IMF Executive Board Approves Three-year Policy Support Instrument for SenegalPress Release No.07/246
November 2, 2007
The Executive Board of the International Monetary Fund (IMF) today approved a three-year Policy Support Instrument (PSI) for Senegal to support the country's economic efforts. The PSI for Senegal is aimed at consolidating macroeconomic stability, increasing the country's growth potential, and reducing poverty. The program focuses on maintaining a sound fiscal policy stance and enhancing fiscal governance and transparency. It also includes measures to develop the private sector and increase the financial sector's contribution to growth. Approval of a PSI for Senegal signifies IMF endorsement of the policies outlined in the program.
The IMF's framework for PSIs is designed for low-income countries that may not need, or want, IMF financial assistance, but still seek IMF advice, monitoring and endorsement of their policies. PSIs are voluntary and demand driven. PSI-supported programs are 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 PSI-supported programs are consistent with a comprehensive framework for macroeconomic, structural and social policies to foster growth and reduce poverty. Members' performance under a PSI is normally reviewed semi-annually, irrespective of the status of the program (see Public Information Notice No. 05/145).
Following the Executive Board's discussion on Senegal, Mr. Dominique Strauss-Kahn, IMF Managing Director and Chairman, stated:
"Despite the temporary setbacks suffered in the last two years, Senegal has achieved a high degree of macroeconomic stability and robust growth over much of the last decade. The Policy Support Instrument is viewed as the appropriate next step in the Fund's relations with Senegal. Rigorous implementation of the macroeconomic framework and structural reforms, which are part of the authorities' program, should position Senegal well in its efforts to sustain external assistance and make progress in raising growth, alleviating poverty, and achieving the Millennium Development Goals.
"The program focuses on a sound fiscal policy stance and enhancing fiscal governance and transparency. It also includes measures to develop the private sector and raise the contribution of the financial sector to the economy, which are crucial to raising growth and alleviating poverty. In this context, the strong support of Senegal's development partners for the implementation of the country's second Poverty Reduction Strategy and the Accelerated Growth Strategy at the recent Consultative Group meeting will be very helpful.
"Spending restraint and sustained domestic revenue mobilization will be essential to attain the fiscal deficit targets envisaged by the authorities over the medium term. In particular, it will be necessary to work expeditiously toward adopting energy sector reform to help reduce the sector's drag on the public finances. This will allow the authorities to channel spending towards priority social sectors, the judicial system, and the environment. On the revenue side, Senegal's traditionally strong record of tax collection should be safeguarded, including through a careful design of the planned special economic zone. The authorities' intention to generally rely on concessional loans will, along with the envisaged smaller fiscal deficits, help contain government debt to sustainable levels. The expeditious elimination of all payment delays by the government is critical because of their adverse impact on the private sector.
"The authorities' efforts to improve fiscal transparency and governance are indispensable for raising public sector effectiveness and enhancing policy credibility. In particular, the measures taken with respect to the airport project enhance its transparency and limit its budgetary risks. Similarly, the authorities have committed to addressing governance concerns with respect to the special economic zone. The planned fiscal reforms, including an important strengthening of government procurement practices, are also welcome and should help modernize Senegal's Public Financial Management systems.
"Strong implementation of the program will be essential to address risks, including from slower-than-expected growth, and for Senegal to make progress in achieving sustained growth and poverty reduction," Mr. Strauss-Kahn said.