Public Information Notice: IMF Concludes 2002 Article IV Consultation with Senegal

June 19, 2003

Public Information Notices (PINs) are issued, (i) at the request of a member country, following the conclusion of the Article IV consultation for countries seeking to make known the views of the IMF to the public. This action is intended to strengthen IMF surveillance over the economic policies of member countries by increasing the transparency of the IMF's assessment of these policies; and (ii) following policy discussions in the Executive Board at the decision of the Board. The staff report (use the free Adobe Acrobat Reader to view this pdf file) for the 2002 Article IV consultation with Cape Verde is also available.

On April 28, 2003, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Senegal.1


In the second half of the 1990s, Senegal's economy profited from a stable macroeconomic environment and progress, albeit uneven, in reducing market distortions. Real GDP growth averaged 5.3 per annum, or 2.5 percent on a per capita basis. Low inflation, steadily decelerating to 0.7 percent in 2000, helped maintain gains in external competitiveness achieved by the 1994 devaluation of the CFA franc. Fiscal policy was generally prudent, with the overall government deficit, including grants, averaging 0.2 percent of GDP in 1995-2000. It was complemented by a cautious monetary stance of the Central Bank of West African States (BCEAO). Senegal's external current account deficit, including current official transfers, remained in the range of 4-6 percent of GDP.

In 2001, the government continued with tackling some of the long-standing structural issues. The groundnut marketing company was liquidated, the State withdrew from price-setting in the groundnut market, parametric reforms enhanced the solvability of the civil service pension system, and the management of the post office was strengthened. However, problems with operations of the electricity and groundnut-processing enterprises weakened public finances, and the reform steps in the pension system and the groundnut sector fell short of the -envisaged agenda. Hence, the last arrangement under Senegal's PRGF expired without the conclusion of the final review.

Overall economic developments in 2002 were mixed. Real GDP growth decelerated to 2.4 percent, reflecting a large drop in agricultural output due to unusually poor and ill-timed rainfalls. Nonagricultural GDP growth remained close to 5 percent, however, boosted by strong manufacturing and construction activity. Inflation remained low, and the external current account deficit (including current official grants) narrowed marginally, on account of strong mining exports and subdued import demand. Broad money was boosted by the repatriation of foreign savings in the context of the Euro conversion.

The government stayed the course of prudent financial management. The unification of VAT rates in September 2001 and strong collection efforts in the second half of 2002 yielded a 10 percent increase in tax revenue. Tight control was exercised over expenditure, and the financial performance of key public enterprises that had required large budget transfers in 2001 improved in 2002. As a consequence, overall government operations (including grants) turned into a surplus of 0.4 percent GDP, from a deficit of 2 percent in 2001, and the government reduced its domestic debt.

The implementation of structural reforms gained momentum in the second half of the year. The authorities adopted a new public procurement code and applied directives of the West African Monetary and Economic Union to strengthen expenditure management. The Investment Promotion Agency (APIX) prepared an action plan to simplify administrative procedures for private investment, drawing on a study by the World Bank's Foreign Investment Advisory Services (FIAS). A Presidential Investors Council, instituted in November 2002, has begun to identify impediments to private investment and reform solutions. Two policy reform committees were created to design reform agendas in the electricity and groundnut sectors.

Executive Board Assessment

Executive Directors agreed with the thrust of the staff appraisal. Directors commended the Senegalese authorities for their continued sound macroeconomic management of recent years. As a result, healthy per capita income growth was maintained, inflation remained low, and the external current account strengthened. Going forward, the key challenge facing Senegal is to raise the rate of economic growth to achieve a sustained reduction of poverty. Directors therefore called upon the authorities to implement structural reforms vigorously while maintaining macroeconomic and debt sustainability. Efforts to boost growth and reduce poverty will need to pay particular attention to reducing the rural/urban divide, improving private sector access to bank financing, enhancing productivity, and reducing labor market rigidities.

Directors urged the authorities to continue to build on their prudent fiscal management of recent years. The fiscal balance will shift to a deficit in 2003, reflecting increased expenditure in priority areas identified in the Poverty Reduction Strategy Paper that will be financed in large part from HIPC debt relief and other concessional assistance. Directors welcomed the authorities' readiness to curtail non-priority spending to protect the fiscal stance. They, nevertheless, urged the authorities to take further measures to boost revenue in 2003 and the medium term, while pursuing the objective of creating a more efficient, transparent, and business-friendly tax system. They felt that this will be helpful to protect expenditure objectives.

Directors welcomed the authorities' decision to base their medium-term financial framework on the prudent scenarios of the PRSP, which reflected cautious assumptions about the government's implementation ability, the economy's absorptive capacity, and aid availability. They supported the authorities' plans to accelerate spending in the social sectors and on basic infrastructure, in line with the priorities outlined in the PRSP. They also called for improved tracking of poverty-related spending.

Directors welcomed the proposals for improvements in the timeliness, scope, and quality of fiscal reporting, and the authorities' commitment to comply with the West African Economic and Monetary Union (WAEMU) expenditure management reform program. They agreed that an increase in civil service employment may be appropriate to alleviate shortages of staff in social services, domestic security, and revenue administration. However, Directors underscored the need to ensure that the increased hiring is based on a careful assessment of staffing requirements, takes into account the long-run impact on the public finances and pension reform, and does not lead to an excessive expansion in public sector employment.

As regards the envisaged large infrastructure projects under public-private partnership, Directors expressed concern about the potential long-term quasi-fiscal and governance risks that could emanate from poorly designed and nonviable projects, as seen in some other countries. Accordingly, they underscored that implementation of these projects should be based on careful cost-benefit analysis, be consistent with fiscal prudence and macroeconomic stability, and draw on fully transparent selection and implementation procedures. In this context, Directors noted the authorities' commitment to provide Fund and World Bank staff, as part of a consultation process, with all the information needed to assess the technical, economic, and financial viability of those projects. At the end of this process, the Fund staff will assess the macroeconomic aspects to ensure consistency with the economic and financial program.

Directors urged the authorities to implement the structural reform agenda with greater determination and urgency in order to stimulate broad-based economic growth, reduce poverty, and strengthen the public finances. They emphasized that decisive action needs to be taken to address the financial and operational problems facing the state-owned electricity and groundnut companies. In this regard, Directors welcomed the development of a medium-term strategy for the energy sector, which includes plans for a carefully-designed privatization of the electricity company (SENELEC) to ensure reliable energy supply at moderate prices and boost productivity. They also called on the authorities to develop and implement reforms in the groundnut sector, including privatization of the groundnut company (SONACOS), which will be crucial for increasing efficiency in this sector and enhancing the prospects of the rural poor, for whom groundnut production is a major source of income. Directors welcomed the authorities' plans to reform the postal service and the pension system to ensure their financial viability, as well as their action plans to strengthen economic governance and remove administrative, regulatory, judicial, and financial impediments to private investment.

Directors noted that Senegal has largely maintained the gains in competitiveness derived from the devaluation of the CFA franc in 1994. They underscored the importance of developing a more diversified export base to reduce the vulnerability of the economy to adverse developments in export markets. Directors endorsed the authorities' efforts to promote growth through regional integration in the context of WAEMU, and welcomed the steps taken to eliminate tariff distortions, remove non-tariff trade barriers, and develop a common regional investment code.

Directors considered that the regional monetary policy of the BCEAO continues to serve Senegal well, by helping to keep inflation low and supporting the exchange rate peg. They were encouraged by the generally good health of the banking system and the measures being taken to further strengthen the financial system and promote financial deepening. Directors urged the authorities to improve the regulatory framework for the microfinance sector, given its growing influence in the financial system; to strengthen contract enforcement; to improve accounting standards in small- and medium-sized enterprises; and to increase information-sharing on creditors among banks. Directors underscored the need to pursue ongoing efforts within the Economic Community of West African States and WAEMU to strengthen legislation and enforcement in the areas of anti-money laundering and combating the financing of terrorism.

Directors regarded the quality of data as generally adequate for surveillance and program monitoring, but saw room for improvement in the timeliness and accuracy of both fiscal information and poverty and social indicators.

It is expected that the next Article IV consultation with Senegal will be held on the 24-month cycle, in accordance with the provisions of the decision on consultation cycles.

Senegal: Selected Economic Indicators






Prel. Est.


(Annual percentage change)

Real economy


Real GDP Growth






Average CPI inflation







(In percent of GDP)

Public finances


Total fiscal revenue (excl. grants)






Total expenditure






Overall balance (incl. grants)






Basic balance







(Annual percentage change)

Monetary accounts


Broad money






Credit to the private Sector







(In percent of GDP)

External sector


Exports of goods and nonfactor services






Imports of goods and nonfactor services






External current account (incl. transfers)






Sources: Senegalese authorities; and IMF staff estimates and projections

1 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. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities.


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