IMF Completes Second Review Under the Policy Support Instrument for SenegalPress Release No. 11/473
December 19, 2011
The Executive Board of the International Monetary Fund (IMF) has completed the second review under the three-year Policy Support Instrument (PSI) for Senegal.1 The Board's decision was taken on a lapse of time basis.2
Senegal’s economy has remained resilient to the global economic turmoil. Growth is expected to dip slightly to 4 percent in 2011 because of power outages in the first half of 2011. In 2012, the restoration of sufficient electricity provision, together with large energy and road infrastructure spending, should boost growth to 4.4 percent and help make up for a less favorable international environment. Inflation rose in early 2011 reflecting increasing international food and petroleum prices, but this trend reversed in the second half of the year. Year-on-year inflation is now back below 3 percent, and is expected to remain so next year. The prudent approach to expenditure management has fostered macroeconomic stability and helped keep the authorities’ program on track, with all quantitative targets for end-June and end-September 2011 met. Good progress was made too with structural reforms aimed at strengthening public financial management, tax policy and administration, and debt management.
In line with the authorities’ new Document of Economic and Social Policies for 2011-15, the 2012 economic program supported under the PSI will target critical bottlenecks in energy and infrastructure, which hinder growth and poverty reduction. The fiscal program will allow the authorities to scale up infrastructure investment, but requires keeping a prudent stance on the rest of the budget. In the medium term, the overall fiscal deficit will need to return to lower levels to ensure fiscal sustainability. Structural reforms in the energy sector will aim at ensuring ample, reliable, and affordable electricity supply through critical investments and the operational and financial restructuring of the electricity company; this should reduce the latter’s losses, which weigh heavily on the budget. Other structural measures include a comprehensive tax reform, including adoption of a new tax code that should enter into force with the 2013 budget, and further reforms of public financial management, and tax and customs administration. To reap the full benefits of additional investment and unlock the economy’s growth potential, the program also includes measures to improve the business climate, governance, and strengthen the financial sector.
1 The IMF’s framework for PSIs is designed for low-income countries that may not need IMF financial assistance, but still seek close cooperation with the IMF in preparation and endorsement of their policy frameworks. PSI-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners. A country’s performance under a PSI is reviewed bi-annually.
2 The Executive Board takes decisions under its lapse of time procedure when it is agreed by the Board that a proposal can be considered without convening formal discussions.