By Alistair Thomson

DAKAR, July 12 (Reuters) - An IMF team began a mission to Senegal on Thursday to press for better public sector transparency, rein in growing budget deficits and agree a programme to boost donor confidence and development aid.

As well as traditional Western donors, the team will for the first time meet Senegal's "new" donors like Saudi Arabia, China and India, to whom it is increasingly turning for aid as it prepares to host a big Islamic summit next year.

The two-week mission aims to agree a programme known in IMF jargon as a "policy support instrument" to reassure foreign donors that the country is managing its economy well, resident International Monetary Fund representative Alex Segura said.

"The fund is not going to give money directly to Senegal because it is assumed that Senegal does not require IMF money to achieve balance of payments," Segura said.

"If a programme is agreed, it is going to send a very strong signal to the donor community that Senegal is following best practices in macroeconomic policy," he said. "I think that if this isn't signed, there will be a fall in development aid."

A similar mission a year ago failed to produce an agreement, and its report was never published.

Growth in Senegal's peanut, fishing and aid-dependent economy slipped to barely 2 percent in 2006 from 5.5 percent the previous year despite receiving debt relief in early 2006, but the IMF expects it to bounce back above 5 percent this year.

BUILDING BOOM

President Abdoulaye Wade, who was re-elected in February and tightened his party's grip on parliament in June polls boycotted by the opposition, has launched a huge programme to build new highways, hotels and a $480 million Saudi-built airport.

"Part of our talks will be to see to what extent planning and executing these projects is as transparent as possible," Segura said.

The IMF team that visited last year urged Senegal to hold more competitive tenders for public works projects.

Competitive tenders are generally required by Western donors funding specific projects, but infrastructure construction is increasingly funded by non-Western donors, including Middle Eastern countries who are pouring investment into Senegal ahead of next year's Organisation of the Islamic Conference summit.

The IMF team was to meet Senegal's major donors on Thursday.

"For the first time we are also inviting the non-traditional donors, China, Saudi Arabia and India. These are new actors who are becoming increasingly important ... and we need to hear what they have to say," he said.

"It is a positive thing to get grants and loans from the new donors like China and India, but they should not abandon the positive relations they already have with the traditional donors, like France, the United States etc," Segura said.

Despite donor help, major investments have brought new costs, adding to pressure on a state budget already stretched by public wage rises and ballooning subsidies on power and fuel.

The budget deficit doubled to around 6 percent of gross domestic product (GDP) in 2006, topping the 4 percent ceiling recommended by the IMF, while the state built up arrears to domestic companies estimated at 1 percent of GDP.

Subsidies to state power company Senelec, whose creaking network, low capacity and financial woes have caused crippling power cuts, quadrupled to 88 billion CFA francs ($185 million) in 2006. Senelec's arrears alone amount to 1.5 percent of GDP.

Subsidies to state oil refiner SAR, whose liquid petroleum gas (LPG) is heavily subsidised for domestic cooking, more than tripled to 45 billion francs, Segura said.

"In 2007 we project this level of subsidies to be of a similar level to 2006, but we don't like that -- we are going to suggest some cuts, but it's not easy to do," Segura said.

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