Abstract
In recent years, the IMF has released a growing number of reports and other documents covering economic and financial developments and trends in member countries. Each report, prepared by a staff team after discussions with government officials, is published at the option of the member country.
Introduction
1. Senegal is at an important inflection point. Growth in the past few years has been sluggish and did not make a meaningful dent in poverty. To exit the low growth/high poverty trap, the authorities have launched a new development strategy, “Plan Sénégal Emergent” (PSE). The plan aims at making Senegal an emerging economy by 2035 by becoming a hub for West Africa. To get there, 2015 should become a turning point from the mediocre growth of the past to the higher, sustainable and inclusive growth envisaged by the PSE.
2. The PSE is articulated around three pillars: (i) higher and sustainable growth in the range of 7-8 percent based on FDI and export driven structural transformation; (ii) human development and social protection; and (iii) improved governance, peace, and security. The PSE calls for continued fiscal consolidation, constraining public consumption and increasing public savings to generate fiscal space for higher public investment in human capital and public infrastructure. It also envisages structural reforms to attract FDI and increase private investment.
3. This publication identifies the policy mix for the PSE to succeed. The main challenges for Senegal are to accelerate, broaden and deepen reforms. Key institutional preconditions are to that end: strong ownership of the PSE at the highest political level, broad popular demand for reforms, and strong support from development partners. On the macro side, the prospects are also favorable: growth is accelerating, inflation remains low, and the fiscal deficit is under control. Senegal has access to concessional and non-concessional resources to finance its development agenda and should be able to do so with low risk of debt distress if it follows the fiscal consolidation path envisaged in the PSE and tightens public consumption, thereby creating space for public investment.
4. The paper proceeds as follows. Section 1 revisits the challenges of emergence by tapping on the experience of other countries across the world that became emerging economies in the past two decades. It then looks at the preconditions needed for growth acceleration in Senegal. Section 2 discusses options for strengthening Senegal’s fiscal framework to support PSE implementation while keeping risks of debt distress low. Section 3 provides an assessment of Senegal’s external stability. Section 4 explores how to improve the structure of the Senegalese economy to make it more competitive with more diversified exports. Section 5 discusses the electricity problem as a major impediment to growth acceleration. Section 6 makes a case for developing and enhancing social safety nets, in particular to protect the poor and most vulnerable in the process of major structural transformation. Finally, Section 7 takes stock of Senegal’s performance under the 2011–14 Policy Support Instrument (PSI).
Senegal: Main Findings and Recommendations
➢ Peer-learning. International experience suggests that PSE targets are realistic if appropriate policies are pursued. For the PSE to succeed, the Government of Senegal needs to distill the experience of comparator countries that successfully became emerging economies, and put in place the package of reforms required to attract FDI, increase private investment, and expand exports. An active peer learning effort is needed.
➢ Growth. Unlocking Senegal’s growth potential is possible subject to bold reforms. The authorities should focus strong actions on supply constraints, such as creating a regulatory framework and business climate friendly to FDI and small and medium enterprises (SMEs). Investment in human capital and infrastructure, reducing inequalities by expanding private employment opportunities in the formal sector, and preemptive planning for adverse shocks to safeguard the fiscal space necessary for PSE investments are also needed.
➢ Fiscal policies. Improved revenue performance and expenditure composition are critical for creating the fiscal space to support the PSE. The authorities are encouraged to specify the underlying fiscal measures associated with the PSE, strengthen the fiscal planning of the PSE with contingencies, enhance fiscal transparency, and improve the effectiveness of public investment.
➢ Transformation. To raise growth, investment needs to be accompanied by improved total factor productivity, investment in human capital, and broader financial inclusion. Diversification would benefit growth and stability mainly through increases in the shares of the existing products, complemented by improvements in their quality.
➢ Electricity. There is an opportunity cost for development spending, as the economy still faces bottlenecks from high electricity costs and insufficient electricity production. The authorities should continue reforms of the sector. Cross-country experiences provide useful guidelines on successful reforms, particularly on the fiscal front. Senegal should also eliminate fiscal subsidies to the electricity sector and expand coverage capacity, provided it accelerates the introduction of new low cost electricity generation.
➢ Social safety nets. The share of the population living below the poverty line and its exposure to shock remain unacceptably high. Strengthening social protection should be high on the authorities’ reform agenda. The authorities are encouraged to work with the World Bank and other development partners on establishing safety nets capable of responding to transient needs and ensuring a minimum social protection for chronic poor and vulnerable groups of populations.
➢ PSI implementation. Overall, program performance in 2011–14 has been mixed. The macroeconomic performance has been below par but acceptable. Key goals of PSI were achieved but with outcomes less favorable than programmed. The qualitative targets were largely met, but substantial delays occurred in structural reforms. Technical assistance from the Fund was useful, although the implementation of its recommendations can be improved.