The Executive Board of the International Monetary Fund (IMF) has completed the third and fourth reviews of Senegal’s economic performance under an SDR 24.3 million (about US$35.1 million) Poverty Reduction and Growth Facility (PRGF) arrangement. The three-year PRGF arrangement was approved on April 28, 2003(see Press Release No. 03/62). The completion of the reviews enables a further release of an amount equivalent to SDR 13.9 million (about US$20.0 million) The disbursement brings Senegal to the maximum amount available under the arrangement. In completing the reviews, the Board also granted a waiver for the nonobservance of performance criteria.
Senegal was one of 19 countries recently granted 100 percent relief on all obligations to the IMF incurred before January 1, 2005 (see Press Release No. 05/302). Total debt relief granted to Senegal amounts to approximately US$144.9 million, including relief under the Heavily Indebted Poor Countries Initiative. Excluding HIPC relief, the relief amounts to US$136.9 million and will be effective in early January 2006.
Following the Board discussion of Senegal, on January 9, 2006, Mr. Agustín Carstens, Deputy Managing Director and Acting Chair, stated:
“The Senegalese authorities are to be commended for maintaining robust economic growth and low inflation in 2005 despite higher world oil prices. The fiscal deficit and government indebtedness remain at sustainable levels, and progress in structural reforms has continued. Going forward, full implementation of the reform agenda will be critical to sustaining donor support and achieving the Millennium Development Goals.
“The authorities are strongly committed to implementing their program of economic and financial policies geared toward growth and poverty reduction. The fiscal program for 2006 allows for a modest increase in expenditure, keeps the investment outlays in line with the absorptive capacity of the economy and foreign financing, and aims at a realistic revenue target. The authorities should allocate more resources to the health and social service sectors in the 2006 supplementary budget, taking advantage of the resources made available through the Multilateral Debt Relief Initiative.
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“Progress in strengthening public expenditure management and enhancing fiscal transparency and governance is crucial to raise the efficiency of public outlays and the economy’s growth potential. In particular, more needs to be done to improve investment planning, evaluation, and monitoring further; fully implement transparent procedures introduced for the construction of the new airport; and strictly enforce the new procurement code.
“Sustained economic growth and poverty reduction will also require further progress in structural reforms, particularly in the public enterprise sector. To rehabilitate the chemical company, ICS, the government should press for cost cutting, management improvements, and capital injection by private partners. The financial situation of the state electricity company, SENELEC, should be strengthened, by adhering to the market-oriented electricity formula for setting electricity prices, with safeguards to protect poor households. The authorities should consider rescinding the new regressive tax aimed at protecting the recently privatized groundnut processing company, SONACOS, from foreign competition.
“Efforts should continue to enhance the soundness of the banking sector, and priority actions identified in the action plan should be taken expeditiously. This will also require strengthened coordination at the regional level,” Mr. Carstens said.
The PRGF is the IMF’s concessional facility for low-income countries. PRGF-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners, and articulated in a Poverty Reduction Strategy Paper, or PRSP. This is intended to ensure that each PRGF-supported program is consistent with a comprehensive framework for macroeconomic, structural, and social policies, to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 percent, and are repayable over 10 years with a 5½-year grace period on principal payments.