Health Response Plan against COVID 19, the first phase of which was financed exclusively from internal resources to the tune of six billion four hundred and forty million (6,440,584,650) CFA francs and enabled the establishment of an operational emergency system. The second phase, at an estimated cost of sixty-four billion (64,750,862,830) FCFA, is geared towards strengthening Senegal's capacities to cope with the epidemic through: • The detection of suspicious and confirmed cases; • The rapid isolation of said cases; • Strengthening the means of preventing and controlling infection in health facilities and in the community; • The intensification of risk communication on infection and the participation of populations in response measures; • Coordination of pandemic response interventions. 8. In order to ensure the best conditions of inclusion and transparency, the President of the Republic has decided that the “FORCE-Covid-19” fund will be supervised by a committee to monitor the implementation of the operations of this Fund. This Committee includes representatives of the State, the National Assembly across political sensitivities, the Economic and Social Economic Council (CESE), the High Council of Territorial Communities (HCCT), political parties, Associations, locally elected representatives, civil society, employers' and trade unions and consumer associations. For better traceability of funds, the State has opened a single account at the BCEAO administered by the General Treasurer. The decree creating the FORCE COVID-19 Fund also provides for a technical committee chaired by the Minister of Finance or his representative. 9. Regarding the outlook, and despite the inevitable widening of the budget deficit in 2020, the government remains aware of the need to avoid fiscal imbalances that could jeopardize macroeconomic stability and inclusive growth. A prudent debt policy will keep the risk of external debt distress at a moderate level, as assessed by the joint World Bank – IMF debt sustainability framework. To this end, the government is considering the following measures: • prioritization of compulsory expenditure such as salaries and social charges and the State's financial commitments; • rationalization of current expenses with measures to suspend the acquisition of vehicles, freeze mission costs, staff training, conferences, congresses and seminars, supplies, etc. ; • the delay in starting new projects and programs that do not have an urgent and essential character; • using the savings generated by lower subsidies to the energy sector to fight the pandemic; • the adoption of flexible procedures for mobilizing funds to fight the pandemic with the opening of a special account in the books of the BCEAO; • a decree has been issued for a simplified contracting procedure within the framework of the implementation of the Response Plan against COVID 19 taking into account the urgency and in accordance with general provisions on procurement; • the preparation of an amending finance law; and • the pursuit of a prudent borrowing policy. In particular, the government is committed to continuing to prioritize concessional borrowing and streamline the debt plan for 2020 by postponing or canceling non-essential projects.

ANNEX 4: ENVIRONMENTAL AND SOCIAL COMPLIANCE NOTE (ESCON)