Press Release: IMF Approves Third Annual Loan for Senegal Under ESAF
January 13, 1997
The International Monetary Fund (IMF) today approved the third annual loan under the Enhanced Structural Adjustment Facility (ESAF)1, in an amount equivalent to SDR 35.7 million (about US$51 million), to support Senegal's economic program in 1997. The loan is available in two equal installments, the first of which is available immediately.
Following the CFA franc devaluation in January 1994 and in the context of increased regional cooperation and economic integration, Senegal adopted a comprehensive adjustment strategy aimed at achieving sustained economic growth and financial viability over the medium term. Senegal has made important progress in adjusting and reforming its economy during the past three years, and the 1995-96 program supported by the second annual ESAF arrangement remained broadly on track. Real output grew by 4.8 percent in 1995 and is estimated to have grown by 5.2 percent in 1996, resulting in significant increases in per capita income, while inflation has been contained, and the fiscal deficit reduced. Senegal accepted the obligations of Article VIII effective June 1, 1996.
Medium-Term Strategy and the 1997 Program
The government's medium-term strategy seeks to build on its successful adjustment efforts since 1994 and to establish the basis for sustainable, equitable economic growth led by a dynamic private sector. The medium-term macroeconomic objectives are to achieve average economic growth of at least 4.5 percent a year, allowing for annual increases in real per capita incomes of at least 1.5 percent; to maintain low and stable inflation of 2-3 percent a year; and to reduce the external current account deficit, excluding official transfers, to about 5.5 percent of GDP by 1999.
To these ends, the overall fiscal balance is targeted to move to a moderate surplus in 1999 from a deficit of about 2 percent of GDP in 1996, based on an increase in revenues and measures to contain low-priority expenditures. Expenditures will continue to be reoriented to emphasize public investment and basic health and education services.
Within the medium-term strategy, the key macroeconomic objectives of the 1997 program are to achieve at least 4.5 percent real GDP growth, to lower inflation to 2.5 percent from 2.7 percent in 1996, and to narrow the external current account deficit, (excluding official transfers,) to 6.7 percent of GDP from 8.0 percent in 1996. To achieve these objectives, the program aims to reduce the overall fiscal deficit to 1 percent of GDP in 1997 by increasing the efficiency of the tax system, broadening the tax base, reducing tax fraud, and reducing expenditures in relation to GDP. Control of the government wage bill and reductions in low-priority spending will allow for an increase in social spending, mainly on health and education, to 42.5 percent of total expenditures in 1997 from 41 percent in 1996. Monetary policy in 1997 will continue to be conducted in accordance with the objectives established by the Council of Ministers of the West African Economic and Monetary Union (WAEMU). In particular, the focus will be on strengthening the official external position of the Union while safeguarding the credibility of the parity of the CFA franc through the pursuit of a prudent monetary and credit policy. The program also calls for a reduction in net credit to the government and the maintenance of interest rates at levels that will encourage financial savings and efficient credit allocation.
The program envisages a further strengthening of structural reforms. The government aims to improve the legal and judiciary system in order to promote private initiative and encourage foreign direct investment. Business laws are being harmonized at the regional level to encourage integration and trade. The government will endeavor to complete the privatization of 18 public enterprises by the end of 1997, while sectoral policies are aimed at reforms in the agriculture, transport, and energy sectors. The government's program also includes a number of major environmental initiatives to improve the management of natural resources, in particular, in the areas of soil conservation, sustainable use of forestry resources, urban pollution control, and waste management.
Addressing Social Needs
The government's social objectives under the program are to reduce poverty and strengthen human resource development. The program contains measures to raise enrollment rates in primary education and to reduce adult illiteracy, with particular emphasis on the female population in both cases. The government plans to expand the availability of health services, place higher priority on preventive health care, and promote greater use of generic drugs to reduce pharmaceutical costs. The government recognizes that rapid increases in population constrain the improvement of living standards, and intends to outline a set of policies aimed at reducing the rate of population growth.
The Challenge Ahead
Rapid implementation of key structural reforms will be needed to boost the medium-term growth potential of the Senegalese economy to a level above 4.5 percent of GDP. In addition, Senegal could reach a sustainable external and fiscal position in the near future provided that substantial, albeit declining, assistance on concessional terms can be mustered and that a comprehensive stock of debt operation is granted on Naples or similar terms before the end of 1997. Continued strong commitment to implementing the policies and measures under the program are essential for Senegal to obtain such support.
Senegal joined the IMF on August 31, 1962; its quota2 is SDR 118.9 million (about US$ 170 million); its outstanding use of IMF credit currently totals SDR 226 million (about US$ 324 million).
1The ESAF is a concessional IMF facility for assisting eligible 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 a year and are repayable over 10 years, with a 5-year grace period.
2A member's quota in the IMF determines, in particular, the amount of its subscription, its voting weight, its access to IMF financing, and its share in the allocation of SDRs.