Press Release: IMF Executive Board Completes the First Review Under the Policy Support Instrument (PSI) for Senegal
June 18, 2008Press Release No. 08/141
The Executive Board of the International Monetary Fund (IMF) today completed the first review under a three-year Policy Support Instrument (PSI) for Senegal. The Board also granted a waiver for the nonobservance of the continuous quantitative assessment criterion on the stock of domestic payment arrears by the government, noting that the authorities had taken action quickly to remedy the nonobservance.
The PSI for Senegal was approved on November 2, 2007 (see Press Release No. 07/246) and 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.
Following the Executive Board's discussion on Senegal, Mr. Murilo Portugal, Deputy Managing Director and Chairman, stated:
"Senegal's economic growth recovered in 2007, but rapidly rising food and energy prices raised inflation and put pressure on the fiscal and external accounts. The main challenges for the Senegalese authorities are to further raise economic growth, maintain macroeconomic stability, and reduce vulnerabilities.
"The removal of structural impediments to economic growth is key to fostering private sector-led growth, raising external competitiveness, and strengthening and diversifying exports. In this context, the Senegalese authorities are encouraged to put in place the structural reforms envisaged under their Accelerated Growth Strategy. In addition, implementation of energy sector reform, continued efforts to attract foreign direct investment, and targeted government spending in infrastructure, health, and education, will be conducive to raising Senegal's growth potential.
"The authorities' emphasis on safeguarding fiscal sustainability underpins the economic program supported under the PSI. The envisaged medium-term fiscal adjustment path will help preserve debt sustainability, respect the limited financing capacity of the regional financial market, and contain demand pressures, thereby promoting domestic stability in the context of Senegal's monetary union membership. Measures to safeguard Senegal's traditionally strong revenue performance, including with respect to the planned Dakar Integrated Special Economic Zone, will help shore up fiscal sustainability.
"The authorities have committed to correct the 2007 fiscal slippages, and have decided to rein in non-priority capital and current spending in 2008 in order to allow for the settlement of the 2007 expenditure commitments. Priority should now be given to rapidly completing a careful review of these commitments, settling them expeditiously, and rigorously applying the existing budget framework.
"International food and energy price increases are placing a considerable burden on the population, in particular the most vulnerable segments. It is important to ensure that the policy measures to alleviate this burden are affordable, well targeted, and nondistortionary. Implementation of the new electricity tariff structure would help recover costs and at the same time favor low-income households. In the long run, the implementation of an effective social safety net should be considered.
"Given the tight budgetary constraints, it will be essential to further strengthen investment planning and evaluation and focus on high-return projects to raise the productivity of government investment. In implementing their investment program, the authorities appropriately rely on concessional financial resources so as to preserve debt sustainability," Mr. Portugal said.
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 reviewed semi-annually, irrespective of the status of the program (see Public Information Notice No. 05/145).