Press Release: IMF Approves Second Annual ESAF Loan for Senegal
July 12, 1999
The International Monetary Fund (IMF) today approved the second annual loan under the Enhanced Structural Adjustment Facility (ESAF)1 to support Senegal's economic and financial program. The three-year ESAF loan was approved on April 20, 1998 in an original amount of SDR 107.01 million (about US$141.94 million), of which SDR 35.67 million (about US$47.31 million) has been disbursed. Today's decision provides Senegal with another SDR 35.67 million to be disbursed during the second annual economic and financial program supported by the ESAF, with SDR 14.27 million (about US$18.92 million) available immediately.
In commenting on the Executive Board's discussion of the request by Senegal, Alassane D. Ouattara, Deputy Managing Director of the IMF, made the following statement:
"Directors welcomed Senegal's continued macroeconomic stability under the ESAF-supported program. Economic performance in 1998 had been strong, with relatively high growth, low inflation, and a decline in the external current account deficit. A broadly similar performance was expected in 1999.
"Directors also welcomed the orientation of fiscal policy to raising revenues and curtailing non-essential expenditures so as to create room for social expenditures to rise without threatening financial stability. They welcomed the planned reduction in domestic debt. Directors looked forward to full implementation of the Common External Tariff of the West African Economic and Monetary Union (WAEMU) on January 1, 2000, which would include reduction in the maximum tariff rate and the elimination of distortionary features of the trade system. Directors attached importance to proceeding as rapidly as possible with the planned reform of the VAT, so as to offset revenue losses from tariff reductions.
"Directors emphasized the need for effective government expenditure to promote human resource development, alleviate poverty, and improve Senegal's social indicators. Directors stressed, in particular, the importance of improvements in education, provision of basic health services, andinvestment in rural infrastructure. A merit-based system for government salaries was seen as important in improving the efficiency of spending.
"Acceleration and deepening of structural reforms remain central in removing impediments to private enterprise and sustaining economic growth. Directors welcomed the authorities's program to complete the privatization and restructuring of publicly-owned enterprises by end-2000, and emphasized the need for liberalization of the energy and transport sectors. Directors encouraged the authorities to press ahead with their ongoing efforts to strengthen the judicial and legal systems, and improve governance."
During the first ESAF-supported annual program, Senegal has maintained the sound macroeconomic policy stance adopted during the previous three-year program and has implemented the medium-term reform strategy in a broadly satisfactory manner. Economic performance in 1998 was good, with strong real GDP growth, lower inflation, and a reduction in the external current account deficit relative to GDP.
The medium-term strategy under the program is to achieve higher growth by raising investment rates and productivity. The program 2 for 1999-2001 seeks to raise real GDP growth to 6.4% in 1999 and 6% in 2001 from 5.7% in 1998, with investment rising to about 20% of GDP in 1999-2001 from 18% in 1998. At the same time, domestic savings are programmed to increase to about 14% of GDP in 1999 and 15% in 2001 from 12% in 1998. Annual inflation is to be held at around 2%, and the external current account deficit (excluding official transfers) is expected to narrow to less than 6% of GDP in 2001.
To meet these objectives, the government policies aim at strengthening financial viability while reducing the structural rigidities that have constrained growth in the past. The government will, in particular, lower taxes on international trade in the context of the adoption of the common external tariff of the West African Economic and Monetary Union (WAEMU) and reform the indirect domestic taxation system and will implement specific measures aimed at strengthening the customs and tax administrations. Monetary policy will continue to be conducted at the regional level by the Central Bank of the West African States (BCEAO) through the use of direct, market-based instruments.
In 1999, the government will continue to contain the growth of current expenditures to ensure adequate funding for priority social sectors, maintenance of public infrastructure, and investment. The share of the social sectors in the operating budget is expected to reach 38%, with 31% going to education and 7% to health. In addition, the authorities will improve policy formulation in health, education, and justice, based on the public expenditure reviews conducted in 1997-98.
Structural reforms will focus on sustaining the overall strategy to accelerate private sector-led growth and to achieve a lasting reduction in poverty. Some of the key measures center on finalizing the privatization and restructuring of public enterprises, developing a favorable environment for the private sector, deepening sectoral reforms, improving human resource management, and promoting economic integration among the WAEMU countries. To completethe privatization process, the authorities have drawn up a list of enterprises to be privatized in 1999-2000, thirteen of which will be put up for sale in 1999.
Senegal joined the IMF on August 31, 1962, and its quota 3 is SDR 161.80 million (about US$214.61 million). Its outstanding use of IMF financing currently totals SDR 192.42 million (about US$255.22 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 to improve their growth prospects. ESAF loans carry an interest rate of 0.5% a year and are payable over 10 years with a 5 ½-year period.
2 Details on the program will be available on the IMF’s website: http://www.imf.org.external/np/loi/mempub.asp.
3A 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.