Press Release: IMF Approves US$75.6 Million Exogenous Shocks Facility Arrangement for Senegal and Completes Second Review under the Policy Support Instrument
December 19, 2008Press Release No. 08/334
The Executive Board of the International Monetary Fund (IMF) today approved a one-year SDR 48.54 million (US$75.6 million) arrangement under the Exogenous Shocks Facility (ESF) to help finance the balance-of-payments impact of higher food and energy prices. The approval enables Senegal to draw an amount of SDR 24.27 million (about US$37.8 million) from the IMF immediately, and an equal amount upon completion of the first review under the ESF arrangement.
The Board also completed the second review under the three-year Policy Support Instrument (PSI) for Senegal and granted three waivers in view of the strong corrective measures the government is taking to address underlying weaknesses. The waivers were granted for the non-observance of three quantitative assessment criteria, on domestic arrears, the budgetary float (the difference between government payments due and paid), and the contracting or guaranteeing of new nonconcessional external debt by the government.
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:
"The Senegalese economy is facing a difficult period. Economic growth has slowed significantly, as a result of government payment delays to the private sector and the effect on consumption of high food and energy prices. International price developments have kept inflation high and exerted upward pressure on the external current account deficit. Risks to the economic outlook have been compounded by the difficult international environment.
"Under these challenging circumstances, the government has rightly emphasized the need to eliminate expeditiously the large stock of unpaid bills by the first half of 2009. The fiscal deficits in 2008 and 2009 have been reduced, and untargeted food and energy subsidies largely eliminated to help unwind budgetary pressures and create financial room for settling payment delays. The government will need to strictly adhere to its 2009 budget, and ensure fiscal transparency.
"The government has reaffirmed its intention to pursue a prudent fiscal policy over the medium term while safeguarding priority spending. This should help ensure macroeconomic stability and keep Senegal's debt sustainable. Equally important will be for the government to assess carefully the available financing for its budget, as liquidity in the domestic financial market is limited and borrowing prospects internationally are uncertain. To help debt sustainability, the government should use the proceeds from any asset sales to first repay loans carrying the highest interest rates.
"To help prevent a recurrence of the payment delays, the government should rapidly and thoroughly follow through on its commitments to overhaul its public financial management systems. The reforms are fundamental to restoring the integrity of the budget system, by improving fiscal accounting and monitoring, strengthening budget formulation and execution, and discontinuing practices inconsistent with Senegal's overall satisfactory budgetary, legal, and regulatory framework and administrative capacity. The government should also take appropriate and immediate decisions following completion of the independent technical audit of past extrabudgetary spending to rapidly and fully normalize financial relations with the private sector.
"Progress with structural reforms should continue, with the aim of strengthening private sector activity and bolstering the financial sector. Planned actions include revising labor market regulations, simplifying tax procedures, and improving access to credit.
"Inaccurate information has been provided to the Fund on the fiscal deficit and budgetary float. In light of the substantial corrective measures that the authorities have taken and the improved fiscal monitoring systems they are committed to implementing, the Board decided to maintain a positive assessment of Senegal's program performance under the PSI and of its potential for continued positive performance going forward," Mr. Portugal said.