Abstract
This paper discusses Senegal's Request for a Three-Year Policy Support Instrument (PSI). Performance under the two previous PSIs was mixed. The new PSI aims to support a three-year program of macroeconomic reforms designed to advance the authorities' growth strategy-Plan Senegal Emergent (PSE). The growth goals enshrined in the PSE are achievable provided reforms are successfully implemented. Early signs indicate positive momentum owing to observed progress in reform implementation and favorable external factors. However, more remains to be done to solidify this momentum. Also, there are significant but manageable risks, which include sluggish implementation of reforms and election-driven pressures in 2016 and 2017. The IMF staff supports the authorities' request for a PSI.
The new Policy Support Instrument (PSI) supports a three-year program of macroeconomic reforms embedded in a development strategy for inclusive growth and poverty reduction (Plan Senegal Emergent—PSE). The growth goals of above 7 percent enshrined in the PSE are achievable provided reforms are accelerated, broadened and deepened. Early signs indicate positive momentum owing to progress in reform implementation and favorable external factors. However, more remains to be done to solidify this momentum.
The authorities are committed to meeting the target of the West African Economic and Monetary Union of a fiscal deficit of 3 percent of GDP by 2018 and implementing structural reforms to boost economic growth, with the 2015 budget targeting a deficit of 4.7 percent of GDP. The authorities plan to strengthen tax and customs administration, and rationalize taxation of the financial sector and telecommunications. On expenditure, they will reorient lower priority spending, particularly public consumption, to provide room for higher public investment.
Risks to the program are significant but manageable. The political calendar may pose some risks to the planned fiscal consolidation. Reforms to curb unproductive public consumption and raise expenditure efficiency may slow down and there could be revenue shortfalls. External downside risks include slower growth in partner countries, continued volatility in oil prices—which may affect revenue targets and subsidies—and spillovers from regional shocks including extremism and natural disasters. To mitigate these risks, the authorities plan to supplement the fiscal deficit targets with a debt anchor and will expand use of the precautionary reserve envelope to link project financing to reform progress.