Senegal: IMF Executive Board Approves Three-Year Policy Coordination Instrument for Senegal

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On January 10, 2020, the Executive Board of the International Monetary Fund (IMF) approved a new three-year Policy Coordination Instrument (PCI) for Senegal.[1]

The PCI for Senegal will build on the lessons from the previous programs supported by the IMF. It aims to support the authorities' efforts to consolidate macroeconomic stability and foster sustained and inclusive growth. Program reviews take place on a semi-annual fixed schedule. While the PCI involves no use of IMF resources, successful completion of program reviews would help signal Senegal's commitment to continued strong economic policies and structural reforms.

Following the Executive Board discussion, Mr. Tao Zhang, Deputy Managing Director and Acting Chair, said:

"Senegal's economic performance during the first phase of the Plan Senegal Emergent has been strong. Growth has been robust, buoyed by favorable external conditions and significant public investment, in the context of an improving business environment. Although public debt has increased and the current account deficit has widened, the outlook remains favorable, provided the authorities follow through with their comprehensive reform strategy and measures to consolidate macroeconomic stability.

"The authorities' economic program supported by the Policy Coordination Instrument (PCI) focuses on achieving high, sustainable, and inclusive growth, consolidating macroeconomic stability through prudent fiscal policy and sound debt management, and managing the oil and gas sector in a transparent manner. The PCI will provide an appropriate framework for a close policy dialogue and signal policy priorities and reform commitments to development partners.

"The reform agenda's focus on promoting private sector‑led and inclusive growth is welcome. Policies to support private sector development will need to be well‑targeted and efficient to achieve the program's objectives.

"Fiscal policy will be anchored by the WAEMU convergence criterion to limit the fiscal deficit to 3 percent of GDP. Further progress to better assess and contain fiscal risks is needed, including by clearing unmet obligations from 2017 and 2018, improving the recording and monitoring of arrears, eliminating below‑the‑line operations, and better managing subsidies.

"Enhanced domestic revenue mobilization and expenditure efficiency will be essential to create further fiscal space. The medium‑term revenue strategy appropriately targets an increase in the tax‑to‑GDP ratio to 20 percent of GDP by 2023.

"Future oil and gas production is likely to have substantial economic benefits. The government's strong commitment to setting up a transparent framework to manage oil and gas revenues is welcome."

ANNEX

Recent economic developments

Economic growth averaged 6.5 percent over the past five years, boosted by public investment under phase I of Senegal's development strategy, the "Plan Sénégal Émergent" (PSE), and buoyant private consumption. High public financing needs led to a rapid increase in public debt and a widening of the current account deficit. Economic growth is estimated at 6 percent in 2019 and inflation remains low at 1.3 percent for the 12-months period ending in October. The current account deficit widened in 2018 to 8.8 percent of GDP owing to higher energy and capital goods imports.

The economic outlook remains favorable. After slowing somewhat in 2019, growth is expected to accelerate to 7 percent in 2020-21, supported by the second phase of the PSE, robust activity in agriculture and services and increasing hydrocarbon-related investments, which would also lead to a temporary widening of the current account deficit to about 11 percent of GDP. Risks to the outlook mostly stem from rising security threats in the region, increasing trade barriers, and large swing in energy prices.

Program Summary

The program to be supported by the new PCI is fully aligned with the second phase of the authorities' PSE and is articulated around three main pillars: (i) achieving high, sustainable, and inclusive growth; (ii) consolidating macroeconomic stability through prudent fiscal policy, including through increasing revenues and spending efficiency, and sound debt management; and (iii) managing the oil and gas sector in a sustainable and transparent manner.

Reform commitments to promote inclusive growth include improving the judicial system, the skill-set of the workforce, access to land and credit, the functioning of the labor market and financial inclusion. The authorities' fiscal policy aims at consolidating macroeconomic stability by targeting a 3 percent of GDP deficit throughout the program period, in line with the WAEMU convergence criterion. A medium-term domestic revenue mobilization strategy is being developed with the objective to increase the tax-to-GDP ratio to 20 percent by 2023. The authorities' aim to set up a strong and transparent governance framework to govern the hydrocarbon sector and both the legal and fiscal framework are in the process of being updated in line with international best practices.

Senegal: Selected Economic and Financial Indicators, 2017-2024

2017

2018

2019

2020

2021

2022

2023

2024

Act.

Prel.

Projections

(Annual percentage change)

National income and prices

GDP at constant prices

7.1

6.7

6.0

6.8

7.0

8.4

11.6

8.0

Of which: Non-hydrocarbon GDP

7.1

6.7

6.0

6.8

7.0

7.1

7.4

7.3

Of which: Hydrocarbon GDP

...

...

...

...

...

...

359.6

21.3

Of which: Non-agriculture GDP

6.3

6.4

6.0

6.6

7.0

8.8

12.2

7.3

GDP deflator

0.6

0.6

1.1

1.1

1.8

1.2

2.4

2.3

Consumer prices

Annual average

1.3

0.5

1.0

1.5

1.5

1.5

1.5

1.5

End of period

-0.7

1.3

2.0

1.5

1.5

1.5

1.5

1.5

External sector

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

12.0

10.0

13.8

13.8

13.4

24.0

37.0

10.1

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

21.2

13.5

7.8

11.4

10.8

6.2

8.6

11.3

Export volume

11.3

7.9

12.0

13.6

12.0

28.9

41.6

8.8

Import volume

19.0

11.7

7.5

10.3

12.3

6.5

9.5

9.7

Terms of trade ("-" = deterioration)

-1.3

0.4

1.4

-0.8

2.6

-3.5

-2.5

-0.2

Nominal effective exchange rate

1.8

4.1

...

...

...

...

...

...

Real effective exchange rate

0.5

1.7

...

...

...

...

...

...

(Changes in percent of beginning-of-year broad money)

Broad money

9.2

14.2

9.1

6.6

...

...

...

...

Net domestic assets

6.6

4.8

4.9

9.1

...

...

...

...

Credit to the government (net)

-0.8

1.5

3.4

3.0

...

...

...

...

Credit to the economy (net)

12.9

1.4

4.4

6.6

...

...

...

...

(Percent of GDP, unless otherwise indicated)¹

Government financial operations

Revenue

19.5

18.6

20.3

20.7

21.5

22.0

22.7

23.0

Grants

2.2

2.0

1.9

1.9

1.9

1.8

1.7

1.6

Total expenditure

22.5

22.2

24.0

23.7

24.5

25.0

25.7

26.0

Net lending/borrowing (Overall Balance)

excluding grants

-5.2

-5.6

-5.7

-4.9

-4.9

-4.8

-4.7

-4.7

including grants

-3.0

-3.6

-3.7

-3.0

-3.0

-3.0

-3.0

-3.0

Net lending/borrowing (Overall Bal., excl. SENELEC op)

-3.0

-3.6

-3.0

-3.0

-3.0

-3.0

-3.0

-3.0

Primary fiscal balance

-1.1

-1.6

-1.8

-0.9

-1.1

-1.3

-1.5

-1.5

Savings and investment

Current account balance (official transfers included)

-7.3

-8.8

-9.2

-10.7

-10.5

-7.7

-3.8

-3.7

Current account balance (official transfers excluded)

-7.8

-9.0

-9.4

-10.9

-10.9

-8.0

-4.1

-4.0

Gross domestic investment

29.7

30.1

30.7

32.2

35.2

35.0

35.6

36.6

Government 2

6.8

6.4

7.5

7.7

8.5

8.8

9.2

9.4

Nongovernment

22.9

23.7

23.2

24.5

26.8

26.2

26.4

27.2

Gross national savings

22.4

21.3

21.5

21.5

24.7

27.3

31.9

32.9

Government

6.1

5.7

7.9

8.6

8.9

9.5

11.5

12.6

Nongovernment

16.3

15.6

13.7

12.9

15.8

17.8

20.4

20.3

Total public debt 3

61.2

61.4

63.7

61.9

60.8

59.6

56.0

54.7

Domestic public debt 4

21.4

13.0

10.2

10.0

9.8

10.9

11.5

12.7

External public debt

39.8

48.5

53.5

51.9

51.0

48.8

44.5

42.0

Total public debt service 3

Percent of government revenue

28.3

42.7

29.8

29.8

22.8

22.0

19.6

22.6

Memorandum items:

Gross domestic product (CFAF billions)

12,159

13,046

13,983

15,085

16,421

18,015

20,573

22,722

of which non-hydrocarbon (CFAF billions)

12,159

13,046

13,983

15,085

16,421

17,740

19,277

21,119

Gross domestic product (USD billions)

20.9

23.5

...

...

...

...

...

...

Share of hydrocarbon in total GDP (%)

...

...

...

...

...

1.5

6.3

7.1

National Currency per U.S. Dollar (Average)

581

555

...

...

...

...

...

...

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

1 Based on new national accounts rebased to 2014.

2 Reflects reclassification of public investment.

3 Starting in 2017 debt level, debt service and government revenue include preliminary data covering the broader public sector.

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

[1] The PCI is available to all IMF members that do not need Fund financial resources at the time of approval. It is designed for countries seeking to demonstrate commitment to a reform agenda or to unlock and coordinate financing from other official creditors or private investors. (see https://www.imf.org/en/About/Factsheets/Sheets/2017/07/25/policy-coordination-instrument).

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