IMF Executive Board Completes the Sixth Review and Final Under the Policy Coordination Instrument, the Third and Final Reviews under the Stand-By Credit Facility and the Stand-By Arrangement, and Initiates Post Financing Assessment with Senegal
IMF News, January 9, 2023
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- IMF Executive Board Completes the Sixth Review and Final Under the Policy Coordination Instrument, the Third and Final Reviews under the Stand-By Credit Facility and the Stand-By Arrangement, and Initiates Post Financing Assessment with Senegal
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- Authors: Credit Facility
- Published: January 9, 2023
Overview
- The Executive Board completed the Sixth and Final Review under the Policy Coordination Instrument (PCI) and the Third and Final Reviews under the Stand-by Arrangement (SBA) and the Arrangement under the Standby Credit Facility (SCF).
- The completion of the reviews enables the immediate release of about US$ 215.96 million (SDR 161.8 million, or about FCAF 133 bn) to Senegal.
- Following these final reviews, Senegal is expected to engage in Post Financing Assessment (PFA) with the Fund.
Economic developments and outlook
- Key shocks affecting the economy: weaker external demand, soaring food and energy prices, tightening financial conditions, and US dollar appreciation.
- Near-term outcomes:
- Growth was revised down to 4.7 percent.
- Inflation increased and is becoming more broad-based, with acceleration in the non-food and non-energy subcomponents of the CPI.
- Economic activity slowed in the first nine months of 2022.
- Medium-term prospects:
- Oil and gas production is set to start in late 2023, which could improve medium-term growth prospects provided appropriate policies are implemented.
- Risks to the outlook are high and heavily tilted to the downside, including:
- lower global growth;
- tighter financial conditions;
- inflationary pressures;
- more intense and prolonged war in Ukraine;
- further US dollar appreciation;
- natural disasters related to climate change;
- deterioration of the regional security situation.
Fiscal position, debt, and policy commitments
- Fiscal stance and commitments:
- The authorities committed to keeping the fiscal deficit at 6.2 percent of GDP in 2022, through additional revenue measures and savings to offset larger energy subsidies.
- Authorities committed to accelerate fiscal consolidation to contain the 2023 budget deficit below 5 percent of GDP, while strengthening support to alleviate the cost-of-living crisis.
- Over the medium term, the authorities aim to reduce the budget deficit to 3 percent of GDP by 2025.
- Policy priorities to rebuild buffers and place public debt on a downward path:
- Accelerated implementation of the domestic revenue mobilization strategy.
- Gradual phasing out of energy subsidies.
- Strengthening debt management and monitoring state-owned enterprises’ borrowing.
Energy subsidies and social protection
- Observations:
- Authorities provided extensive support to households and firms, including untargeted and costly energy subsidies.
- Recent increases in selected electricity and fuel prices aim to reduce regressive subsidy impacts and contain fiscal costs.
- Policy direction:
- Authorities published a roadmap to gradually phase out energy subsidies by 2025.
- Over the medium term, the roadmap should be steadfastly implemented while adopting measures to protect vulnerable households.
Structural reforms, transparency, and financial sector integrity
- Progress and measures:
- Significant progress in improving transparency and accountability has been achieved.
- The audit report of the Court of Accounts on the use of the COVID-19 funds was published; authorities are considering measures to address expenditure management weaknesses identified.
- Adoption of a new public procurement code is expected to favor more open and competitive tenders and reduce recourse to noncompetitive tenders.
- The fiscal framework for managing hydrocarbon revenues should be operationalized expeditiously to ensure windfalls benefit Senegal’s development.
- Financial sector and AML/CFT:
- Deficiencies in the AML/CFT framework need to be tackled with greater urgency to minimize risks to the financial sector and thus the economy.
Post Financing Assessment (PFA)
- Purpose and implication:
- The central objective of PFA is to provide for closer monitoring of the policies of members that have substantial Fund credit outstanding following the expiration of their arrangements.
- Under PFA, members undertake more frequent formal consultation with the Fund than is the case under surveillance, with a particular focus on macroeconomic and structural policies that have a bearing on external viability.
IMF Press Release No. 23/02 — January 9, 2023. IMF Communications Department.