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Press Release No. 01/5
February 16, 2001
International Monetary Fund
700 19th Street, NW
Washington, D.C. 20431 USA

IMF Approves Third Annual PRGF Loan for Senegal

The Executive Board of the International Monetary Fund (IMF) today approved the third annual arrangement under the Poverty Reduction and Growth Facility (PRGF)1 to support Senegal's economic and financial program. The Board also approved the extension of the commitment period of the PRGF arrangement to April 19, 2002, from April 19, 2001. The three-year PRGF loan was approved on April 20, 1998, in an original amount of SDR 107.01 million (about US$138 million), of which SDR 64.21 million (about US$83 million) has been disbursed. Today's decision will provide Senegal with another SDR 42.8 million (US$55 million) to be disbursed during the third annual economic program, with SDR 14.3 million (US$18 million) available immediately.

The Executive Board further approved additional interim assistance for Senegal under the Heavily Indebted Poor Country Initiative2 of SDR 3.1 million (about US$4 million) to help Senegal meet its debt service payments on its existing debt to the IMF.

Following the Executive Board's discussion on Senegal, Eduardo Aninat, Deputy Managing Director and Acting Chairman, said:

"Senegal's macro-economic performance has remained satisfactory in 2000, despite a difficult external environment, and the Fund is encouraged by the new administration's commitment to implement the macroeconomic and structural reform program in a determined manner.

"The policies to be pursued under the 2001 program should sustain Senegal's solid record of macroeconomic performance and growth and underpin its efforts to reduce poverty. To achieve its policy objectives, the government will simplify the tax system, strengthen tax administration, and begin preparations for the restructuring of the pension system. Expenditures will be reallocated to increase the efficiency of public administration and improve education and health services.

"The Fund looks forward to the early adoption of the new single rate VAT law and the reintroduction of the pass-through mechanism for petroleum products as important milestones of the Government's fiscal strategy.

"On the structural front, the resumption of the privatization program and the reform of the energy sector will strengthen the foundations for medium-term growth and employment creation.

"Efforts to reduce poverty will be supported by additional expenditures to be financed with the interim relief granted by Senegal's creditors under the Heavily Indebted Poor Countries (HIPC) Initiative. The IMF's interim assistance has now also been extended until the end of this year. The additional expenditures will be mostly directed to malaria prevention and rural infrastructure projects.

"The challenge is now to protect macroeconomic stability and to forcefully implement the structural reform program in the context of the upcoming legislative elections. The authorities are expected to successfully meet these challenges and also catch up on their timetable for the completion of a Poverty Reduction Strategy Paper (PRSP) that benefits from active civil society participation and that will guide the allocation of resources in future years," Mr. Aninat said.

ANNEX

Program Summary

In 2000, the sharp rise in world oil prices, political and economic difficulties in the region, and shortages of power supply characterized Senegal's economic environment. Despite this difficult environment, however, growth and price developments in 2000 are estimated to have been in line with the program objectives. An exceptionally large harvest and buoyant construction activity compensated for relatively weak growth of the dominant tertiary sector and contributed to an estimated overall real GDP growth of 5.5 percent. Consumer prices rose by 0.7 percent in 2000. Fiscal outcomes for the year 2000 as a whole are projected to have outperformed original program objectives. Monetary developments until end-September 2000 were characterized by a strong growth in credit to the economy. Senegal's external position suffered in 2000 from a deterioration in the terms of trade related to the sharp increase in international petroleum product prices. The implementation of the structural reform program has been mixed.

The government's program under the third annual PRGF loan is aimed at consolidating Senegal's solid record of growth and prudent fiscal policies, while strengthening the efforts to reduce poverty. Real GDP growth under the program is expected to pick up slightly to 5.7 percent in 2001. The decline in crude oil prices and the income windfall from the exceptional harvest are expected to raise profits of private and public enterprises and household income, particularly in the rural sector. This would reverse the decline in private saving experienced in 2000 following the sharp deterioration in the terms of trade. Inflation in 2001 is expected to remain subdued. The external current account balance, excluding current official transfers, is projected to improve by about 2 percentage points of GDP to 6.6 percent in 2001 as a result of strong export growth and a decrease in oil prices. The external position is expected to remain sustainable over the medium term.

Senegal recently sought and received a rating from Standard & Poor's, the first West African country to have ever done so. The sovereign credit rating of B+ for long-term loans puts Senegal on a par with several medium-income countries, which bodes well for the country's ability to attract new investors to Senegal; it will also help the authorities to successfully place treasury bills in domestic and regional markets, following the scheduled elimination of central bank advances by end-2001.

The government's fiscal policy aims at strengthening revenue from domestic sources and improving tax efficiency. Excluding expenditures related to interim HIPC Initiative relief and the reform of the social security system, the government's fiscal position is expected to strengthen, with an improvement in both the basic balance and the overall balance in 2001. The program seeks to further strengthen tax administration and budget management.

In the area of monetary policy, the regional central bank will continue to keep monetary aggregates consistent with maintenance of the fixed exchange rate with the euro. Broad money growth of 7 percent in 2001 is projected to be in line with GDP growth in Senegal.

On structural reforms under the program, the government is reviewing its privatization strategy with the International Finance Corporation (IFC) and the World Bank. A new overall privatization strategy is being developed that will include the method, time frame, and the resources needed to conduct the privatization program. Furthermore, the government plans to review the regulatory environment and study how to improve tax incentives for investors by streamlining special tax regimes and eliminating distortions. The government will also pursue reforms in the energy sector in collaboration with the World Bank. In the petroleum sector, it will maintain and deepen its liberalization policies.

With the participation of the World Bank, the government is identifying several priority areas in which it intends to use savings derived from the HIPC Initiative interim relief. Appropriate allocations will be made in a supplementary budget to be submitted to parliament in 2001. The preparation of the poverty reduction strategy paper (PRSP) is progressing and the document is scheduled to be finalized by end-2001.

Senegal became a member of the IMF on August 31, 1962. Its quota3 is SDR 161.8 million (about US$209 million), and its outstanding use of IMF credit currently totals SDR 195.4 million (about US$252 million).


Table 1. Senegal: Selected Economic and Financial Indicators, 1998-2003


   

1998

1999

2000

2001

2002

2003

       

Proj.

Rev. Proj.

Proj.

Rev. Proj.

Projections


 

(Annual percent change, unless otherwise indicated)

National income and prices

                 

GDP at constant prices

 

5.7

5.1

5.5

5.5

4.7

5.7

5.0

5.0

Of which: nonagriculture GDP

 

7.0

4.8

4.5

4.1

4.9

5.2

5.2

5.2

Consumer prices

                 

Annual average

 

1.1

0.8

2.0

0.7

2.0

2.0

2.0

2.0

End of period

 

0.9

0.5

...

1.3

...

...

...

...

                   

External sector

                 

Exports, f.o.b. (in CFA francs)

 

8.2

6.6

15.0

12.8

8.9

11.9

6.3

6.5

Imports, f.o.b. (in CFA francs)

 

10.1

5.7

9.3

14.5

5.0

3.6

6.4

5.7

Export volume

 

9.2

8.1

13.0

8.0

8.5

10.0

4.8

5.4

Import volume

 

16.8

3.5

5.1

2.7

5.0

4.8

6.0

5.1

Terms of trade (deterioration -)

 

5.1

-3.5

-2.1

-6.3

0.3

2.9

1.1

0.5

                   

Nominal effective exchange rate

 

2.3

-1.7

...

...

...

...

...

...

Real effective exchange rate

 

2.2

-2.4

...

...

...

...

...

...

                   

Government financial operations

                 

Revenue

 

6.5

10.2

8.4

10.4

7.5

5.7

8.2

7.9

Total expenditure and net lending

 

13.7

10.8

12.6

6.3

0.1

10.9

0.3

8.0

                   
 

(Changes in percent of beginning-of-year broad money, unless otherwise indicated)

Money and credit

                 

Net domestic assets

 

2.4

5.0

2.6

16.4

3.5

0.1

...

...

Domestic credit

 

6.6

8.4

2.6

14.9

3.5

0.1

...

...

Credit to the government (net)

 

-1.1

1.2

-4.0

-0.8

-2.7

-2.2

...

...

Credit to the economy (percentage growth)

 

11.2

10.4

9.7

23.1

8.9

2.9

...

...

Broad money (M2)

 

8.6

13.1

7.3

5.6

6.4

7.0

...

...

Velocity (M2/PIB; end of period)

 

4.3

4.1

4.1

4.1

4.1

4.1

...

...

Interest rates (GDP end of period; in percent)

                 

Discount rate

 

6.25

5.75

...

6.5

...

...

...

...

Money market rate

 

4.95

4.95

...

...

...

...

...

...

                   
 

(In percent of GDP)

Overall fiscal surplus or deficit (-) 1/

                 

Commitment basis, excluding grants

 

-3.3

-3.5

-4.3

-2.9

-2.8

-3.8

-2.3

-2.3

Commitment basis, including grants

 

-0.3

-1.4

-1.6

-1.0

-0.8

-1.1

0.0

-0.2

Gross domestic investment 2/

 

17.6

19.4

19.6

18.4

20.1

18.3

19.6

20.5

Gross domestic savings

 

10.4

12.6

14.2

10.5

15.6

12.4

13.6

14.7

Gross national savings (including

                 

current official transfers)

 

13.0

13.8

14.6

11.4

16.0

14.0

14.7

15.7

External current account deficit (-)

                 

Excluding current official transfers

 

-7.8

-7.4

-6.6

-8.6

-5.6

-6.6

-6.4

-6.2

Including current official transfers

 

-4.6

-5.6

-5.0

-7.0

-4.1

-4.3

-4.8

-4.8

Domestic public debt

 

13.1

10.6

8.7

8.9

7.6

6.6

5.8

5.0

External public debt

 

77.6

73.9

67.9

70.5

...

68.4

65.8

62.4

   

 

       
                   
 

(In percent of exports of goods and nonfactor services, unless otherwise indicated)

                   
   

 

       

External public debt service 3/

 

12.4

10.9

11.4

10.7

11.0

9.1

7.2

6.1

 

GDP at current market prices (in billions of CFA francs)

 

2,740.7

2,925.9

3,173.0

3,113.1

3,377.3

3,330.2

3,555.2

3,795.5


Sources: Senegalese authorities; and staff estimates and projections.

                   

1/ For 2001, includes additional expenditures linked to the HIPC Initiative interim assistance debt relief.

2/ Assumes that the total amount of undistributed HIPC Initiative spending in 2001 will be investment, and includes accumulation of stocks of 0.5 percent of GDP by SONACOS in 2000 and sale of these stocks in 2001.

3/ Figures for 2000-01 take into account HIPC Initiative interim assistance from the IMF, the World Bank, the African Development Bank, and the Paris Club.
Figures for 2002-03 take into account expected debt relief under HIPC Initiative from these four donors.


1 On November 22, 1999, the IMF's concessional facility for low-income countries, the Enhanced Structural Adjustment Facility (ESAF), was replaced by the Poverty Reduction and Growth Facility (PRGF), and its purposes were redefined. It was intended that PRGF-supported programs will in time be based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners, and articulated in a poverty reduction strategy paper (PRSP). This is intended to ensure that each PRGF-supported program is consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. At this time for Senegal, pending the completion of a PRSP, a preliminary framework has been set out in an interim PRSP that was presented to the Executive Boards of the IMF and the World Bank in June 2000, and preparations for a participatory process are underway. It is understood that all policy undertakings in the interim PRSP beyond the first year are subject to reexamination and modification in line with the strategy that is to be elaborated in the PRSP. Once completed and broadly endorsed by the Executive Boards of the IMF and World Bank, the PRSP will provide the policy framework for future reviews under this PRGF arrangement.
PRGF loans carry an annual interest rate of 0.5 percent, and are repayable over 10 years with a 5 year grace period on principal payments.
2 The HIPC Initiative entails coordinated action by the international financial community, including multilateral institutions, to reduce to sustainable levels the external debt burden of heavily indebted poor countries that pursue IMF and World Bank-supported adjustment and reform programs, but for whom traditional debt relief mechanisms are insufficient.
3 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.


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