The staff report for the Request for a Three-Year Policy Support Instrument (PSI) on Senegal explains economic developments. Allocations for priority spending suffered, and cash-flow problems resulted in payment delays to the private sector. The authorities intend to tackle key policy challenges under a three-year PSI. Slippages in restructuring public enterprises could raise fiscal risks and endanger banking system soundness. Weakening political resolve to implement structural reforms and address governance concerns could undermine policy credibility and reduce aid flows.

Abstract

The staff report for the Request for a Three-Year Policy Support Instrument (PSI) on Senegal explains economic developments. Allocations for priority spending suffered, and cash-flow problems resulted in payment delays to the private sector. The authorities intend to tackle key policy challenges under a three-year PSI. Slippages in restructuring public enterprises could raise fiscal risks and endanger banking system soundness. Weakening political resolve to implement structural reforms and address governance concerns could undermine policy credibility and reduce aid flows.

1. This statement reports on developments since the staff report for Senegal’s request for a three-year Policy Support Instrument was issued to the Board on October 11, 2007. The thrust of the staff appraisal remains unchanged.

2. The Consultative Group meeting in Paris in early October was successful. Based on a preliminary assessment by staff, donor commitments to help finance implementation of the poverty reduction strategy (PRSP-II) and the authorities’ Accelerated Growth Strategy (AGS) are broadly consistent with the disbursements projected in the program’s macroeconomic framework. Donors reacted positively to the prospect of a PSI.

3. Macroeconomic developments are encouraging. In particular, the services sector is performing well, especially in telecommunications and retail and wholesale trade, while ample rainfall in August bodes well for the agricultural season. On the other hand, negotiations with creditors to secure their approval of the restructuring plan for the chemical company ICS—necessary for a return of production to full capacity—have not yet been concluded. End-of-period inflation decelerated to about 6 percent in August and September from its peak of 7 percent in July, although food price increases remain strong.

4. The program’s fiscal objectives for end-2007 are within reach. Preliminary fiscal data for end-September point toward a sufficiently large margin relative to the end-December fiscal deficit target. Tax collections are in line with expectations, while the authorities have succeeded in slowing both current and capital expenditure.

5. The government sold the third phone license for US$200 million. Following their receipt, the funds should facilitate the Treasury’s cash flow and lessen the need for additional issuance of government securities in the regional financial market. As the transaction will be recorded as a financing item, the fiscal program targets for end-2007 remain unaffected.

Senegal: Request for a Three-Year Policy Support Instrument: Staff Report; Staff Statement; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Senegal
Author: International Monetary Fund