This paper examines Senegal’s 2002 Article IV Consultation and Requests for a Three-Year Arrangement Under the Poverty Reduction and Growth Facility (PRGF) and for Additional Interim Assistance Under the Enhanced Initiative for Heavily Indebted Poor Countries. Overall, economic developments in 2002 were mixed. Real GDP growth decelerated to 2.4 percent in 2002 on account of a sharp weather-related drop in agricultural output. The IMF staff supports the government’s reform strategies in the electricity and groundnut sectors, as well as the ongoing reforms in the postal, and public and private pension systems.

Abstract

This paper examines Senegal’s 2002 Article IV Consultation and Requests for a Three-Year Arrangement Under the Poverty Reduction and Growth Facility (PRGF) and for Additional Interim Assistance Under the Enhanced Initiative for Heavily Indebted Poor Countries. Overall, economic developments in 2002 were mixed. Real GDP growth decelerated to 2.4 percent in 2002 on account of a sharp weather-related drop in agricultural output. The IMF staff supports the government’s reform strategies in the electricity and groundnut sectors, as well as the ongoing reforms in the postal, and public and private pension systems.

This statement provides additional information that has become available since the issuance of the staff report. This information does not alter the thrust of the staff appraisal.

1. Regarding macroeconomic developments, economic activity does not show signs of being affected by uncertainties in the global outlook. Preliminary data through end–February 2003 for port activity, a good gauge of overall economic developments, were up by about 23 percent above the 2002 monthly average, with transit trade to Mali contributing 3 percentage points. Expansion of credit to the economy at end–March 2003 was in line with program projections, at a 12–month rate of 7 percent. On the downside, the completion of food security surveys in February 2003 confirmed the risk of possible food shortages in some rural areas as a result of last year’s small crop, and prompted the government to submit a request for food aid to the donor community. Recent data also suggest that the economy has easily weathered the temporary shock to petroleum prices in the beginning of the year. Energy and fuel prices were up by about 5 percent through March 2003, from December 2002, with the rise in the euro against the dollar mitigating the impact of higher dollar oil prices. This moderate increase in energy prices was offset by a seasonal decline in food prices, resulting in a one percent decline in the consumer price index at end–March 2003, from December 2002. In the 12 months through March 2003, the consumer price index rose by 0.1 percent.

2. Preliminary fiscal data through March 2003 suggest that total tax revenue rose by 6 percent compared with the first quarter of 2002, but that revenue remained nonetheless slightly below the quarterly program target (to the equivalent of 1.2 percent of projected annual revenue). Net banking credit to the government at end–March 2003 was lower than programmed, suggesting that expenditure execution in the first quarter of the year was slower than envisaged.

3. The government has completed the following two sets of prior actions:

  • First, a Letter of Energy Sector Policy was approved by cabinet on April 8, 2003. The Letter outlines the broad direction of reforms, emphasizing the goal of increased private participation in the energy sector. Specifically, capacity expansion in power generation is to be achieved through private independent power producers (IPPs). The electricity parastatal SENELEC, which would retain exclusivity in transmission and urban distribution, will be privatized through a long–term concession. The privatization of SENELEC is expected to be completed by end–2004.

  • Second, three pending WAEMU directives on public financial management were adopted in the form of decrees at end–March 2003. In enacting these three directives into national law, Senegal has completed the implementation of the regional legislative framework for (i) public accounting, (ii) the chart of public accounts, and (iii) summary fiscal reporting.

4. Furthermore in the area of public finance management, the government is requesting that the Fund prepare a ROSC on fiscal transparency, and it has completed the preparatory questionnaire.

5. As regards reforms targeting the private sector environment, the government has issued in early April 2003 a Letter of Private Sector Development Policy, prepared in the context of a technical assistance project with the World Bank. The Letter outlines measures to improve the efficiency of administrative and fiscal procedures concerning private investment. It also lays out a work program for both the revision of land titling legislation and sectoral regulatory frameworks in the mining, tourism, leather and craft sectors. These issues will also be discussed with representatives of domestic and international private companies, at the next Investors’ Council, scheduled for May 5, 2003.

6. Preliminary indications are that the electricity utility, SENELEC, has met its operational targets for revenue collection and operating costs in the first quarter of 2003. However, SENELEC was able to clear only about CFAF 11 billion of the programmed CFAF 21 billion in payment arrears to suppliers by end–March, as negotiations with local banks for the partial financing of the arrears clearance were not completed on time.

7. It appears that the implications of last season’s poor groundnut harvest for the groundnut parastatal, SONACOS, will be more pronounced than initially envisaged, but that, nonetheless, its financial position will remain satisfactory. Purchases of groundnuts will total only about 15,000 tons in the 2002/03 crop season, against program assumptions of 25,000 tons, and compared with more than 250,000 tons in the 2001/02 crop season. Moreover, SONACOS is expected to sell about 30,000 tons from its inventory to the government to enable the distribution of seed to replenish farmers’ seed stocks. Overall, processing and exports of groundnut oil should fall to about 40 thousand tons, against program projections of 50 thousand tons. Finally, in parallel to the preparation of structural reforms in the groundnut sector, a Fund–recruited Senegalese consultant is completing the first phase of a Poverty and Social Impact Analysis (PSIA), with the second phase to be carried out by government and World Bank staff over the next few months.

Senegal: 2002 Article IV Consultation and Requests for a Three-Year Arrangement Under the Poverty Reduction and Growth Facility and for Additional Interim Assistance Under the Enhanced Initiative for Heavily Indebted Poor Countries
Author: International Monetary Fund