Press Release No. 21/117

IMF Staff and Senegal Reach Staff-Level Agreement on the Third Review Under the Policy Coordination Instrument and on a New 18-Month Financing Arrangement

April 29, 2021

• The IMF team has reached a staff-level agreement with the Senegalese authorities on economic and financial policies that could support approval of the third review under the Policy Coordination Instrument (PCI) and underpin an 18-month financing arrangement under the Stand-By Credit Facility (SCF) and Stand-By Arrangement (SBA), for a total amount of SDR 453 million (about US$ 650 million or CFAF 350 billion). The financing arrangement would run in parallel to the PCI.
• Amid the COVID-19 pandemic, growth surprised on the upside at about 1.5 percent in 2020, against a projected -0.7 percent, mainly on the back of a record agricultural production. The recovery in 2021 is however facing headwinds due to the protracted COVID-19 pandemic and higher commodity prices.
• The authorities are revising their budget priorities for 2021-23 to take into account the weaker economic environment, support the COVID-19 vaccine rollout, and implement an emergency program to support youth employment, while keeping the objective of gradually returning to a deficit of 3 percent of GDP by 2023.

Washington DC: A staff team from the International Monetary Fund (IMF), led by Ms. Corinne Deléchat, conducted a virtual mission from April 6-27, 2021 to undertake the third PCI review and discuss the authorities’ request for a combined 18-month financing arrangement under the SCF and SBA.

At the conclusion of the mission, Ms. Deléchat issued the following statement:

“The IMF team has reached staff-level agreement with the Senegalese authorities on economic and financial policies that could support approval of the third PCI review of the PCI and underpin an 18-month financing arrangement under the SCF and SBA. Consideration by the IMF’s Executive Board is tentatively planned for early June 2021.

“The new financing arrangement, with a requested access of SDR 453 million (140 percent of Senegal’s IMF quota, about US$ 650 million or CFAF [348] billion), will help support the authorities’ health crisis response and promote a broad-based recovery. It will build on the PCI’s reform objectives and be carried out concurrently with the current PCI.

“The COVID-19 pandemic hit the Senegalese economy hard in 2020, the authorities’ preliminary estimates indicate that growth has decelerated to 1.5 percent compared to 4.4 percent in 2019. A record agricultural production and a resilient secondary sector helped avoid a recession, but the hospitality, tourism, and transport sectors suffered a severe contraction. The pandemic containment measures caused hardship for millions of workers, particularly those in the informal sector. The government’s forceful implementation of an Economic and Social Resilience Program (PRES) with financial support from Senegal’s development partners, helped strengthen health resilience and mitigate households’ and firms’ income losses. The authorities continue to follow through on their commitment to accountability and transparency in execution of the PRES and will thus publish the report of the Fonds Force COVID-19 monitoring committee and the audit of the regularity of procurement contracts by end-June 2021.

“Despite these challenging circumstances, performance under the PCI-supported program remained good. All end-2020 quantitative targets were met, with the exception of the one pertaining to the share of single-sourced procurement contracts, which exceeded the program ceiling due to the emergency COVID-19 situation. Budget execution resulted in a deficit of 6.4 percent of GDP, in line with the program’s revised target. On the structural front, six out of nine end-December reform targets were implemented.

“The macroeconomic outlook has however become more challenging since the adoption of the initial 2021 budget. The resurgence of the COVID-19 pandemic in Senegal and its main trading partners and higher commodity prices are driving downward revisions in the growth forecast, to 3.7 percent in 2021 (from 5.2 percent as initially projected) and 5.5 percent in 2022. The weaker growth in 2021 is leading to a downward revision of the initial budget’s revenue targets, while higher world oil prices are increasing the need for energy subsidies. At the same time, new spending priorities have emerged: financing the COVID-19 vaccination campaign and providing jobs and economic opportunities to women and the youth, as the pandemic has exacerbated the challenges of millions of young Senegalese without training nor employment. The emergency youth program envisages in particular a direct government recruitment package, community works, acceleration of high labor-intensity public investments and incentives for private sector job creation.

“The authorities’ medium-term fiscal strategy has been revised to reflect these new priorities and envisages a deficit of 5.4 percent of GDP in 2021, compared with 5 percent of GDP in the initial budget. The fiscal deficit path remains anchored by the objective of returning to the WAEMU deficit norm of 3 percent of GDP by 2023, to keep public debt on a sustainable trajectory. Achieving this objective will hinge on the resolute implementation of the medium-term revenue strategy; the identification of budgetary savings to accommodate the new priorities; and additional concessional financing, including from the IMF. The extension of the G-20 debt suspension initiative until end-2021 helps provide additional fiscal space.

“To support private sector-led growth and maintain debt sustainability, the authorities are committed to ensure the efficiency of the new spending on the emergency youth program and accelerate ongoing structural reforms to stimulate private investment and job creation. In particular, the authorities are planning to create one-stop shops throughout the country to provide guidance and employment services to young people and to set up a unique identifier and a database of beneficiaries of the emergency program. The ongoing review of the efficiency of the many existing public mechanisms and entities supporting women, the youth and SMEs will inform the preparation of a strategy to rationalize these mechanisms and entities. In parallel, reforms to improve management of land and property rights, as well as those related to enhancing vocational training supported by the G-20’s “Compact with Africa” should be accelerated, while continuing to expand social safety nets to enhance the resilience of vulnerable households.

“The IMF team wishes to thank the authorities for the close cooperation and frank discussions.”