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.
The Executive Board of the International Monetary Fund (IMF) completed today the sixth and final review under Senegal’s Policy Support Instrument (PSI) and approved a new three-year PSI. To this end, the Executive Board cancelled the current PSI, which was scheduled to expire on December 22, 2010. The IMF’s framework for PSIs is designed for low-income countries that may not need financial assistance, but still seek IMF advice, monitoring, and endorsement of their policy frameworks. PSI-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners (see Public Information Notice No. 05/145).
The authorities’ program aims to lay the foundations for strong, sound, and sustainable growth, with a view to paving the way for Senegal to become an emerging market economy. Senegal’s program will build on the progress made under the previous PSI-supported program with maintaining macroeconomic discipline and fostering economic growth.
Following the Executive Board’s discussion of Senegal, Mr. John Lipsky, Deputy Managing Director and Acting Chair, stated:
“The Senegalese authorities are to be commended for the satisfactory implementation of their economic program under the Policy Support Instrument. Economic growth recovered in 2010 and is expected to strengthen further in 2011. Significant progress on the policy front has been made, and the authorities are committed to pursue further reforms to address the important challenges that remain.
“Policies under the successor PSI will focus on increasing economic growth and improving resilience to shocks to help Senegal meet its development and poverty reduction objectives. Macroeconomic stability will be maintained through sound fiscal policy. Measures to increase revenues and improve the quality of spending will help create fiscal space for more priority spending, including infrastructure investment. To accommodate the additional infrastructure spending, the fiscal deficit will be temporarily higher, but will need to be reduced in the medium term to maintain a low risk of debt distress.
“Key structural reforms under the program include consolidating gains in public financial management and strengthening public investment planning and debt management. To reap the full benefits of additional investment and unlock the economy’s growth potential, the program also focuses on improving the business climate, supporting better governance, and promoting efficient energy and financial sectors. These reforms will help address key bottlenecks to growth and create a business-friendly environment conducive to private sector development,” Mr Lipsky added.
ANNEX Recent Economic Developments
Economic growth in Senegal was slowed in recent years by the food and fuel price shocks and the global financial crisis. Indicators point to an ongoing economic recovery, which appears to be strengthening. Real GDP growth is projected to increase to 4 percent in 2010 and 4.4 percent in 2011 after averaging 2.7 percent in 2008 and 2009. 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. The overall fiscal deficit is expected to reach 4.8 percent of GDP in 2010, broadly in line with the budget target. The impact of the global financial crisis on workers’ remittances and foreign direct investment (FDI) has been smaller than originally expected. The current account deficit is projected to change little in 2010 and remain at about 8 percent of GDP.
Following progress in macroeconomic and social outcomes since the mid-1990s, going forward the main challenge for Senegal will be to achieve higher growth in order to further reduce poverty and make progress toward the Millennium Development Goals. During the past 15 years, real per capita GDP growth in Senegal was more than 2 percent lower a year than in the best-performing, non-oil exporting countries in Sub-Saharan Africa. Senegal lags these countries in a number of areas including infrastructure, non-price competitiveness, and strength of fiscal institutions, as well as factors such as governance, the quality of institutions, and financial market development.
Program Summary
Increasing growth and improving resilience to shocks are priorities for the successor PSI. To reach these objectives, the authorities’ policies under the PSI-supported economic program are aimed at
(i) Maintaining macroeconomic stability, supported by a sound fiscal policy and improvements in debt management;
(ii) Increasing government revenues to create more room in the budget for priority spending, including higher public investment in infrastructure, coupled with better investment planning and higher expenditure quality;
(iii) Consolidating progress in Public Financial Management by improving budget credibility and implementation and avoiding accumulation of new payment delays; and
(iv) pursuing structural reforms leading to an improved business climate, better governance, and more effective energy and financial sectors.
The reforms could result in higher trend growth than currently projected if the synergies of complementary reforms materialize.
Senegal: Selected Economic Indicators
Senegal: Selected Economic Indicators
| 2006 | 2007 | 2008 | 2009 | 2010 | |
|---|---|---|---|---|---|
| Est. | Proj. | ||||
| National income and prices (percent change) | |||||
| GDP at constant prices | 2.4 | 5.0 | 3.2 | 2.2 | 4.0 |
| Inflation (average) | 2.1 | 5.9 | 5.8 | -1.7 | 0.8 |
| External sector | |||||
| Current account balance (percent of GDP) | -9.5 | -11.8 | -14.3 | -7.7 | -8.2 |
| Exports (in CFA francs, percent change) | 0.1 | -3.7 | 23.0 | -9.6 | 9.9 |
| Imports (in CFA francs, percent change) | 9.6 | 19.5 | 25.8 | -18.2 | 6.3 |
| Real effective exchange rate (percent change) | -0.2 | 5.3 | 4.4 | -1.7 | … |
| Money and credit | |||||
| Credit to the economy (percent change) | 4.2 | 10.5 | 17.2 | 3.6 | 6.9 |
| Government budget (percent of GDP) | |||||
| Revenue | 19.7 | 21.1 | 19.4 | 18.6 | 19.7 |
| Grants | 1.5 | 2.6 | 2.3 | 3.0 | 2.4 |
| Total expenditure and net lending | 27.2 | 27.6 | 26.5 | 26.7 | 26.9 |
| Overall balance | -5.7 | -3.7 | -4.6 | -4.9 | -4.8 |
| Central government domestic debt | 5.3 | 6.6 | 5.3 | 7.6 | 8.4 |
| External public debt | 17.7 | 17.9 | 19.7 | 27.0 | 31.6 |
Senegal: Selected Economic Indicators
| 2006 | 2007 | 2008 | 2009 | 2010 | |
|---|---|---|---|---|---|
| Est. | Proj. | ||||
| National income and prices (percent change) | |||||
| GDP at constant prices | 2.4 | 5.0 | 3.2 | 2.2 | 4.0 |
| Inflation (average) | 2.1 | 5.9 | 5.8 | -1.7 | 0.8 |
| External sector | |||||
| Current account balance (percent of GDP) | -9.5 | -11.8 | -14.3 | -7.7 | -8.2 |
| Exports (in CFA francs, percent change) | 0.1 | -3.7 | 23.0 | -9.6 | 9.9 |
| Imports (in CFA francs, percent change) | 9.6 | 19.5 | 25.8 | -18.2 | 6.3 |
| Real effective exchange rate (percent change) | -0.2 | 5.3 | 4.4 | -1.7 | … |
| Money and credit | |||||
| Credit to the economy (percent change) | 4.2 | 10.5 | 17.2 | 3.6 | 6.9 |
| Government budget (percent of GDP) | |||||
| Revenue | 19.7 | 21.1 | 19.4 | 18.6 | 19.7 |
| Grants | 1.5 | 2.6 | 2.3 | 3.0 | 2.4 |
| Total expenditure and net lending | 27.2 | 27.6 | 26.5 | 26.7 | 26.9 |
| Overall balance | -5.7 | -3.7 | -4.6 | -4.9 | -4.8 |
| Central government domestic debt | 5.3 | 6.6 | 5.3 | 7.6 | 8.4 |
| External public debt | 17.7 | 17.9 | 19.7 | 27.0 | 31.6 |