Senegal and the IMF
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Following the devaluation of the CFA franc in January 1994, Senegal adopted a comprehensive adjustment strategy aimed at achieving sustained economic growth and financial viability over the medium term, in the context of increased regional cooperation and economic integration. Senegal made important strides under its first annual ESAF-supported program. Overall, the macroeconomic objectives of the program were largely achieved, and the authorities implemented a wide range of structural measures.
The Medium-term Strategy and the Program for 1995-96
Building on the progress achieved so far, Senegal's adjustment efforts for 1995-98 aim at achieving its medium-term goals of economic growth and financial viability over the medium term through continued sound management policies and the deepening and acceleration of structural reforms. The basic macroeconomic objectives are (i) to achieve an average annual economic growth rate of some 4 1/2 percent; (ii) to lower the average inflation rate to less than 3 percent by 1996; and (iii) reduce the external current account deficit, excluding official transfers, to about 6 percent of GDP by 1998, a level seen as broadly consistent with external viability.
Within this medium-term strategy, the program for 1995-96 to be supported by the second annual ESAF loan has as its main objectives to (i) achieve an annual increase in real GDP of 4 1/2 percent; (ii) limit the rate of inflation to about 8 percent in 1995 and to less than 3 percent in 1996; and (iii) contain the external current account deficit, excluding official transfers, to 8 percent of GDP in 1995 and 7 1/3 percent of GDP in 1996.
To achieve these objectives, the authorities will reduce the overall fiscal deficit (excluding grants) to 2 percent of GDP in 1996, from 5.7 percent in 1994 and 3.3 percent in 1995 through specific measures designed to increase government revenue by 1.5 percent of GDP, and to cut total expenditure by 2.2 percent of GDP over the two-year period 1995-96. Monetary policy will continue to be based on the use of indirect instruments put in place by the BCEAO (Central Bank) in October 1993, notably a flexible interest rate policy consistent with the exchange rate peg, reliance on reserve requirement ratios, and a strengthened role for the money and interbank markets.
The structural measures that constitute the other pillar of the program are designed to promote the development of a dynamic private sector and to support rapid and sustained economic and per capita income growth. The structural reforms focus on three main areas: (i) further price and trade liberalization, and modernization of the regulatory framework; (ii) strengthening reforms in the agricultural sector; and (iii) accelerating public enterprise reform.
Addressing Social Costs
The Government's strategy in the social and environmental areas aims at increasing the standard of living, reducing poverty, and improving the management of natural resources and the urban environment. To further enhance human resource development, the authorities intend to raise the enrollment ratio in primary education from the current level of 56 percent to 65 percent by 1998, and to improve the efficiency of expenditures in the education sector. In the health sector, the Government aims to expand the coverage of primary health care and family planning, reduce maternal mortality by half, and promote the procurement and distribution of generic drugs by the private sector.
The Challenge Ahead
Senegal made important strides under its first annual ESAF-supported program, but the economic situation remains fragile. The authorities must, therefore, persevere with their adjustment efforts, consolidate the progress made, and improve performance in those areas where weaknesses have emerged, by improving revenue performance, pursuing spending restraint, while providing adequately for health and education; following a prudent credit policy, and deepening financial intermediation; and accelerating the next phase of structural reforms.
Senegal joined the IMF on August 31, 1962 and its quota2 is SDR 118.9 million (about $176 million). Its outstanding use of IMF credit currently totals SDR 215 million (about $319 million).
Sources: Senegalese authorities; and IMF staff estimates and projections.
1. The ESAF is a concessional IMF lending facility for assisting low-income members that are undertaking economic reform programs to strengthen their balance of payments and improve their growth prospects. ESAF loans carry an interest rate of 0.5 percent and are repayable over 10 years with a 5 1/2-year grace period.
2. A member's quota in the IMF determines, in particular, the amount of its subscription, its voting weight, its access to IMF financing, and its allocation of SDRs.
IMF EXTERNAL RELATIONS DEPARTMENT