Senegal: Second Review Under the Policy Support Instrument and Request for Modification of an Assessment Criterion
Author: International Monetary Fund. African Dept.
Publication Date:
08 Jun 2016
eISBN:
9781484379691
Language:
English
Keywords:
ISCR; CR; convergence criteria; authority; government; PFM; regime; TA priority; flow-of-funds table; reform plan; authorities room; accounts payable; Public investment spending
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Macroeconomic performance during 2015 was strong but sustaining the momentum requires steadfast implementation of reforms to create space for SMEs and FDI aimed at globally competitive production. Economic growth of 6.5 percent is the highest in 12 years and is projected at 6.6 percent in 2016. Inflation is expected to stay within the 1-2 percent range over the medium term. Better exports and lower oil prices helped the current account narrow by 1.3 percentage points to 7.6 percent of GDP. A further improvement is projected in 2016.

Abstract

Macroeconomic performance during 2015 was strong but sustaining the momentum requires steadfast implementation of reforms to create space for SMEs and FDI aimed at globally competitive production. Economic growth of 6.5 percent is the highest in 12 years and is projected at 6.6 percent in 2016. Inflation is expected to stay within the 1-2 percent range over the medium term. Better exports and lower oil prices helped the current account narrow by 1.3 percentage points to 7.6 percent of GDP. A further improvement is projected in 2016.

Recent Developments and Outlook

1. Government proposals for constitutional reforms were approved by 63 percent of the vote in a referendum held on March 20, 2016. The changes include a reduction in President’s term of office from seven to five years; an age-limit for presidential candidates (between 35 and 75 years); and a prohibition of dual citizenship for candidates. However, these changes will apply for the next term following a related decision by the Constitutional Court. This means that the next Presidential elections will be in 2019 and gives the authorities room to accelerate reforms.

2. Growth was robust at 6.5 percent in 2015 and is projected to continue at a similar level this year. This is an increase from 4.3 percent in 2014 and reflects the initiation of Plan Sénégal Emergent (PSE)-related projects; the buoyant performance in agriculture thanks to good weather and higher productivity in the sector; and renewed dynamism in the secondary sector due to refining, chemicals, cement, energy, and construction. Provided decisive action is taken to tackle rent-seeking and accelerate reforms to stimulate SMEs and FDI, the prospects for higher economic growth are strong. In that spirit, real growth is projected at 6.6 percent in 2016 and around 7 percent in the medium term, as reforms under the PSE begin to yield results.

3. Inflation remains low. Reflecting lower oil and food prices, inflation is low: 0.4 percent y-o-y at end-December 2015 and 0.1 percent yearly average in 2015.1 Inflation is expected to remain low over the medium term.

Senegal: Revisions of National Accounts

The Agence nationale de la statistique et de la démographie (ANSD) revised GDP estimates for 2010–14 as part of its annual revisions procedure. The key change pertains to 2014. Value added growth was revised to 4.3 percent (down from 4.7) largely driven by downward revisions of agricultural production. The change in deflator for 2014 was revised to -1.0 percent (compared with 0.1 percent). The changes mean a lower base for 2015-16 GDP as the 2014 real and nominal GDP are lower than previous estimates and the estimated deflators for 2015-16 are also lower.

A01ufig1

Real GDP Growth, 2010-2015

Citation: IMF Staff Country Reports 2016, 144; 10.5089/9781484379691.002.A001

A01ufig2

Nominal GDP (in CFAF billions)

Citation: IMF Staff Country Reports 2016, 144; 10.5089/9781484379691.002.A001

4. The 2015 fiscal deficit target of CFAF 389 billion (4.8 percent of revised GDP) was met, and the 2016 deficit target of CFAF 372 billion (4.2 percent of GDP) remains as programmed under the PSI. In 2015, revenue was 0.7 percentage points of GDP higher than projected, of which tax revenue accounted for 70 percent.2 The payroll policy has achieved some success in that the wage bill was as projected, at CFAF 526 billion in 2015.3 In the 2016 budget, there is provision for transferring the personnel costs of institutions (CESE: The Economic, Social and Environmental Council; and the National Assembly) to the current expenditure account. The wage bill was revised to CFAF 573 billion, for an increase of about CFAF 34 billion in absolute terms and 6.4% in proportional terms.4

5. The current account balance has narrowed to 7.6 percent of GDP in 2015 (compared with 8.9 percent in 2014) due to lower oil prices and higher export volumes.5 Projected oil prices in 2016 are 30 percent lower than last year’s. Accordingly, the current account is projected to continue improving to 6 percent of GDP in 2016. Workers’ remittances in 2015 amounted to 11.9 percent of GDP and they are projected to decline in the medium term reaching 10 percent of GDP by 2020. Foreign direct investment remained low relative to other developing countries but is estimated to have increased from 2 percent of GDP in 2014 to 2.4 percent of GDP in 2015, owing partly to Chinese investments and a capital injection by Indorama in the phosphate industry.6

6. Public debt has increased but remains on a sustainable path. In 2015, public debt reached 56.8 percent of GDP, higher than initially projected, due to the downward revision in GDP and to a nominal increase in both external and domestic debt.7 In 2016, public debt is estimated to increase to 57.3 percent of GDP. Thereafter, a downward trend in the debt-to-GDP ratio is expected over the medium term, reaching 50 percent in 2021. Using the current framework, updated DSA results are broadly unchanged confirming Senegal’s low risk of debt distress.8

7. The financial sector remains sound and progress has been made in restructuring non-performing loans (NPLs). All components of broad money grew faster than projected due notably to the launch of three new banks in 2015 and stronger than expected economic activity; this trend is expected to continue on the back of sustained economic growth.9 Progress has been made in the restructuring of NPLs, which have fallen from 23 percent (as a proportion of total loans) at end-June 2015 to 18.8 percent at end-December 2015.

8. The 2013 assessment of the WAEMU regional central bank, BCEAO, found a continuing strong control environment. All recommendations from the assessment have been implemented. These include strengthening the external audit arrangements by appointment of an international firm with ISA experience for the audits of FY 2015–17, reinforcing the capacity of the audit committee with external expertise to oversee the audit and financial reporting processes, and adoption of IFRS starting with the financial year 2015.

9. Program performance under the PSI remains satisfactory. While four indicative targets (ITs) were missed at end-September, all end-December assessment criteria (AC) were met, together with all but one IT. End-September ITs were narrowly missed on tax revenues, the budgetary float, and net borrowing. The IT on the share of the value of public sector contracts signed by single tender was also missed in September and December. This reflected the use of unsolicited bids to accelerate the rural electrification program. The PSE calls for electrification of 60 percent of rural households by 2017 (from about 25 percent in 2012). However, the time to prepare tenders and other delays compromise this target. The authorities viewed the risks of higher prices and lower quality from unsolicited bids as worth taking in light of the high economic and social benefits of bringing electricity to rural areas. Staff have highlighted the importance of transparent tenders and the authorities have reiterated their commitment to favor transparent tenders and continue monitoring/adhering to this indicative target going forward. Structural reforms progressed more slowly than envisaged. Six out of ten 2015 structural benchmarks (SBs) were met; of the four unmet end-December 2015 benchmarks, one was met with delay and the other three are expected to be met between end-May and end-October 2016. Two benchmarks relating to the politically difficult reform of agencies have been or are being implemented with a delay: five agencies with no formal existence were eliminated by end-April 2016 and performance contracts for five agencies and three public institutions have been signed by the Minister of Finance, with additional performance contracts with three agencies expected to be signed by end-May 2016. A further benchmark was almost met with delay in April 2016, with collection at end-December of 47 percent of unpaid 2014 taxes (against the target of 50 percent). Technical difficulties in isolating 2014 from other unpaid taxes contributed to missing the target and the goal is expected to be achieved by end June 2016. The last unmet benchmark relates to the debt anchor that was included in the 2016 budget but without language on corrective actions to be taken in the event of debt slippages. This inadvertent omission, will be addressed in the next corrective budget in October 2016. The structural benchmark concerning the development of a management strategy for government and public enterprise investment portfolios for end-March 2016 is being pushed back to end-September 2016 to give time for building consensus.

10. The economic outlook remains favorable but downside risks remain. In its March 2016 Edition, Moody’s rated Senegal as the only sub-Saharan African (SSA) country with a positive outlook. In addition, Senegal has one of the lowest sovereign bonds spread in SSA. However, downside risks remain. Main risks include slow implementation of reforms to roll back rents and patronage, continued unproductive public consumption, failure to raise expenditure efficiency, and risks stemming from growing regional security threats. The good results in agriculture could also be reversed in the event of lower than average rainfall and if land reform fails to move forward decisively to create the property rights required for maintenance of the investments being made to raise productivity. The program provides for increased security spending and the other risks are being mitigated by the precautionary cushion in the budget. External risks include tighter global conditions in 2016–17. Lower risk appetite among investors could reduce the availability of external financing and reduce capital inflows. However, with limited investment opportunities in the region, lower risk appetite would likely affect cost but not the availability of financing in the regional sovereign bond market. The downside risks could result in less favorable economic growth than assumed in the baseline.

Policy Discussions

11. Discussions focused on economic policies and structural reforms needed to sustain growth and continued fiscal consolidation to meet regional convergence criteria. To keep growth buoyant, make it more inclusive and to fortify the economy’s resilience to internal shocks as well as those inherent in the international setting and the context of insecurity within the region, staff discussed with the authorities the need for steadfast action in the following areas: (a) improving the business environment to open economic room for SMEs and FDI (MEFP ¶12); (b) strengthening public financial management and governance; and (c) rebuilding the government’s fiscal space.

A. Fiscal and Debt Policies

12. The authorities are committed to achieving the 2016 fiscal deficit of CFAF 372 billion (4.2 percent of GDP) as programmed under the PSI (MEFP ¶13). Public consumption is projected to decline from 18.6 percent of GDP in 2015 to 17.2 in 2016 allowing for more public investment in human capital and infrastructure. Spending on goods and services is expected to remain at 4.3 percent of GDP while the wage bill will be 0.2 percentage points higher than initially projected (at 6.5 percent of GDP), but is expected to decrease afterwards.10 On the revenue side, an additional 0.7 percentage points of GDP is expected from tax revenues mainly from VAT on oil products. To meet the fiscal consolidation objectives of 2016 and beyond, the authorities should continue improving revenue collection while rebalancing expenditure to achieve the PSE objectives of curtailing public consumption to create fiscal space for public investment in human capital and infrastructure. Staff believe that the current package of policies will allow Senegal to meet by 2018, a year early, the 3 percent of GDP fiscal deficit convergence criteria of the West African Economic and Monetary Union. This will require continued curtailment of subsidies and control of the growth of the wage bill through continuation of the policies already initiated (Box 2).

Senegal: Shifting from Public Consumption to Private Investment

Private investment in globally competitive activity is key to sustaining high growth over the PSE horizon to 2035. As discussed in Box 3, Senegal (and some forty other developing countries) have witnessed the limits of relying on the public sector to sustain long term growth. At the same time, to crowd in private investment to sustain long term growth, it is essential to boost investment in human capital and public infrastructure, particularly electricity, highways, water systems, sewers, ports and airports.

To create the space for such an increase in public investment, the PSE calls for a shift away from public consumption towards public investment so as to scale up the stock of both physical (infrastructure) and human capital (education, health and social protection to empower the most vulnerable). Despite efforts in this direction, public investment (in percent of GDP) fell in 2015 after three years of rising faster than public consumption.11 Moreover, in 2014 and 2015 less than 50 percent of the growth in total government expenditure was attributable to growth in public investment. This suggests that more needs to be done to rationalize public consumption if the PSE objective is to be met. In parallel, action is needed to improve the overall quality of public investment which is relatively low in Senegal. This means that much more needs to be invested to manage the full project cycle and to ensure that investment projects are properly prepared.

A01ufig3

Public Consumption and Public Investment

Citation: IMF Staff Country Reports 2016, 144; 10.5089/9781484379691.002.A001

A01ufig4

Main Public Expenditure Components

(in percent of total expenditure)

Citation: IMF Staff Country Reports 2016, 144; 10.5089/9781484379691.002.A001

13. Revenue collection will continue to improve in 2016 and beyond (MEFP ¶14–16). The control of the tax base will be strengthened and overall revenue collection optimized. The authorities will institute procedures for forced recovery of arrears while introducing case management units within each recovery unit. These actions are expected to ensure the recovery or settlement of at least 50 percent of the stock of outstanding assessment notices as of the end of each year. Further steps will be taken in 2017 to rationalize tax expenditures (see Box 4). Based on the 2013 report on tax expenditures and the conclusions of the working group established for this purpose, an action plan will be adopted by the government before the end of August 2016. Moreover, the implementation of the single taxpayer identification number (NINEA) and continued close cooperation between the Direction Générale des Impôts et Domaines (DGID) and the Direction Générale des Douanes (DGD), will help broaden the tax base through better control over imports and better monitoring of the customs clearance of potentially revenue-yielding products.

14. Streamlining expenditure is expected to continue in 2016 and beyond (MEFP ¶17–18). The authorities intend to improve the management of subsidies based on the recommendations of the working group that is to report by September this year. Meanwhile action is already being taken to limit subsidies to the institutions of higher education. As of this year, appropriations not yet committed will be distributed by identified items in the functional classification and within the integrated public financial management system. For 2017, such distribution by functions will become mandatory and any release of subsidies will be subject to prior approval by technical and financial oversight bodies. To contain the wage bill, the authorities are committed to imposing budget constraints on hiring in all sectors and ensure that all current contractuals in the education, health, and vocational training will be integrated into the payroll by 2017.

15. The Precautionary Reserve Envelope (PRE) was institutionalized in 2015 and provided budgetary flexibility. The envelope for 2015, set at 0.6 percent of GDP (or CFAF 52bn), was reported in the investment part of the 2015 initial budget. At the end of 2015, 33 percent of the envelope (or CFAF 17bn) was mobilized to fund priority investments that were sufficiently mature (examples include the high-speed regional rail network Dakar-Aéroport International Blaise Diagne, the Route des Niayes, supply of low-cost housing; integrated tourist zones; the Tramway and the Business Park). In the 2016 budget, the PRE is extended to current operations: CFAF 18.7 billion (0.2 percent of GDP) for current operations and CFAF 44.4 billion (0.5 percent of GDP) for investment.

16. Investment efficiency, including PPPs, will continue to be strengthened (MEFP ¶19–22). The authorities will develop rigorous criteria for the selection and ranking of projects. All project proposals will be recorded in a project pipeline and will be subjected to rigorous feasibility analysis before inclusion in the budget. Also, they will conduct ex-ante analysis of all projects financed under public-private partnerships (PPPs) and the Ministry of Finance and Economic Planning (MFEP) will determine the modalities for financing PPPs to ensure that risks are properly accounted for.

17. The implementation of the Treasury Single Account (TSA) continues for completion by the end of 2017 (MEFP ¶26). The extension of the first-generation TSA to all bank accounts within the network of accounting staff in public institutions and agencies is completed in advance of the June 2016 completion date. The second-generation TSA will be deployed and operational as of June 2016 and the assessment criteria for the accounts that are to be "repatriated" will be established. The TSA will be finalized in December 2017.

18. Public financial management should continue to be strengthened. The authorities intend to step-up the supervisory control over agencies (MEFP ¶25). The creation of any new agency will be preceded by an impact study consistent with existing rules and regulations. In addition, the authorities plan to sign performance contracts with three additional agencies by end-May 2016.

19. Senegal’s financing strategy is consistent with debt sustainability. The authorities will continue relying on non-concessional loans to finance investment projects, particularly transport infrastructure, energy, water and sanitation (MEFP ¶23). They have secured access to foreign concessional financing equivalent to about 6 percent of GDP (including grants), In addition, they are exploring about Euro 1 billion of non-concessional financing for 2016 from the African Development Bank (ADB) and the World Bank (WB). Whilst the preference is to tap these non-concessional facilities of multilateral donors, if these cannot be mobilized sufficiently rapidly they will use the international financial and regional markets to make up the shortfall. There should be no problem raising funds given ample liquidity on the regional market and strong appetite for Senegalese debt on international markets.

20. Debt management capacity should continue to be strengthened to help safeguard debt sustainability. To improve debt management capacity, the authorities: (i) will continue to develop a medium-term debt strategy to be appended to the budget; and (ii) for the next budget, it will announce the central government debt ratio deemed sustainable over five years with a commitment that, in case thresholds are exceeded, corrective measures (over four years) would be taken in the budget that follows (structural benchmark, October 2016); and (iii) will introduce a database and establish a mechanism for monitoring all external and domestic debt taken on by public enterprises and all collateral set aside by the government on this debt (MEFP ¶24). The National Public Debt Committee (CNDP) will also be strengthened and expanded to cover other government entities.

21. The thrust of the authorities’ fiscal and debt policies for 2016 and beyond will ensure improved revenue collection, streamlined expenditure, and debt sustainability.

B. Financial Sector Policies

22. The financial sector remains broadly sound, and discussions focused on contributions to financial deepening through a financial inclusion strategy and the recent creation of a credit information bureau (CIB) (MEFP ¶31–32). The regional central bank (BCEAO) is working on a financial inclusion strategy aimed at deepening the sector. A private credit information bureau accredited by the BCEAO, Creditinfo VoLo, is in operation since February 1, 2015. Banks and micro-finance institutions must participate in the CIB, while customers must currently sign a consent form for their information to be made available to the CIB.

23. To strengthen the stability of the financial system, a National Financial Stability Committee has been created (MEFP ¶35). In 2015 the committee focused its work on the quality of the portfolio held by the banks and the systèmes financiers décentralisés (SFDs, "decentralized finance systems"). For the year 2016, the problems to be addressed will relate to the risk of concentration and the development of electronic money.

C. Structural Reforms

24. To sustain the growth that has been achieved over the PSE horizon to 2035, a steadfast implementation of structural reforms aimed at opening up space for SMEs and FDI will be required. In the past, Senegal has seen growth rising for a few years, at times reaching the 6.5 percent of 2015. However, this growth has been reversed in the absence of the strong reforms needed to encourage SMEs and FDI (Box 3).

Senegal: The Ups and Downs of Growth in Senegal

Real GDP growth in Senegal has not only been low with an average of 3.7 percent (0.7 percent per capita) over the last 25 years, but this growth has also been volatile. Between 1994 and 2014, growth has risen to 5 percent or more on four occasions (as highlighted in the chart), only to decline to below the average in the 1-3 years that follow. The most spectacular reversal was from 2001 to 2002, when growth of 4.6 percent collapsed to 0.7 percent – a drop of 3.9 percentage points. These ups and downs illustrate the limits of a public sector investment led growth strategy in the absence of reforms to tackle patronage and rent seeking so as to level the playing field for SMEs and FDI.12

A01ufig5

Real GDP growth, %

Citation: IMF Staff Country Reports 2016, 144; 10.5089/9781484379691.002.A001

Achieving the PSE’s growth objectives will require going beyond public investment driven growth. Senegal’s higher than projected 6.5 percent real growth of 2015 places it among the fastest growing countries in SSA. However, comparing Senegal with the top 10 fastest growing non-commodity exporters, one notes that although Senegal’s real GDP has been growing faster, its per capita GDP has been falling behind. This calls for steadfast implementations of reforms to achieve the PSE’s high, sustained, and inclusive growth.

A01ufig6

Real GDP Growth: Senegal and Average of Top Ten Growth Countries

(Index, 2012 = 100)

Citation: IMF Staff Country Reports 2016, 144; 10.5089/9781484379691.002.A001

A01ufig7

GDP Per Capita: Senegal and Average of Top Ten Growth Countries

(Index, 2012 = 100)

Citation: IMF Staff Country Reports 2016, 144; 10.5089/9781484379691.002.A001

25. There has been some notable progress, albeit slow, on structural reforms (MEFP 6–7). Five working groups have been set up to look closely at the following issues: (i) enterprises in difficulties; (ii) government subsidies to enterprises; (iii) integration of para-fiscal taxes into the budget; (iv) tax expenditures; and (v) the introduction of an independent accountants’ network within the DGID. In addition, to improve transparency and streamline expenditure, the decree setting maximum pay levels for personnel (with the exception of directors general and members of the governance bodies) of agencies, and the decree on the closure of five agencies that have no staff and that exist only "on paper" have been signed.13 The 5 agencies include the Agence nationale de la Haute autorité du Désert, l’Agence nationale des Nouveaux Ports du Sénégal, l’Agence nationale de l’Energie solaire, l’Agence de Financement et de Promotion Economique des Jeunes, et l’Agence nationale des Grands Projets hospitaliers. The government also intends to speed the process of privatization for SUNEOR, the leading enterprise in the groundnuts sector. Meanwhile, the target date for the development of a management strategy for government and public enterprise investment portfolios has been moved from March to September 2016 to give time to build consensus.

Senegal: Tax Incentives and Attraction of Investment: Some Case Studies

The effectiveness of tax incentives varies between countries and sectors. In many countries, particularly in sub-Saharan Africa, tax incentives have resulted in little or no new investment. For example, the introduction of new investment codes in countries of the CFA franc zone including Senegal and the Economic Community of Central African States between 1994 and 2006, which provided more generous tax incentives, did not have any demonstrable effect on FDI (Van Parys and James, 2010).

In other countries however, tax incentives seem to have played an important role in attracting new investment and spurring economic growth when this has been part of an overall strategy to create space for SMEs and FDI to produce for export. As reported in the October 2015 IMF board paper on tax incentives, the relative effectiveness of tax incentives appears to depend on whether the incentives are geared toward export-oriented sectors and mobile capital. Examples include Korea and Singapore, where tax incentives and a focus on exports seem to have encouraged rapid industrialization (Tanzi and Shome, 1992). There is also evidence that simplifying tax systems to facilitate compliance may be more important than generous tax holidays. In Egypt, a new income tax law passed in 2005 phased out tax holidays while grandfathering current beneficiaries. Between 2005 and 2006, FDI into Egypt doubled (Keen and Mansour, 2010). In 2006, Mauritius normalized the taxation of its export processing zone and removed all provisions relating to tax credits and tax holidays while simplifying the system and unifying the corporate and personal income tax rate at a single rate of 15 percent. As part of a package of business facilitation measures including the promotion of online payment of taxes, more FDI was obtained in the following few years than in the previous 40 since independence. Similarly, China has essentially operated a 15 percent tax rate in its Special Economic Zones without this deterring investment or exports. In contrast the 50 year tax holidays offered by Senegal have had no discernible impact on FDI. Clearly incentives matter but a simple to comply with tax system with reasonable rates seems to provide a better incentive when combined with a regulatory framework that opens economic space than generous tax holidays.

26. On Senegal Airlines, the authorities have cancelled the flying rights of the troubled company and taken back its air traffic rights. These are the first step to its liquidation. The company is largely owned by the private sector and no impact on the budget is expected in 2016 and beyond. The government is looking for strategic partners to ensure the successful operation and profitability of any newly created airline. The creation of a new airline, would not involve any significant fiscal outlay in 2016 and beyond.14

27. The authorities reaffirmed their intention to continue reforming SENELEC (the national electricity company) (MEFP ¶29–30). The cost of reforms is estimated at 2.4 percent of GDP between 2016 and 2018. The reform plan was submitted to development partners, in particular the World Bank and African Development Bank, in November 2015 for technical support and financing. The World Bank intends to field a production planning specialist to SENELEC in order to identify the best option for developing its production facilities. The development of the sector continues, with 250 MW of additional capacity expected to come on stream in 2016.15

28. The promotion of the private sector to support Senegal’s emergence continues (MEFP ¶36–37). In that regard, the authorities will (i) create an economic space within a Special Economic Zone (SEZ) being developed in collaboration with the Government of Mauritius. The SEZ will have business-friendly regulations, including a tax regime with a moderate taxation rate and minimal tax expenditures; (ii) take further steps to streamline administrative procedures; and (iii) examine the possibility of creating a price-risk management fund in the cotton sector. In addition, work will continue on implementing the Programme de Réformes de l’Environnement des Affaires et de la Compétitivité, (PREAC, Program of Reforms to the Business Climate and Competiveness).

D. Program Issues

29. Quantitative ACs for 2016 remain broadly as initially programmed and understandings were reached with the authorities on new structural benchmarks. Assessment criteria and indicative targets for end-December 2016 are proposed. Staff supports the authorities’ request for readjustment of the mid-year end of June 2016 deficit target and June 2016 indicative target on tax revenue, to reflect developments through March 2016.16 The deficit target for the year is unchanged. Staffs also support the authorities’ request that the target date for the SB related to the establishment of a platform which describes the lifecycle of the projects be moved to September 2016, instead of June 2016, to provide time to gain the buy in of line ministries. Two new SBs are proposed. They relate to creating a structure responsible for recovering unpaid taxes (end-September 2016 SB), and adopting an action plan for reducing tax expenditure (end-September 2016 SB). Regarding the debt anchor, the announcement of a debt ratio for the budget was not met and staff proposes to reschedule it to October 2016.17 Similarly staff supports the request of the authorities to push forward to September 2016 (from March 2016) the development of a management strategy for government and public enterprise investment portfolios as this will facilitate reaching consensus.

Capacity Building

30. To continue supporting reform implementation, priorities and objectives of technical assistance (TA) were discussed. The authorities’ TA priorities include improvements in project management, better managing fiscal risks from PPPs, fully implementing the single treasury account, enhancing tax administration, rebasing of national accounts, and adopting the SDDS. Guidance from the Fund and from peers on how best to implement improvements within prevailing political economy considerations would be welcome.

31. Reform implementation continues to be supported through peer-learning. A one-day seminar, chaired by the Prime Minister and including key Ministers in areas of reform covered in the “book on emergence” helped build a consensus on reforms.18

Staff Appraisal

32. Senegal’s macroeconomic performance continues to remain strong and progress has been made toward the PSE objectives. Increasing from 4.3 percent in 2014, growth was robust at 6.5 percent in 2015 and is projected to continue at a similar level this year reflecting the initiation of PSE-related projects, the buoyant performance in agriculture, and renewed dynamism in the secondary sector. Sustaining the positive growth momentum over a 20-year period will require steadfast implementation of reforms to reduce patronage and rent-seeking so as to open economic space to SMEs and FDI, thereby creating economic opportunities for all. In this regard staff welcome the initial steps taken to eliminate unnecessary agencies and to use performance contracts to improve the performance of those to be retained. Similarly, staff believes that the PSE growth rates of 7 to 8 percent over 20 years are feasible if SMEs and FDI are provided a space where good economic governance prevails. The collaboration with the Government of Mauritius on joint management of a special zone could open such space. This could produce the required business friendly regulatory framework and taxes that are reasonable, easy to comply with and with limited and rules based tax expenditure. Inflation remains low and fiscal deficits are declining and expected to reach the WAEMU convergence criteria of 3 percent of GDP one year earlier than the mandated 2019.

33. Staff welcomes the authorities’ commitment to keep the 2016 fiscal deficit target in line with the program. Action on tax expenditures will be important to safeguard revenues and to open up the economy to achieve the high growth targets of the PSE. The measures envisaged to raise revenue and control expenditure will need to be solidified to ensure meeting the 4.2 percent of GDP deficit target in 2016. The elimination of energy subsidies in the 2016 budget should become the norm going forward and the efforts to rebalance public expenditure towards investment in human capital and public infrastructure, as enshrined in the PSE, are welcome.

34. The authorities’ decision to cancel Senegal Airlines’ flying rights and take back its traffic rights and to close 5 agencies is commendable. The action will have a positive impact on public finances and enhance the authorities’ credibility on economic governance.

35. It is critical to continue tackling patronage and rent seeking, reforming agencies, the energy sector and enterprises in difficulty. The success of fiscal consolidation plans and achieving the growth targets of the PSE will partly depend on the transparency and accountability under which government agencies and other public enterprises function. It will also depend on whether the energy sector becomes more efficient and viable to fully be at the service of promoting the growth of SMEs and FDI.

36. Staff recommends completion of the second PSI review and supports the authorities’ request for adjustment of the assessment criterion on the mid-year fiscal deficit at end-June 2016.

Figure 1.
Figure 1.

Senegal: Recent Developments: High Frequency Indicators

Citation: IMF Staff Country Reports 2016, 144; 10.5089/9781484379691.002.A001

Sources: Senegal authorities; and IMF staff calculations.
Figure 2.
Figure 2.

Senegal: Recent Developments

Citation: IMF Staff Country Reports 2016, 144; 10.5089/9781484379691.002.A001

Sources: Senegal authorities; and IMF staff calculations.
Figure 3.
Figure 3.

Senegal: Near and Medium-Term Projections

Citation: IMF Staff Country Reports 2016, 144; 10.5089/9781484379691.002.A001

Sources: Senegal authorities; and IMF staff calculations.
Table 1.

Senegal: Selected Economic and Financial Indicators, 2014–21

article image
Sources: Senegal authorities; and IMF staff estimates and projections.

Reflects reclassification of public investment.

Domestic debt includes government securities issued in local currency and held by WAEMU residents.

Table 2.

Senegal: Balance of Payments, 2014–21

(in Billions of CFAF)

article image
Sources: Central Bank of West African States (BCEAO); and IMF staff estimates and projections.
Table 3.

Senegal: Balance of Payments, 2014–21

(In Percent of GDP)

article image
Sources: Central Bank of West African States (BCEAO); and IMF staff estimates and projections.
Table 4.

Senegal: Central Government Operations, GFSM 2001 Classification, 2014–211

(in Billions of CFAF)

article image
Sources: Ministry of Finance; and IMF staff estimates and projections.

Government Finance Statistics Manual (http://www.imf.org/external/pubs/ft/gfs/manual/).

On projections, subsidies do not reflect reclassification changes, which will be done during the mission.

Table 5.

Senegal: Central Government Operations, GFSM 2001 Classification, 2014–211

(In Percent of GDP)

article image
Sources: Ministry of Finance; and IMF staff estimates and projections.

Government Finance Statistics Manual (http://www.imf.org/external/pubs/ft/gfs/manual/).

On projections, subsidies do not reflect reclassification changes, which will be done during the mission.