Senegal
Sixth Review Under the Policy Support Instrument, Request for a Three-Year Policy Support Instrument and Cancellation of Current Policy Support Instrument-Staff Report; Debt Sustainability Analysis; Press Release; Executive Director Statement

The economy has started to recover from a slowdown associated with the global financial crisis. Senegal has made significant progress under a three-year Policy Support Instrument (PSI), but challenges remain. Increasing growth and reducing vulnerabilities and poverty require broad-based reforms. Higher revenues and better spending quality are essential to creating more fiscal space for priority spending, including infrastructure spending. To help address growth bottlenecks, higher infrastructure investment will temporarily raise fiscal deficits. The contributions of the financial sector and the energy sector to growth should be enhanced.

Abstract

The economy has started to recover from a slowdown associated with the global financial crisis. Senegal has made significant progress under a three-year Policy Support Instrument (PSI), but challenges remain. Increasing growth and reducing vulnerabilities and poverty require broad-based reforms. Higher revenues and better spending quality are essential to creating more fiscal space for priority spending, including infrastructure spending. To help address growth bottlenecks, higher infrastructure investment will temporarily raise fiscal deficits. The contributions of the financial sector and the energy sector to growth should be enhanced.

I. Paving the Way for New Economic Gains

1. Macroeconomic and social outcomes have improved since the mid-1990s, but growth has remained volatile, most recently related to the food and fuel price shocks and the global financial crisis (Figure 1). Real per capita income has grown by 24 percent during the past 15 years, compared to a decline during 1980–1995. Inflation has been low, apart from short periods of shock-related spikes, reflecting the peg to the euro. Debt relief and increasing tax revenues have created the fiscal space for higher public spending, including capital investment and other priority areas. Several social outcomes have improved, including access to health and education services, but poverty remains high.

Figure 1.
Figure 1.

Senegal: Historical Perspective, 1995–2010

Citation: IMF Staff Country Reports 2010, 362; 10.5089/9781455212835.002.A001

Sources: Senegalese authorities; World Bank; and IMF staff calculations and estimates.

2. Following the crisis-related growth slowdown, economic activity is picking up (Figure 2, Tables 15).

Figure 2.
Figure 2.

Senegal: Recent Macroeconomic Developments, 2004–2010

Citation: IMF Staff Country Reports 2010, 362; 10.5089/9781455212835.002.A001

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

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, 2010 clearing of extrabudgetary spending and agency debt, and spending related to the autoroute extension.

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.

Defined as expenditures on health, education, environment, the judiciary, social safety nets, sanitation, and rural water supply.

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 externally financed capital expenditure.

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, 2010 clearing of extrabudgetary spending and agency debt, and spending related to the autoroute extension.

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

Defined as expenditures on health, education, environment, the judiciary, social safety nets, sanitation, and rural water supply.

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 owing to SDR allocation.

  • Growth: Monthly indicators point to an ongoing economic recovery, which appears to be strengthening: projected growth increased from 3.4 percent to 4 percent in 2010 and from 4.1 percent to 4.4 percent in 2011. Official growth estimates for 2008 and 2009 were raised by about ½ percent.

  • Inflation: Year-on-year inflation turned positive in June 2010 for the first time in more than a year, and has picked up mainly because of higher food prices.

  • Fiscal balance: The overall fiscal deficit is expected to reach 4.8 percent of GDP in 2010, broadly in line with the budget target.

  • Balance of payments: The current account deficit is projected to change little in 2010 at about 8 percent of GDP. The impact of the global financial crisis on workers’ remittances and foreign direct investment (FDI) has been smaller than originally expected.

3. Uncertainties about the short-term outlook persist. Downside risks include partner country fragility, higher oil prices, continued electricity supply problems, and opportunistic pre-election changes in economic policies. On the upside, higher global growth and continued structural reforms could stimulate growth.

II. Program Performance

4. Performance under the program was broadly satisfactory. At end-June the budgetary float was below the program ceiling and the deficit target was met because revenues exceeded their programmed level and overall expenditures were contained (Table 7). On the structural side, reforms are progressing well. Only the integration of payroll into the expenditure-tracking system SIGFIP is not finalized, and it took somewhat longer than expected to regularize and start paying past extrabudgetary expenditures.

Table 6.

Financial Soundness Indicators for the Banking Sector, 2003–10

(Percent, unless otherwise indicated)

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Source: BCEAO.

NPL changes in 2006 owing 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 nonperforming for the time being, although without the need to provision.