IMF Executive Board Completes Third Review under the PSI for Senegal and Concludes 2016 Article IV Consultation

December 2, 2016

  • Program performance through September 2016 has been satisfactory
  • Growth is expected to exceed 6 percent in 2016, while inflation remains low
  • The financial sector should play a stronger role in supporting private-sector led growth

The Executive Board of the International Monetary Fund (IMF) completed the third review of Senegal’s economic performance under the program supported by the Policy Support Instrument (PSI) [1] approved on June 24, 2015 (see Press Release No. 15/297). The Board also concluded the 2016 Article IV Consultation [2] with Senegal. The Board’s decision was taken on a lapse of time basis. [3]

Senegal’s macroeconomic situation is stable. Growth is expected to exceed 6 percent in 2016, while inflation remains low. The fiscal deficit has been declining steadily from 5.5 percent of GDP in 2013 and is projected to reach 4.2 percent of GDP in 2016. The current account deficit has narrowed and is projected to reach 6.5 percent of GDP in 2016, driven by lower oil prices and improved export performance.

Program performance through September 2016 has been satisfactory. All end-June 2016 assessment criteria and indicative targets were met, except for the indicative target on tax revenue which was missed by a very narrow margin due to lower-than projected customs revenue. Of the five structural benchmarks (SBs) set for the period from June to October 2016, three were met. Of the other two SBs, one has been implemented and the other on the

reorganization of the tax office will be postponed as part of a wider reform.

In completing the third review of Senegal’s economic performance under the program supported by the PSI and concluding the 2016 Article IV consultation with Senegal, Executive Directors endorsed staff’s appraisal, as follows:

Implementation of the first set of PSE projects has helped move Senegal to a higher growth path, but sustaining this growth over the medium term requires steadfast implementation of reforms that would enable SMEs to thrive and attract FDI for globally competitive production. Continued efforts to increase the competitiveness of the private sector, including through making tax collection more transparent, lowering electricity costs and improving service distribution, and creating an environment where SMEs and FDI can contribute to broad-based growth, will allow the private sector to take the reins of growth over the medium term. Staff welcomes efforts to revamp the rules for the SEZ, drawing on the experience of China and Mauritius, and with input from organizations representing the investors from China, Europe and the US. It will be important, however, for the SEZ to move away from tax holidays and to have a transparent, rules‑based tax regime that is easy to comply with and has reasonable rates.

The authorities are committed to preserving macroeconomic stability. Efforts to increase revenue collection and rationalize public consumption have helped control budget deficits. However, these efforts need to be pursued with further vigilance, particularly with respect to the wage bill, a more transparent and fairer public sector wage remuneration system and a more equitable and efficient collection of taxes, where tax expenditures are significantly reduced. Reforms to ensure everyone pays their fair share of taxes in a transparent system, should make it possible to raise more revenue, whilst removing tax disincentives facing SMEs and FDI in globally competitive activities. The use of comfort letters to encourage bank financing of projects in advance of budget appropriations can undercut fiscal discipline and create contingent liabilities, and should be kept to the absolute minimum.

The financial sector should play a stronger role in supporting private-sector led growth. Financial indicators are improving, but from a low level. Regional supervision should be strengthened, including with a view to further reducing non-performing loans. Domestic reforms are needed to improve incentives for extending credit.

Senegal remains at low risk of debt distress, but debt levels are rising. Increased non-concessional borrowing, including on the regional market, has raised the debt service burden on the budget. Maintaining its low risk of debt distress is predicated on sustaining the high levels of growth envisaged under the PSE while adhering to the planned fiscal consolidation path, which will require rapid progress in fostering private investment. Better selection, evaluation and monitoring of investment projects to ensure a strong economic return and accessing concessional and semi‑concessional borrowing whenever possible as part of a comprehensive debt management strategy will contribute to keeping debt on a sustainable path while ensuring efficient implementation of the public investment program envisaged under the PSE. Moreover, there is an urgent need to strengthen Treasury operations that are under pressure from legacy arrears and financial difficulties of the postal system. Staff welcomes the authorities’ intention to take stock of the pressures on the Treasury by conducting an audit by end-March 2017 and formulate an action plan as soon as possible.

The outlook for the Senegalese economy is positive and risks are manageable, provided there is a concerted effort to continue improving economic governance. PSE success depends on rapidly implementing the critical mass of reforms which have been identified, including from the peer learning catalyzed by the Fund. An explicit review of the political economy of reforms should facilitate implementation of these reforms. However, risks, mainly domestic, relate to the entrenched rent seeking and patronage that may hinder opening up economic space and ensuring that everyone pays their fair share of taxes in a transparent system. Failure to overcome these lobbies for the status quo would, as has happened four times since 1990, result in the current growth momentum being lost. External risks include possible increases in the cost of public borrowing and slow growth in key partner countries. Security risks in the region could also adversely affect investment and, hence, growth and exports.

Senegal: Selected Economic and Financial Indicators, 2014–21

2014

2015

2016

2017

2018

2019

2020

2021

Actual

CR 16/3

Proj.

Projections

(Annual Percentage change)

National income and prices

GDP at constant prices

4.3

6.5

5.9

6.6

6.8

7.0

7.1

7.1

7.1

Of which: non-agriculture GDP

4.5

4.8

5.8

6.1

6.5

6.8

6.9

6.9

7.0

GDP deflator

-1.0

0.0

1.8

1.8

1.8

1.9

1.7

1.8

1.8

Consumer prices

Annual average

-1.1

0.1

1.3

1.1

1.7

1.8

1.8

1.8

1.8

End of period

-0.8

0.4

1.3

1.5

1.8

1.8

1.8

1.8

1.8

External sector

Exports, f.o.b. (CFA francs)

3.5

13.4

3.6

2.8

10.7

9.6

10.7

11.3

8.7

Imports, f.o.b. (CFA francs)

-1.1

3.3

5.8

2.4

8.9

9.2

9.8

7.6

7.5

Export volume

6.9

15.8

5.5

7.8

5.9

7.5

8.5

9.8

8.0

Import volume

4.1

13.8

6.4

8.6

8.6

8.1

7.4

7.5

6.1

Terms of trade ("–" = deterioration)

1.8

7.9

-1.3

1.2

4.3

0.9

-0.1

1.3

-0.6

Nominal effective exchange rate

2.5

-3.9

…

…

…

…

…

…

…

Real effective exchange rate

-0.8

-5.9

…

…

…

…

…

…

…

(Changes in percent of beginning-of-year broad money, unless otherwise indicated)

Broad money

11.4

13.4

7.1

8.5

8.7

…

…

…

…

Net domestic assets

6.1

13.0

8.4

10.7

11.9

…

…

…

…

Domestic credit

2.8

11.2

7.1

9.9

11.1

…

…

…

…

Credit to the government (net)

-2.6

3.7

-1.1

0.2

1.9

…

…

…

…

Credit to the economy (net) (Percentage growth)

6.4

6.5

8.7

10.3

9.2

…

…

…

…

(Percent of GDP, unless otherwise indicated) ¹

Government financial operations

Revenue

24.8

25.1

24.3

26.4

25.0

24.7

24.6

24.5

24.6

Grants

3.3

2.9

3.0

2.7

2.6

2.7

2.7

2.6

2.5

Total expenditure

29.8

29.9

28.6

30.7

28.7

27.7

27.6

27.5

27.6

Net lending/borrowing (Overall Balance)

Excluding grants

-8.5

-7.7

-7.2

-7.0

-6.3

-5.7

-5.8

-5.7

-5.5

Including grants

-5.0

-4.8

-4.2

-4.2

-3.7

-3.0

-3.0

-3.0

-3.0

Primary fiscal balance

-3.3

-2.8

-2.4

-2.4

-1.6

-0.8

-0.8

-0.8

-1.0

Savings and investment

Current account balance

(Official transfers included)

-8.9

-7.4

-8.7

-6.5

-6.9

-7.0

-7.2

-6.9

-6.8

Current account balance

(Official transfers excluded)

-9.8

-8.2

-9.7

-7.3

-7.6

-7.8

-8.1

-7.7

-7.6

Gross domestic investment

25.1

24.0

27.0

27.2

27.4

27.3

26.6

27.6

27.8

Government 1

6.8

6.8

7.1

7.7

7.6

7.2

7.2

7.3

7.3

Non-government

18.3

17.2

19.9

19.4

19.8

20.1

19.5

20.4

20.5

Gross national savings

16.1

16.6

18.3

20.7

20.5

20.3

19.5

20.7

21.0

Government

1.8

2.0

2.7

3.5

4.0

4.2

4.1

4.2

4.3

Non-government

14.4

14.6

15.5

17.2

16.5

16.1

15.4

16.5

16.7

Total public debt

54.2

56.9

55.1

59.3

57.3

56.0

54.9

53.3

52.5

Domestic public debt 2

13.9

15.8

15.8

19.3

18.6

18.5

18.4

17.5

17.4

External public debt

40.3

41.1

39.3

39.9

38.7

37.5

36.5

35.8

35.1

External public debt service

Percent of exports

7.4

11.0

10.0

8.9

8.8

9.4

9.4

9.2

16.1

Percent of government revenue

10.4

15.7

12.9

11.0

11.6

12.4

12.5

12.2

19.9

Memorandum item:

Gross domestic product (CFAF billions)

7,583

8,078

8,792

8,763

9,528

10,392

11,319

12,335

13,451

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

1 Reflects reclassification of public investment.

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



[1] The PSI is an instrument of the IMF designed for countries that may not need, or want, IMF financial assistance, but still seek IMF advice, monitoring and endorsement of their policies. The PSI helps countries design effective economic programs that, once approved by the IMF's Executive Board, signal to donors, multilateral development banks, and markets the Fund's endorsement of a member's policies (see http://www.imf.org/external/np/exr/facts/psi.htm).

[2] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

[3] The Executive Board takes decisions under its lapse of time procedure when it is agreed by the Board that a proposal can be considered without convening formal discussions.

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