Press Release No. 18/406

IMF Staff Completes 2018 Article IV Consultation Discussions and Review Mission to Senegal

October 31, 2018

• Growth is expected to remain above 6 percent in 2018 for the fifth consecutive year while inflation remains low.
• Program implementation in the first half of 2018 was broadly satisfactory, but meeting the end-December fiscal targets will require major efforts given the large shortfall in domestic revenues at end-September 2018.
• The 2019 budget is consistent with the WAEMU fiscal deficit target of 3 percent of GDP, but achieving this target may prove challenging.

A staff team from the International Monetary Fund (IMF), led by. Michel Lazare, visited Dakar on October 18-31, 2018 and engaged in discussions as part of the 2018 Article IV Consultation and the seventh review of the IMF’s Policy Support Instrument (PSI) approved in June 2015 .

At the conclusion of the visit, Mr. Lazare issued the following statement:

“Growth is expected to stay strong in 2018. It is projected to exceed 6 percent for the fifth consecutive year, driven by both public and private investment. Growth is supported by strong performances in the construction and services sectors, but was hindered in the agricultural sector by late and insufficient rainfall. Inflation over the twelve months through September was below one percent and is projected to remain low for the rest of 2018.

“Program implementation in the first half of 2018 was broadly satisfactory. While most quantitative targets were met at end-June, the fiscal deficit target was met partly through a slower-than-expected execution of public spending to compensate for the large shortfall in domestic revenues. Furthermore, the ceiling on the share of the value of public sector contracts subject to single sourcing has not been respected since December 2017 mainly due to spontaneous offers.

“However, pressures have been rapidly building in the fiscal sector over the last few months. Revenues are now projected to fall short of the December 2018 target by 0.9 percent of GDP. Rising global oil prices, coupled with stable retail energy prices, continued pressure on current expenditures, and substantial treasury financing of SN La Poste has further contributed to a very challenging budget situation. This led to an accumulation of unmet obligations to the energy sector and payment delays to other suppliers and economic operators. Meeting the end-December fiscal targets for 2018 under the PSI will require major efforts. The authorities have agreed to cut substantially non-urgent domestically-financed capital expenditure and non-wage current spending to stay within the agreed fiscal envelope.

“To help contain fiscal pressures and risks to completion of the review, the authorities have agreed to significantly strengthen public financial management through: (i) permanently limiting Treasury financing of SN La Poste, and (ii) ceasing use of various budgetary letters that commit central government to expenditures beyond the current budget year or to expenditures outside the budget.

“Most of the structural reforms for the seventh review have been implemented. But there have been delays in the operationalization of the payment of taxes via mobile phones, and limited progress has been made in implementing the action plan for reducing tax expenditures.

“The 2019 draft budget is consistent with the WAEMU fiscal deficit target of 3 percent of GDP. However, achieving this target will prove challenging given the recent weakness of revenue collection and the adverse fiscal impact of persistently high global oil prices.

“In the medium term, the authorities need to develop a tax policy and revenue administration strategy to reach the WAEMU tax revenue to GDP target of 20 percent over the medium term. They also need to set up a fiscal framework to manage the oil and gas wealth in line with international best practices that should aim at limiting the procyclicality of fiscal policy. The debt management strategy should aim to increase the share of domestic debt in total debt and rely on concessional debt whenever possible.

“The second phase of the Plan Senegal Emergent (PSE) aims to address the structural challenges to prolong recent strong growth performance. The authorities are implementing measures to reinforce the implementation of key reforms in the PSE, including to further develop the financial sector and improve the flow of credit to small and medium size enterprises, reduce energy costs, and simplify tax administration to improve the business environment and allow the private sector to drive sustainable growth.

“The seventh review under the PSI is scheduled to be taken up by the IMF Executive Board in January 2019.”

The team met with H.E. the President of the Republic, Macky Sall, the Ministers for the economy, finance and planning, Amadou Ba, petroleum and energy, Mansour Elimane Kane, the BCEAO National Director, Ahmadou Lo, and other senior government officials as well as development partners and civil society. The team wishes to thank the authorities for the close working relationship and climate of openness in evidence throughout the discussions.