The Executive Board of the International Monetary Fund (IMF) completed today the seventh review of Senegal's economic performance under the program supported by the Policy Support Instrument (PSI). The Board's decision was taken on a lapse of time basis.1
The PSI was approved by the Executive Board on December 3, 2010 (see Press Release No. 10/469). The IMF's framework for PSIs is designed for low-income countries that may not need, or want, IMF financial assistance, but still seek IMF advice, monitoring and endorsement of their policies. PSIs are voluntary and demand driven (see Public Information Notice No. 05/145).
GDP growth was lower than expected in 2013, with a preliminary estimate by the authorities of 3.5 percent, reflecting lower agricultural production and temporary problems in the industrial sector and mining. In contrast, activity in the telecommunications and construction sectors was buoyant. Inflation declined to 0.7 percent on average owing to softer agricultural commodity prices in international markets. Growth is projected to increase to 4.9 percent in 2014, because of stronger activity in agriculture, mining, and industry. Inflation would remain subdued.
Program implementation has been mixed. All quantitative assessment criteria and all but one indicative targets for end-2013 were met, including on the budget deficit despite a significant revenue shortfall. However, structural reform implementation has been slow, with a number of benchmarks met after their respective deadlines.
The authorities' intention to continue reducing the fiscal deficit from 5.5 percent of GDP in 2013 to 5.1 percent in 2014 is welcome. Strong efforts will be needed on the revenue side to offset part of the 2013 revenue shortfalls. The recent review of current and capital expenditures, with a view to identifying less productive spending to be streamlined, is welcome and a step towards increasing the efficiency of public spending and aligning the budget with the priorities of the new growth strategy. Efforts should be made to improve fiscal transparency and make fiscal accounts more meaningful. From this perspective, it is highly desirable to accelerate the implementation of the WAEMU directives on public financial management and of the plan to reform public agencies, which was approved in late 2013. The authorities' commitment to improve transparency by being more explicit about the cost of certain transfers and subsidies, including those in favor of the energy sector, and by reporting on the implementation of the reform of public agencies is welcome.
The authorities' new growth strategy--the Plan Sénégal Emergent-- offers a good diagnostic and a vision for Senegal. Ownership of the plan at the highest level and strong support from the international community should facilitate implementation. The renewed strong commitment to preserving fiscal sustainability is welcome. In light of the poor productivity performance in recent years, the focus should be on raising economic efficiency more than increasing the volume of investment. Accelerating reforms to improve the business environment and a deep reform of the state are critical for this purpose. Reforming the state would also help create the fiscal space needed to raise public investment without jeopardizing debt sustainability.
1 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.