Abstract
IMF Country Report No. 22/197
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IMF Country Report No. 22/197
SENEGAL
FIFTH REVIEW UNDER THE POLICY COORDINATION INSTRUMENT, SECOND REVIEWS UNDER THE STANDBY ARRANGEMENT AND THE ARRANGEMENT UNDER THE STANDBY CREDIT FACILITY, AND REQUESTS FOR AUGMENTATION OF ACCESS, WAIVER OF THE NONOBSERVANCE OF A PERFORMANCE CRITERION, AND MODIFICATION OF A PERFORMANCE CRITERION AND QUANTITATIVE TARGETS—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR SENEGAL
June 2022
In the context of the Fifth Review Under the Policy Coordination Instrument, Second Reviews Under the Stand-By Arrangement and the Arrangement Under the Standby Credit Facility, and Requests for Augmentation of Access, Waiver of the Nonobservance of a Performance Criterion, and Modification of a Performance Criterion and Quantitative Targets, the following documents have been released and are included in this package:
A Press Release including a statement by the Chair of the Executive Board.
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on June 22, 2022, following discussions that ended on May 17, 2022, with the officials of Senegal on economic developments and policies underpinning the IMF arrangement under the Stand-By Arrangement. Based on information available at the time of these discussions, the staff report was completed on June 7, 2022.
A Debt Sustainability Analysis prepared by the staff[s] of the IMF and the World Bank.
A Statement by the Executive Director for Senegal.
The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.
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© 2022 International Monetary Fund
Press Release
PR22/221
IMF Executive Board Completes the Fifth Review Under the Policy Coordination Instrument, and the Second Reviews under the Stand-By Credit Facility and the Stand-By Arrangement, and Request for Augmentation for Senegal
FOR IMMEDIATE RELEASE
The war in Ukraine and trade sanctions against Mali are having significant spillovers on Senegal.
The authorities are taking temporary and targeted measures to support the most vulnerable and to stabilize food prices, while preserving debt sustainability.
Rebuilding buffers is critical through an accelerated implementation of the domestic revenue mobilization strategy, prudent debt management, and enhanced spending efficiency, notably by gradually phasing out subsidies and reducing recourse to single source procurement.
Washington DC – June 22, 2022: Today, the Executive Board of the International Monetary Fund (IMF) completed the Fifth Review under the Policy Coordination Instrument (PCI) and the Second Reviews under the Stand-by Arrangement (SBA) and the Arrangement under the Standby Credit Facility (SCF). The completion of the reviews enables the immediate release of about US$215.78 million (SDR 161.82 million) to Senegal. The Board also approved an augmentation of access and a waiver of the non-observance of performance criterion, and the modification of a performance criterion and quantitative targets. As a result, total access under the blended 18-month SBA/SCF arrangements approved in June 2021 (See Press Release No. 21/159) was increased by about US$172.6 million (SDR 129.44 million), from about US$650 million (SDR 453 million), at the time of approval, to about US$776.67 million (SDR 582.44 million).
Soaring global fuel and food prices, compounded by the war in Ukraine, and, to a lesser extent, the freeze on trade with Mali due to sanctions by the Economic Community of West African States (ECOWAS), are disrupting the post-pandemic recovery and exacerbating difficult policy trade-offs. As a result, growth this year was revised down to about 5 percent, whereas inflation is expected to reach 5.5 percent, driven by higher food and energy prices.
The authorities have adopted a supplementary budget in May 2022 to accommodate the temporary and targeted measures to support the most vulnerable and to stabilize food prices consumed by lower and middle-income households, while preserving debt sustainability. The new spending incorporated in the supplementary budget will bring the fiscal deficit this year to 6.2 percent of GDP compared to 4.8 percent of GDP in the initial budget. Public debt is expected to reach 75 percent of GDP in 2022.
Despite these challenges, the outlook points to robust economic activity over the medium term provided appropriate policies are implemented. However, this outlook is subject to significant uncertainty and risks are titled to the downside. These include a protracted war in Ukraine, a prolonged freeze on trade with Mali, a flare-up of the COVID-19 pandemic, a deterioration of the regional security situation, rising social demands, a severe tightening of external financial conditions, and the possible impact of adverse climate conditions.
Following the Executive Board’s discussion, Mr. Kenji Okamura, Deputy Managing Director and Acting Chair, issued the following statement:
“Performance under the program has been broadly satisfactory despite a challenging environment. The Senegalese economy entered 2022 with strong growth momentum but the spillovers from the war in Ukraine are hampering this rebound.
“The post-pandemic recovery is now facing headwinds from soaring global fuel and food prices and an increasingly challenging external environment. Near-term growth prospects have weakened, inflationary pressures have emerged, and fiscal and external financing needs have increased.
“The authorities’ fiscal policy response to these challenges appropriately supports vulnerable households through temporary and targeted measures as well as a relaxation of the fiscal deficit. Reducing debt vulnerabilities, which have been growing steadily over the last decade, will need a steadfast implementation of the medium-term fiscal consolidation strategy anchored by reaching a fiscal deficit of 3 percent of GDP by 2024.
“Rising energy subsidies due to higher global oil prices are an important fiscal risk. The recent increase of selective energy prices, carefully designed to protect the most vulnerable, is a step in the right direction to mitigate this risk. Over the medium-term, a gradual elimination of energy subsidies is a priority, which should be accompanied by measures to strengthen existing social safety nets.
“Fiscal and external resilience will need to be further strengthened through an accelerated implementation of the domestic revenue mobilization strategy, prudent debt management, and enhanced spending efficiency, notably by reducing recourse to single source procurement. Finalizing the fiscal framework to manage oil and gas revenues and improving the business environment to attract private investment and create jobs remain a priority.
“While the financial system is overall sound, vulnerabilities need to be monitored and deficiencies in the AML/CFT framework need to be tackled with greater urgency to avoid possible negative macroeconomic and reputational repercussions.”
Title page
SENEGAL
FIFTH REVIEW UNDER THE POLICY COORDINATION INSTRUMENT, SECOND REVIEWS UNDER THE STAND-BY ARRANGEMENT AND THE ARRANGEMENT UNDER THE STANDBY CREDIT FACILITY, AND REQUESTS FOR AUGMENTATION OF ACCESS, WAIVER OF THE NONOBSERVANCE OF A PERFORMANCE CRITERION, AND MODIFICATION OF A PERFORMANCE CRITERION AND QUANTITATIVE TARGETS
June 7, 2022
EXECUTIVE SUMMARY
Context and Outlook. The war in Ukraine is disrupting the post-pandemic recovery and exacerbating difficult policy trade-offs. This adds to a series of challenges facing the country, including the pandemic, the Ecowas sanctions against Mali, regional instability, and rising social demands. As a result, growth was revised down to 5 percent and inflation up to 5.5 percent in 2022. Medium-term prospects remain favorable with oil and gas production expected to start in 2023.
Program performance. Program performance was broadly satisfactory. All but one end-December 2021 performance criteria and one of three indicative targets were met. Four out of eight structural benchmarks were implemented on time. Progress is ongoing to finalize the remaining ones.
Augmentation request. The authorities are requesting an augmentation of access by SDR129.44 million (or 40 percent of quota) to cover higher short-term balance of payments needs. The additional financing will bolster food security and help cope with rising and volatile fuel and food prices owing to the war in Ukraine.
Staff views. Staff supports the authorities’ requests for: (i) completion of the fifth PCI review, second reviews under the Stand-By Arrangement and the arrangement under the Standby Credit Facility, (ii) augmentation of access, and (iii) modification of a performance criterion and quantitative target.
Approved By
Montfort Mlachila (AFR) and Natalia Tamirisa (SPR)
Discussions were held in Washington DC (April 19–22, 2022) and Dakar (May 5–17, 2022). The mission comprised Mr. Gemayel (head), Messrs. Mbohou Mama, Rosa, Stenzel (all AFR), Hamliri (FAD), and Hart (SPR). The mission was assisted by Mr. Koulet-Vickot (Resident Representative), Messrs. Ba and Fame (local economists), and Ms. Wane (local administrative assistant). Messrs. Andrianarivelo and Diakite (OED) attended some meetings. The mission met with President Macky Sall, Minister of Finance and Budget Abdoulaye Daouda Diallo, Minister of Economy, Planning and Cooperation, Amadou Hott, Minister of Commerce and Small and Medium Sized Enterprises, Aminata Diatta, Minister of Agriculture and Rural Equipment, Moussa Baldé, National Director of the BCEAO Ahmadou Al Aminou Lo, other senior officials, development partners, civil society, and private sector representatives. Ms. Singh and Ms. Pilouzoue (both AFR) contributed to this report.
Contents
CONTEXT
RECENT ECONOMIC DEVELOPMENTS
PROGRAM PERFORMANCE
POLICY DISCUSSIONS
A. Outlook and Risks
B. Balancing Act: Addressing the Fallout from the War in Ukraine While Preserving Debt Sustainability
C. Strengthening Medium-Term Fiscal Resilience and Debt Sustainability
D. Financial Stability and AML/CFT
E. Social Protection and Inclusive Growth
PROGRAM MODALITIES AND CAPACITY DEVELOPMENT
STAFF APPRAISAL
FIGURES
1. Real and External Sectors, 2015–21
2. Fiscal and Financial Indicators, 2015–21
3. Economic Outlook, 2021–27
TABLES
1. Selected Economic and Financial Indicators, 2020–27
2. Balance of Payments, 2020–27 (Billions of CFAF)
3. Balance of Payments, 2020–27 (Percent of GDP)
4. Budgetary Central Government Operations, GFSM 2001 Classification, 2020–27
5. Central Government Operations, GFSM 2001 Classification, 2020–27
6. Monetary Survey, 2020–23
7. Financial Soundness Indicators for the Banking Sector, 2015–21
8. External Financing Requirements and Sources, 2021–27
9. Capacity to Repay the Fund 2022–32
10a. Schedule of Reviews Under the Policy Coordination Instrument, 2020–22
10b. Proposed Schedule of Reviews and Disbursements Under the Standby Arrangement and the Arrangement Under the Stand-by Credit Facility, 2021–22
APPENDIX
Appendix I. Letter of Intent/ Program Statement
Attachment I. Supplement to the Memorandum of Economic and Financial Policies/Program Statement for 2022
Attachment II. Technical Memorandum of Understanding
ANNEXES
I. Macroeconomic Spillovers from the War in Ukraine and Sanctions against Mali
II. Food Inflation in Senegal: Impact and Policies
III. Energy Subsidy Reform
IV. Risk Assessment Matrix
V. Debt Holder Profile Table
VI. Capacity Development
