Abstract
Public consumption has declined from 12 percent of GDP in 1996 to 10.8 percent in 1999 owing to fiscal consolidation: wage increases are moderate, and other current expenditures have grown slowly. Conversely, private consumption has increased from 75.2 percent of GDP in 1996 to 76.9 percent in 1998, and is estimated to have reached 76.6 percent in 1999. Public investment has increased from 6.4 percent of GDP in 1996 to 7.2 percent of GDP in 1998 and is estimated to have reached 8.2 percent of GDP in 1999, whereas private investment has experienced a downward slide.
II. Recent Economic Developments
A. Growth and Prices
1. Real GDP growth averaged about 5 percent a year over the past three years. Good economic management, the continued implementation of structural reforms, and the remaining positive effects of the CFA franc devaluation stimulated the Senegalese economy over the period. These good results were achieved despite adverse shocks: unfavorable climatic conditions hampered agricultural production in 1997 and 1998, while severe electrical shortages in 1999 adversely affected production in the secondary and tertiary sectors.
Sectoral growth
2. The primary sector contracted in 1997 and 1998 by 2.5 percent and 3.2 percent respectively, but began to recover in 1999, largely owing to improving weather conditions (Figure 1). In 1997, growth of 11.8 percent in the fishery sector and 5.4 percent in livestock was insufficient to offset the decline of 10.6 percent in agricultural production. In 1998, a further decline in agriculture was exacerbated by the emergence of problems in the fishery sector, mainly relating to restrictions on Senegal’s access to Mauritanian and Guinea-Bissau waters.
Senegal: Developments in Real Growth, Investment, and Savings, 1992-99
Citation: IMF Staff Country Reports 2000, 091; 10.5089/9781451833850.002.A002
Senegal: Developments in Real Growth, Investment, and Savings, 1992-99
Citation: IMF Staff Country Reports 2000, 091; 10.5089/9781451833850.002.A002
Senegal: Developments in Real Growth, Investment, and Savings, 1992-99
Citation: IMF Staff Country Reports 2000, 091; 10.5089/9781451833850.002.A002
As a result, the proportion of GDP accounted for by the primary sector fell from 20.5 percent in 1996 to 17.4 percent in 1998. However, good rainfalls boosted agricultural production in 1999, and real growth of the primary sector is estimated to have reached 6.1 percent.
3. During the past three years, activity in the secondary sector remained buoyant, with real growth of 5.9 percent in 1997, 8.4 percent in 1998, and an estimated 6.3 percent in 1999. The share of the secondary sector in GDP increased from 19.5 percent in 1996 to 20.4 percent in 1999. With a double-digit growth rate, the construction and public works sector has been the most dynamic in the economy in recent years. Industry also expanded, with a real growth rate of 7.2 percent in 1998, supported by a surge in domestic demand, a shift in local consumption from imported to domestic products, and a significant increase in demand from neighboring countries.2 However, in 1999, disruptions in power supply, attributable to technical difficulties encountered by the power company, contributed to a significant slowing of industrial activities, with real growth declining almost 21/2 percentage points to an estimated 4.8 percent.
4. The most significant contribution to Senegal’s growth over the period under consideration, however, came from the tertiary sector, which accounts for about 60 percent of GDP (see Section II). Telecommunications has been a dynamic activity in recent years, with double-digit annual growth rates; the tourism sector benefited from an increasing number of foreign tourists attracted by the decline in prices in foreign currency terms after the 1994 devaluation; and trade and transport activities improved with liberalization measures implemented by the authorities. Thus, in 1997 and 1998, transportation, trade, and “other services” each grew by more than 7 percent, outpacing the slow growth of public administration. For 1999, growth in this sector is estimated to have slowed to 4.4 percent, in part because the power shortages have impeded numerous tertiary informal activities relying on electrical power.
Consumption and investment
5. Public consumption declined from 12 percent of GDP in 1996 to 10.8 percent in 1999 owing to fiscal consolidation: wage increases were moderate, and other current expenditures grew slowly. Conversely, private consumption increased from 75.2 percent of GDP in 1996 to 76.9 percent in 1998 and is estimated to have reached 76.6 percent in 1999, reflecting the recovery of household consumption after the 1994 CFA franc devaluation.
6. Public investment increased from 6.4 percent of GDP in 1996 to 7.2 percent in 1998 and is estimated to have reached 8.2 percent in 1999 because the improved fiscal stance left room for a reorientation of expenditures towards public investment. Conversely, private investment experienced a downward slide. Measured as a percentage of GDP, it fell from 12.1 percent in 1996 to 11.4 percent in 1998 and is estimated to have declined further to 10.6 percent in 1999. Despite improving macroeconomic performance, Senegal’s slow progress at liberalizing trade regulations, constraints on the productive sector—including high input costs—excessive protection of labor employed in the formal sector, and hugely distended public sector foiled some of the competitiveness gains achieved through the devaluation and continued to deter investors. Domestic savings remained roughly stable at about 12.5 percent of GDP over the period 1996-99, with an increase in public savings offsetting a decline in private savings.
7. The share of exports of goods and services in GDP fell slightly from 34.1 percent in 1996 to 33.0 percent in 1998 and is estimated to have remained at about the same level in 1999. As imports of goods and services also decreased slightly over the period, the resource gap remained at 5.7 percent of GDP until 1998. In 1999, the significant increase of import values, in part due to the recovery of oil prices, widened the gap to an estimated 6.2 percent of GDP.
Prices
8. Consistent with the currency peg, consumer prices remained stable during the last three years. The annual average rate of consumer price inflation was 1.8 percent in 1997, 1.1 percent in 1998, and 0.8 percent in 1999, broadly similar to that of the euro zone over the period. The real effective exchange rate of the CFA franc3 also remained stable over the period.
B. Public Finances
9. In 1998, two policy actions improved the structure of the fiscal sector: the implementation in April of the initial round of external tariff reductions, as part of the first phase of the common external tariff (TEC) reform of the West African Economic and Monetary Union (WAEMU) (see Box 1); and the revision in the taxation of petroleum products, including the replacement of the price stabilization mechanism by excise taxes. In addition, transparency was increased in the area of public spending with the adoption of a more comprehensive definition of public investment expenditure, which now includes all externally financed outlays. The negative impact of the tariff reductions in 1998 was smaller than originally anticipated, resulting in a basic fiscal4 surplus of 2.7 percent of GDP, close to the 1997 level. The overall deficit (on a commitment basis and excluding grants) widened slightly to 3.3 percent of GDP, mostly on account of the enlarged definition of investment. Fiscal performance remained broadly satisfactory in 1999 despite growing deficits in correspondent accounts and transfers of public entities (in particular social security fund and pension fund). The financial difficulties faced by the postal service during the year were however contained by the authorities.5 As a result, the basic surplus reached 1.7 percent of GDP in 1999 and the overall deficit (on a commitment basis and before grants) was equivalent to 3.5 percent of GDP.
Implementation of the WAEMU Common External Tariff (TEC) by Senegal and its Fiscal Implications
The adoption of the common external tariff (TEC) in 1997 by the member countries of the West African Economic and Monetary Union (WAEMU) and its full implementation as of January 1,2000, notably reduced tariff dispersion and statutory import protection, and constituted a major step toward implementing a common commercial policy with countries outside the zone and liberalizing trade within the union. Certain common safeguards for key sectors were instituted to allow member countries a period of adjustment, not to exceed four years. Senegal intends to make use of some of these provisions.
The introduction of the TEC resulted in the following:
a common classification of goods;
the abolition of tariffs on intra-WAEMU trade for local primary goods and eligible industrial products;
the implementation of a common external tariff entailing a reduction in import duties; and
the adoption by member countries of common safeguards during the interim period.
As of January, 1, 2000, all tariffs on intra-WAEMU trade have been removed for local primary goods and eligible industrial products. For other industrial products, there is a reduction of 5 percent in the tariff charged on equivalent goods imported from outside the region.
The ad valorem common tariff has four rates applicable to the following broadly defined categories: “social” products (0 percent), “primary” products (5 percent), “intermediate” goods (10 percent), and “final consumption” goods (20 percent). In addition to the tariff, other duties include a “solidarity contribution” paid to the WAEMU institutions, equivalent to 1 percent of the value of goods imported from outside the WAEMU, and a statistical duty of 1 percent on most imports. The customs stamp duty has been eliminated.
The common safeguards to help member countries cope with the adjustment period include three instruments: the degressive protection tax (TDP); the compensatory import levy (TCI); and administratively set import values (valeurs de référence):
The TDP is a temporary surtax of 10 percent or 20 percent applied to the f.o.b. value and linearly declining over 4 years (from July 1999 to December 2002) for industrial and agro-industrial products.
The TCI is a 10 percent protection levy against fluctuations in commodity prices. It is applied when the f.o.b. value of imports falls below a trigger price calculated as a weighted average between the domestic production cost (70 percent) and international prices (30 percent); the trigger price is adjusted every six months, based on developments in the world market prices.
Finally, World Trade Organization (WTO) compliant administratively set import values could be assigned to a limited number of products; they would be used as the tax base for all customs taxes. However, they have not yet been implemented.
Pending full implementation of the TCI, Senegal has not yet removed the surtax on imports of a number of agricultural products (rice, onions, etc.).
The fiscal cost of the application of the TEC, based on a detailed analysis of import categories, is estimated at equivalent to about 1 percent of GDP in 2000 for Senegal.
Revenue
10. A reduction in nontax revenue, equivalent to 0.4 percentage point of GDP, led to a decline of the overall revenue-to-GDP ratio from 16.9 percent in 1997 to 16.7 percent in 1998. Tax revenue increased slightly by 0.2 percent of GDP to reach 15.9 percent despite the negative impact, equivalent to 0.3 percent of GDP, on import taxes of the decline in tariffs under the TEC.
11. Tax revenue in 1999 remained buoyant despite the impact of power shortages on economic activity, especially thanks to high VAT revenue. Oil revenue performance, however, remained below expectations, partly because of serious procedural deficiencies linked to the transfer of the excise tax payment from the National Oil Refinery (SAR) to the oil distribution companies. Total revenue reached 17.1 percent of GDP.
Expenditure
12. In 1998, current expenditure excluding interest payments was limited to CFAF 275 billion (10 percent of GDP), while interest on foreign debt amounted to CFAF 27.8 billion. A more comprehensive definition of capital outlays was adopted, which included CFAF 35 billion in net lending. In mid-1999, the authorities adopted a supplementary finance law for the use of CFAF 60 billion in privatization proceeds from the telecommunications company (SONATEL). Except for CFAF 9.2 billion earmarked for the settlement of outlays undertaken in 1998, CFAF 28.6 billion was spent on current and capital outlays in 1999. The remaining CFAF 22.2 billion consists entirely of capital outlays earmarked for fiscal year 2000.
13. In 1999, current outlays were 0.6 percent of GDP above the 1998 level, while capital expenditures rose to 8.2 percent of GDP from 7.1 percent because of the impact of the supplementary finance law. The authorities undertook efforts to speed up payments owed by state enterprises on their on-lent debt; however, these efforts were undermined by a high deficit of CFAF 11.2 billion in the special and correspondent accounts, essentially caused by the financial difficulties of the postal service. The authorities also made a serious effort to catch up on delays in auditing past budgets. The Lois de Règlements for the budgets 1987 through 1996, which had not been audited yet, were finalized and submitted to the National Assembly.
C. Money and Finance
14. Monetary policy is conducted at the regional level by the Central Bank of the West African States (BCEAO) with the objective of sustaining price stability and maintaining the fixed exchange rate with the euro. Broad money in Senegal grew by 7.3 percent in 1997 and 8.6 percent in 1998, in line with the growth in nominal GDP. During these two years, the asset side of the balance sheet has been characterized by a continued accumulation of net foreign assets, a reduction in claims on government, and a rapid increase in net credit to the economy. In 1997, the accumulation of privatization receipts and the proceeds of a loan by Taiwan, Province of China led to a growth in net foreign assets equivalent to 15.9 percent of the beginning-of-period money stock, and to a sharp reduction in net credit to the government, equivalent to 27.4 percent of the beginning-of-period money stock. In 1998, the accumulation of net foreign assets was equivalent to 6.2 percent of the beginning-of-period money stock, while credit to the government declined, in line with the good fiscal performance. Credit to the economy expanded by 11.2 percent in 1998, reflecting vigorous activity in the secondary and tertiary sectors. In 1999, broad money rose by 13.3 percent, somewhat faster than the nominal GDP growth, credit to the economy grew by 10.4 percent, and Senegal continued to accumulate a significant amount of net foreign assets (8.5 percent of beginning-of-period money stock). For the first time since the devaluation of the CFA franc, there was a net increase in credit to the government (by 1.1 percent of beginning-of-period money stock).
15. The health of the banking sector continued to improve during the last three years (see Section III). The Senegalese banking system consists often banks and five financial institutions. At end-1998, most of them observed the main prudential ratios set by the regional banking commission; however two banks did not respect the liquidity ratio, four did not meet the ratio of coverage of medium- and long-term liabilities by medium- and long-term assets, and one large bank did not meet the insider lending ratio because a substantial share of its credits had been granted to industrial groups belonging to one of its main shareholders. The Banque Sénégalo-Tunisienne (BST), the smallest and weakest bank of the Senegalese banking system, was recapitalized and privatized in March 1999. In September 1999, one financial institution was put under temporary administration by the regional banking commission. In July 1999, the West African Monetary Union (WAMU) Council of Ministers adopted a revised set of prudential ratios that was more in line with the Basel standards for banking supervision. These new regulations became effective in January 2000. The level of nonperforming assets (net of provisioning) decreased slightly to 7.5 percent of the total credit in 1998, compared with 8.9 percent in 1997.
D. External Sector Developments
16. Overall, Senegal’s external position has been fairly stable since 1997. The current account deficit (excluding official transfers) decreased by 1 percentage point of GDP to 6.9 percent in 1998 and, according to preliminary data, slightly widened to 7.3 percent of GDP in 1999. Both imports of goods and services payments continued to exceed export receipts from trade. The deficit incurred in merchandise trade has remained unchanged at about 6 percent of GDP since 1997, while the services balance is estimated to have narrowed by 1 percent of GDP over the last three years to an estimated 1.2 percent of GDP in 1999 because of a slowdown in the growth of service payments. Continuing a traditional pattern, non-debt-creating current transfers into Senegal, the bulk of which are destined for development projects, have partially offset the trade deficit although their overall amount fell by about 1 percent of GDP in 1999. Public transfer payments continue to dominate, with their share in total transfers falling only slightly since 1997 to about 80 percent in 1999. Including official transfers, the current account deficit remained unchanged at 1.7 percent of GDP in 1997 and 1998, but it widened to 3.5 percent of GDP in 1999.
17. Senegal’s trade performance has been affected by the general downturn in world demand in 1998. Slower export growth of 4.6 percent in 1998 has picked up to an estimated 5.7 percent in 1999. This increase was led by stronger exports of refined petroleum, groundnut products, and phosphates. On the import side, the overall growth path was similar, with higher imports of petroleum products and strong increases of capital and intermediate goods imports boosting growth from 4.6 percent in 1998 to about 9 percent in 1999. However, these trade developments in value terms to a large extent mirror recent swings in world prices for commodities and, in particular, the price of oil. In volume terms, exports slowed somewhat relative to 1998 to an expected increase of about 4 percent in 1999, mainly driven by foreign demand for groundnut products and phosphates. Import volumes, meanwhile, increased less than in 1998, with the bulk of import growth stemming from shipments of capital and intermediate goods and refined petroleum. In parallel with the development of goods exports, services receipts in all categories (i.e., transportation, tourism, and administrative services) grew at rates of 4 percent in 1998 and 5 percent in 1999. Led by outlays for freight and insurance, growth in service payments slowed somewhat from levels above 5 percent in 1997 and 1998 to below 4 percent in 1999.
18. Senegal’s external financing requirements for 1997-99 amounted to a cumulative CFAF 960 billion (US$1.6 billion). About one-third of these requirements have been financed through contributions from bilateral and multilateral donors for development projects, with the remainder largely covered by concessional long-term loans. A Paris Club debt rescheduling (stock-of-debt operation) in 1998 has also mitigated the financing need. Private sector credits and foreign direct investment have gained in importance. In particular, loan disbursement by the World Bank and receipts related to the government’s privatization program, have led to significant capital inflows. As a result, the overall balance of payments position has been in surplus since 1997, contributing to a CFAF 112 billion buildup of net foreign assets with the BCEAO over the last three years.
19. Following a debt sustainability analysis undertaken at the end of 1997, an agreement with bilateral donors was reached in June 1998 on a Paris Club stock-of-debt operation on Naples terms (67 percent net present value of debt reduction). At end-1998, Senegal’s outstanding external public debt amounted to 77 percent of GDP. Debt owed to multilateral creditors represented approximately 63 percent of this total amount, including roughly 8 percent owed to the IMF and 35 percent to the World Bank (Figure 2).6 In 1998 and 1999, Senegal successfully signed bilateral agreements with all Paris Club creditors, save one (Italy). Senegal continues to seek foreign financing in the form of grants and highly concessional loans only.
Senegal: External Sector Developments
Citation: IMF Staff Country Reports 2000, 091; 10.5089/9781451833850.002.A002
Senegal: External Sector Developments
Citation: IMF Staff Country Reports 2000, 091; 10.5089/9781451833850.002.A002
Senegal: External Sector Developments
Citation: IMF Staff Country Reports 2000, 091; 10.5089/9781451833850.002.A002
20. As a member of the WAMU, Senegal’s currency is the CFA franc, which since January 1,1999 has been pegged to the euro at the rate of CFAF 655.96 per EUR 1 (previously the CFA franc was pegged to the French franc). This parity was set in the context of a 50 percent devaluation of the CFA franc in foreign currency terms in January 1994, As indicated by the development of the real effective exchange rate, Senegal has been able to preserve most of the gain in export competitiveness derived from this devaluation. This rate has remained at about 30 percent below its pre-devaluation level since 1994.
E. Structural Reforms
21. Progress on structural reforms has been made during the last three years, but the pace of reform remains timid, as delays occurred in implementing a number of measures. The main areas of structural reform concern the privatization program, governance issues, and the promotion of private sector activity.
22. After having sold or liquidated seven enterprises between 1994 and 1997, four public enterprises were sold in 1998, including a hotel in Dakar and a phosphate mining company, while a shipyard was liquidated. In 1999, the privatization program, which targeted the sale of thirteen public enterprises, was generally behind schedule. The national power company (SENELEC) was partially privatized, the national airline (Air Sénégal) and the Hotel Méridien were sold. Delays have occurred for the other companies scheduled for privatization, especially for the groundnuts industry (SONACOS), the Dakar-Bamako railway, and the cotton company (SODEFITEX).
23. The authorities have implemented a comprehensive four-pronged program to promote good governance. First, the government has initiated some reforms to strengthen the rule of law, increase transparency, and fight corruption. In this regard, the customs authorities have initiated an action plan to combat fraud and an external audit of the Fonds de Promotion Economique (FPE) was completed in early 2000. Second, actions were implemented to improve the legal and judicial environment, including better training for magistrates and paralegals in commercial law, the establishment of an arbitration court, and adoption of new recovery and enforcement procedures consistent with the OHADA7 acts on security. Third, the authorities are committed to enhancing the efficiency of public administration, and notably conducted user surveys on the quality of public services. Fourth, the authorities are trying to establish an effective and decentralized local administration.
24. In the area of improving the environment for the private sector, a survey by the Foreign Investment Advisory Service (FIAS) of the World Bank was completed in 1998 to identify the bottlenecks faced by private investors. The government approved most of the recommendations of the report. Trade Point Senegal, part of an international network aimed at making use of the latest information technology to facilitate trade (see Section IV), was created in 1996 in order to reduce information and transaction costs between domestic and foreign suppliers and customers.
F. Sectoral Reforms
25. Senegal has implemented significant reforms in the energy sector in recent years. The regulatory commission for the power sector has been established in cooperation with the World Bank. In the electricity subsector, as noted above, the power company, SENELEC, was privatized in March 1999, and the Senegalese rural electrification agency (ASER) created by decree in December 1999. Nonetheless, in the petroleum subsector the authorities decided in February 2000 to interrupt the automatic adjustment of retail prices of petroleum products in line with movements in international prices. The convention with the SAR has been terminated. However, the SAR has not yet started the investments intended to increase its productivity and competitiveness, which justified the transitional surtax introduced in 1998.
26. In January 1999, the government adopted a sectoral policy for the transportation sector as part of the World Bank’s transport sector loan (PST II), which includes numerous reforms to be implemented by 2004 in road, rail, maritime, and air transport. Some of the reforms have already been started. Notably, to improve the strategy of road maintenance and planning and programming, a Road Fund Advisory Committee (CCFR) was established in the first quarter of 1999.
27. Some further reforms have been implemented in water resources (establishment of a national water board), and in the agriculture and fisheries sectors (notably the adoption of the letter of policy for the fisheries sector).
For instance, Senegal’s exports to Mali, Cote d’lvoire, and Mauritania increased significantly as a share of overall exports since the devaluation (16.1 percent of total exports in 1998, versus 9.5 percent in 1993).
This trade-weighted index is calculated using Senegalese consumer prices and the prices and exchange rates of Senegal’s trading partners.
Computed as total revenue (excluding grants), minus total expenditure and net lending, excluding externally financed capital expenditure and onlending.
The postal service keeps its operation account at the central bank, which honors all postal checks through the clearing system. The postal service replenishes the account every ten days if there is an overdraft outstanding. However, in 1999, financial difficulties, reflecting in part the loss of cross-subsidization from the profitable telecommunications operations that were privatized in 1997, prevented the postal authorities from replenishing the account on a regular basis. The arrears climbed to CFAF 15.7 billion at end-September before being reduced to CFAF 2.9 billion at the end of 1999 through the sale of assets and other measures.
For the updated debt sustainability analysis, see the Decision Point HIPC Initiative document.
The OHADA is the regional business law organization.
