An International Monetary Fund (IMF) mission headed by Mr. Hervé Joly visited Senegal May 2-15, 2012 to conduct the third review of the three-year arrangement under the Policy Support Instrument (PSI), approved in December 2010. Members of the mission met with the President of the Republic, the Prime Minister, and the Ministers of Economy and Finance and of Energy, as well as representatives of the BCEAO, other senior government officials, and representatives of the private sector, civil society, and the development partners.
At the end of the visit, Mr. Joly made the following statement:
"The mission welcomes the determination of the new government to pursue the implementation of the program supported by the policy support instrument (PSI, 2011-13). The principal objectives of the program are to: (i) keep public finances under control so as to maintain macroeconomic stability; (ii) increase fiscal revenue with a view to creating greater fiscal space for the financing of priority expenditures; (iii) pursue the consolidation of public financial management and improve governance; and (iv) promote private sector development. These objectives are consistent with those of the new government. Senegal is, however, facing a difficult external environment, a resurgence of regional instability, and the impact of a severe drought on the population and the economy. These developments create the need to make adjustments in the implementation of the program without calling into question the program's guiding principles.
"Macroeconomic developments in 2011 were less positive than expected because of the drought in the Sahel region. The steep decline of agricultural production despite sound results in the other sectors of economic activity has limited GDP growth to 2.6 percent. Inflation stood at 3.4 percent in 2011, driven by the increase of food and transport prices, in a context of rising global commodity prices.
"An upturn in growth is anticipated in 2012, to 3.9 percent, notwithstanding a less favorable external environment. A recovery of agricultural production (assuming normal rainfall patterns) and public investment in infrastructure are expected to support growth. Inflation should remain moderate, at about 2.5 percent, in 2012.
"There was a significant slowdown at end-2011/early 2012 in the program's implementation, in a tense pre-electoral context. The fiscal deficit target for 2011 was not met because of current expenditure overruns and tax revenue shortfalls. Progress was made in the implementation of structural reforms, but at a markedly slower pace than envisaged in the program.
"The discussions between the authorities and the mission focused on how to keep public finance developments under control. In the absence of remedial measures, the fiscal deficit could exceed 8 percent of GDP this year-clearly, an unsustainable level. There are several reasons for this situation, which will require different policy responses. The need to provide assistance to drought victims and the downturn in growth make the upward revision of the deficit target warranted. A large portion of the deficit's widening appears, however, to stem from the provision of energy price subsidies (electricity tariffs , petroleum product), which are expected to reach the very high cost, for public finances, of CFAF 150 billion in 2012 (2 percent of GDP). The mission urges the authorities to replace these subsidies with measures that are more efficient and better targeted to the poorest segments of the population.
Eventually, the 2012 deficit target was raised from 5.6 percent to 6.4 percent of GDP. The new target should be achieved through major efforts to reduce government current spending and the postponement of some non-priority capital expenditure. The government has also committed to make up for the late payments to the private sector accumulated before the presidential elections.
"The mission congratulates the authorities for their firm commitment to improve public governance, transparency, and the efficiency of public expenditure; it notes that steps in this direction have already been taken or announced, such as the reduction of the size of the government and the restructuring of agencies. The mission also welcomes the authorities' confirmation of their intention to pursue the other key reforms in the program, in particular in the areas of taxation and energy.
"The conclusion of the third review of the program by the IMF Executive Board could take place in July 2011."