Senegal
Staff Report for the 2010 Article IV Consultation, Fifth Review Under the Policy Support Instrument, Third Review Under the Exogenous Shocks Facility, Request for Waiver of Nonobservance of Performance Criterion, and Modification of Assessment Criterion: Staff Report; Debt Sustainability Analysis; Press Release; Executive Director Statement; Public Information Notice

This Article IV Consultation highlights that Senegal is pursuing its macroeconomic policies within an economic program supported by the IMF’s Policy Support Instrument (PSI). Executive Directors noted that signs of a recovery have become visible, and emphasized that prudent domestic macroeconomic policies and an accelerated implementation of structural reforms would help to strengthen growth further and reduce poverty. Sustained efforts are required to enhance the financial sector’s contribution to the economy.

Abstract

This Article IV Consultation highlights that Senegal is pursuing its macroeconomic policies within an economic program supported by the IMF’s Policy Support Instrument (PSI). Executive Directors noted that signs of a recovery have become visible, and emphasized that prudent domestic macroeconomic policies and an accelerated implementation of structural reforms would help to strengthen growth further and reduce poverty. Sustained efforts are required to enhance the financial sector’s contribution to the economy.

I. Recent Developments and Short-term Outlook: Economic Activity May Have Bottomed Out

1. Following the food and fuel price shocks in 2008, economic activity slowed further in 2009 because of the global economic downturn and domestic shocks, including temporary electricity shortages (Figure 1, Tables 15).

Figure 1.
Figure 1.

Senegal: Recent Macroeconomic Developments, 2003–09

Citation: IMF Staff Country Reports 2010, 165; 10.5089/9781455204892.002.A001

Sources: BCEAO; Senegalese authorities; and IMF staff estimates.
  • Economic growth. Real GDP growth is estimated to have been 1½ percent in 2009 (Table 1). Lower external demand and downward pressure on remittances, tourism receipts, and foreign direct investment (FDI) have reduced growth. The agricultural sector, which benefited from supportive policies and favorable weather, helped to mitigate the impact of depressed demand at home and abroad on the secondary sector (construction, energy) and particularly the tertiary sector (transport, tourism services).

  • Inflation. The drop in crude oil and food prices pushed down consumer prices. Inflation has been negative since the second half of 2009.

  • Fiscal balance: The overall fiscal deficit widened to 5.1 percent of GDP in 2009 from 3.7 percent of GDP two years earlier on account of lower tax revenues and higher expenditure.

  • Balance of payments. The decline in the 2009 current account deficit reflected mainly lower energy and food imports as export performance (outside the recovering chemicals sector) was subdued (Table 2). The global economic downturn caused FDI to recede.1

Table 1.

Senegal: Selected Economic and Financial Indicators, 2007–15

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Sources: Senegalese authorities; and IMF staff estimates and projections.

Defined as total revenue and grants minus total expenditure and net lending, excluding interest expenditure.

Defined as total revenue minus total expenditure and net lending, excluding externally financed capital expenditure, on-lending, HIPC and MDRI spending, and 2010 clearing of extrabudgetary spending and agency debt.

Debt outstanding at year-end.

After HIPC and MDRI (from 2006) debt relief.

Table 2.

Senegal: Balance of Payments, 2007–15

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Sources: Central Bank of West African States (BCEAO); and IMF staff estimates and projections.

Upwardly revised from 2008 based on a new survey of workers’ remittances.

Includes receipts from sale of a telecom license in 2007 and MCA grants during 2011-15.

Financing gap in 2010 to be filled with ESF drawing.

2. There are signs that economic activity has bottomed out. Real GDP growth is projected to reach 3½ percent in 2010. The industrial activity index and credit growth to the economy, which had been declining during most of 2009, started to pick up toward year-end. Inflation should return gradually to 2 percent.

3. Uncertainties about the short-term outlook persist. Risks to growth mainly relate to sluggish external demand, financing constraints that limit the fiscal room for maneuver, and renewed problems with electricity supplies. Opportunistic changes in economic policies for political reasons could also dampen growth prospects. On the positive side, a faster than expected pickup in global activity could have positive spillover effects.

uA01fig01

Credit to the Economy

(Percentage Change, yoy)

Citation: IMF Staff Country Reports 2010, 165; 10.5089/9781455204892.002.A001

II. Program Performance

4. Macroeconomic performance has been mixed. All quantitative performance/assessment criteria through end-December 2009 except the one for the (basic) fiscal balance were met. Revenues fell short, mostly due to tax arrears of agencies and other public entities. But current expenditure, which was well below program objectives during the first 9 months of 2009, was also higher than programmed (Tables 3 and 4). The authorities explained that they had to pay higher utility bills and use supplemental appropriation decrees (décrets d’avance) totaling some 0.5 percent of GDP, signed by the President and Prime Minister and permitted for emergency measures by the 2001 organic law, including to pay contractuals in the education sector. As a result, the end-2009 basic fiscal deficit was ¾ percent of GDP higher than targeted (Table 7). While staff appreciated the authorities’ increased financial monitoring of public entities in 2010 in view of their tax arrears, staff stressed that the authorities should budget sufficient amounts for essential spending and should have reduced other non-priority expenditure to maintain the budget deficit target. To minimize the risks of higher than initially budgeted current spending, the authorities expressed their intention to offset future supplemental expenditures. This year’s budget, for the first time, has a contingency reserve for unforeseen current expenditure. These actions increase the authorities’ spending control and form the basis for the waiver request for the missed end-December 2009 performance/assessment criterion.

Table 3.

Senegal: Government Financial Operations, 2007–15

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Sources: Senegalese authorities; and IMF staff estimates and projections.

Excludes project-related wages and salaries, which are included in capital spending, and the salaries of autonomous agencies and health and education contractual workers, which are included in transfers and subsidies.

From 2006 on, reflects post-MDRI debt service schedule.

Excludes subsidies aimed at sector development policies, which are included in capital spending.

Includes recapitalization of SENELEC. The government provided CFAF 65 billion in 2007 under domestically-financed capital expenditure, while budget support by the World Bank and France in 2008-10 specifically earmarked for the recapitalization is being provided under externally-financed capital expenditure.

Local governments, autonomous public sector entities (e.g., hospitals, universities), and the civil servants pension fund (FNR).

Total revenue minus total expenditure and net lending, excluding externally financed capital expenditure, on-lending, HIPC/MDRI expenditure, and 2010 clearing of extra budgetary spending and agency debt.

Includes the 10-year CFAF loan from the BCEAO in 2009 equal to the general SDR allocation.

Within the expenditure chain in 2008-09, and extrabudgetary spending and agency debt in 2009-11.

Financing gap in 2010 to be filled with ESF drawing.

Defined as expenditures on health, education, environment, the judiciary, social development, sewage, and rural irrigation.

Table 4.

Senegal: Government Financial Operations, 2007–15

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Sources: Senegalese authorities; and IMF staff estimates and projections.

From 2006 on, reflects post-MDRI debt service schedule.

Includes SENELEC recapitalization. The government provided CFAF 65 billion in 2007 under domestically-financed capital expenditure, while earmarked budget support by the World Bank and France in 2008-10 is being provided under

Local governments, autonomous public sector entities (e.g. hospitals, universities), and the civil servants pension fund (FNR).

Defined as total revenue minus total expenditure and net lending, excluding externally financed capital expenditure, on-lending, HIPC/MDRI expenditure, and 2010 clearing of extrabudgetary spending and agency debt.

Within the expenditure chain in 2008-09 and extrabudgetary spending and agency debt in 2009-11.

Financing gap in 2010 to be filled with ESF drawing.

Defined as expenditures on health, education, environment, the judiciary, social development, sewage, and rural irrigation.

Table 5.

Senegal: Monetary Survey, 2005–10

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Sources: Senegalese authorities; and IMF staff estimates and projections.

Difference in 2009 between changes in NFA and NIR due to SDR allocation.

Table 6.

Financial Soundness Indicators for the Banking Sector, 2002–09

(Percent, unless otherwise indicated)

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Source: BCEAO.

NPL changes in 2006 due to ICS. In 2008, ICS was recapitalized and the government guarantee for its bank loans was lifted. However, the loans in question remain classified as non-performing for the time being, although without the need to provision.

Excluding the tax on banking operations.