Press Release: IMF Approves Three-Year ESAF Loan for Senegal
April 21, 1998
The International Monetary Fund (IMF) has approved a new three-year loan for Senegal under the Enhanced Structural Adjustment Facility (ESAF)1, in an amount equivalent to SDR 107.0 million (about US$144 million), to support the government’s economic program for 1998-2000. The first annual loan, equivalent to SDR 35.7 million (about US$48 million), is available in two equal semiannual installments, the first of which, equivalent to SDR 17.8 million (about US$24 million), will be made available on April 30, 1998.
Senegal has successfully implemented its adjustment and reform programs supported by the three-year ESAF arrangement that expired on January 12, 1998. Significant progress has been made in reducing financial imbalances, containing inflation, restoring competitiveness, and lessening distortions, thus revitalizing the private sector and boosting the growth prospects of the economy. Despite these improvements, Senegal’s economic performance remains impeded by deep-seated structural rigidities and is vulnerable to external shocks; and poverty is still widespread. There have been delays in carrying out some reforms, in particular privatization and energy sector reforms, because of difficulties at the technical level and resistance from various interest groups.
Medium-Term Strategy and the 1998 Program
The authorities’ program for 1998-2000 aims primarily at: establishing the conditions to achieve real GDP growth of 5-6 percent a year, thereby allowing per capita income to increase by 2-3 percent a year; keeping inflation at less than 3 percent; and reducing the external current account deficit (excluding official transfers) to less than 7 percent of GDP by 2000. Consistent with the medium-term objectives, the program for 1998 aims at: achieving an increase in real GDP of 5.3 percent; limiting average inflation to 2.4 percent; and containing the external current account deficit (excluding official transfers) to 7.3 percent of GDP.
To meet these objectives, fiscal policy is geared toward limiting the overall fiscal deficit, on a commitment basis and excluding grants, to 2 percent of GDP in 1998. On the revenue side, the authorities will take decisive steps to implement the West African Economic and Monetary Union’s Common External Tariff, which will involve a substantial reduction in average import duties. The short-term revenue losses from the tariff reform will be compensated over time by measures to broaden the tax base, drastically reduce exemptions, and improve the efficiency of the tax system. On the expenditure side, the government will maintain a policy of strongfinancial discipline, while reordering priorities in favor of social services and the investment program. Monetary policy is designed to support the external sector and achieve the program’s inflation objectives.
The authorities are committed to speeding up the implementation of their unfinished reform agenda, particularly in the areas of public enterprise and energy sector reforms, and to undertaking new reforms to modernize public administration. In the area of public sector reform, the government intends to develop an action plan to promote good governance both at the central and regional administration levels; further strengthen the judicial system; and build trust and generally more constructive relations with the private sector. These reforms are crucial for bolstering private sector confidence and investment and for irreversibly putting Senegal’s economy on the path to long-term, sustainable economic growth.
Addressing Social Needs
The government will strengthen its program to develop human resources. In the education sector, the government’s objectives are to increase elementary school enrollment to 75 percent in 2000 from 65 percent in 1998, to promote the enrollment of girls, to improve the quality of education at all levels, and to reduce the illiteracy rate to less than 50 percent in 2000 from 62% in 1997. Also, the authorities will implement a national health development plan for the period 1998-2007, focusing on improving the financial stability and management of the public health system, and ensuring that vulnerable groups have access to quality care.
The Challenge Ahead
The year ahead will be crucial for the government to establish full credibility of its policies and consolidate the financial situation. The program objectives, while attainable, require that the government move rapidly in implementing key reforms to strengthen private sector confidence and investment. Risks to the program relate to the social and political situation in an election year, and the government should firmly resist excessive demands from pressure groups seeking to compromise the reforms. The timely availability of external financial assistance will also be key for ensuring the success of the program.
Senegal joined the IMF on August 31, 1962, and its quota2 is SDR 118.9 million (about US$160 million). Its outstanding use of IMF financing currently totals SDR 208 million (about US$279 million).