- Alexei Kireyev, and Gaston Mpatswe
- Published Date:
- October 2013
©2013 International Monetary Fund
Cataloging-in-Publication Data Joint Bank-Fund Library
Senegal: achieving high and inclusive growth while preserving fiscal sustainability / Salifou Issoufou … [et al.].—Washington, D.C.: International Monetary Fund, c2013.
p.: col. ill.; cm.
Series: African departmental paper
Includes bibliographical references.
I. Economic development—Senegal. 2. Income distribution—Senegal. 3. Debts, Public—Senegal. 4. Government spending policy—Senegal. 5. Poverty—Senegal. 6. Power resources—Senegal. I. Issoufou, Salifou.
II. International Monetary Fund.
Disclaimer: The views expressed in this book are those of the authors and should not be reported as or attributed to the International Monetary Fund, its Executive Board, or the governments of any of its member countries.
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Senegal’s growth has been sluggish in recent years, with implications for poverty reduction. Average growth was relatively strong in 1995–2005 and accompanied by a large drop in poverty incidence. Due partly to a series of exogenous shocks, growth decreased to an average of 3.3 percent in 2006–11. As a result, per capita income increased only modestly and poverty incidence barely decreased during this period and remains high. Wide disparities exist between rural areas, where poverty incidence is higher than the national average, and urban areas.
At the same time, fiscal deficits have increased, reducing fiscal space, and debt ratios have increased, raising debt sustainability concerns. The fiscal deficit, which was below 4 percent of GDP in 2007, came close to 7 percent of GDP in 2011. Higher deficits were justified to a large extent by the response to successive shocks. Meanwhile, the public debt-to-GDP ratio has increased continuously. As a result of these developments, fiscal space has decreased, and this limits the authorities’ ability to conduct countercyclical policies. In addition, the financing of deficits at the current level is challenging. Debt sustainability analysis shows that such fiscal deficit levels are incompatible with long-term sustainability.
The main medium-term challenge for Senegal is therefore to achieve high and inclusive growth while preserving fiscal sustainability. There is a relatively broad consensus that growth in Senegal is not hampered by one single, major obstacle, but rather by a range of issues including infrastructure gaps; access to land and financing, and protection of property rights; and inefficiencies in government operations. The government has an important role to play in raising the growth potential—for instance, through the provision of critical infrastructure and reforms to improve the business environment. Reconciling the satisfaction of the country’s social and development needs with fiscal sustainability will require a significant improvement in public spending efficiency.
This paper analyzes some of these issues in more detail and suggests possible reforms. Chapter 1 focuses on Senegal’s growth performance, outlook, and challenges. It shows that a number of structural obstacles will need to be addressed to put Senegal back on a higher and sustainable growth path. Chapter 2 looks at Senegal’s recent growth performance from the perspective of its poverty-reducing and distributional characteristics. It concludes that further poverty reduction will first and foremost require sustained high growth. Public policies also have a role to play in the reduction of poverty and inequalities. Better targeted policies would be more effective and less costly in reducing poverty. Chapter A.1 focuses on electricity subsidies, a key issue impeding fiscal sustainability but also reflecting large inefficiencies in a sector critical for growth. Quasi-fiscal costs related to the power sector are very large and not well targeted, with only a limited share of the subsidies benefitting the most vulnerable and poor people. With high international oil prices and under current policies, the subsidies are expected to remain high until less costly technologies are introduced. Finally, Chapter A.2 explores the trade-offs between higher public investment, growth, and debt sustainability. It highlights the importance of the quality of investment and of financing it on appropriate terms.