IMF Survey : New Plan Sets Senegal On Course to Become Emerging Economy

IMF News, December 24, 2014

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Growth history:
- 1995–2005: growth of 4.5 percent, with poverty declining from 68 to 48 percent.
- 2006–2013: growth decelerated to an average of 3.4 percent.
Recent shocks and outcomes:
- Senegal experienced spikes in food and fuel prices, the global financial crisis, regional droughts and floods, and spillovers from the Ebola outbreak.
- As a result, poverty has declined only slightly and stands at about 47 percent.
IMF growth projections:
- GDP growth can rise to 4.5 percent in 2014 and reach 7 percent by 2019, conditional on consistent implementation of reforms while preserving fiscal and debt sustainability.

Fiscal performance and targets:
- Overall deficit is expected to fall to about 5 percent of GDP in 2014.
- The 2015 budget targets a further reduction in the deficit to 4.7 percent of GDP.
- Authorities remain committed to bringing the fiscal deficit in line with the West African Economic and Monetary Union target of 3 percent of GDP in the medium term.
Policy stance on investment and financing:
- Authorities expect to limit the deficit by holding back appropriations for new public investment projects until feasibility studies are ready.
- IMF recommended anchoring plan-related scaling up of public investment on long-term debt sustainability within a medium-term budget framework.
- Decisions to contract nonconcessional financing should be carefully weighed.
Fiscal policy measures IMF highlights:
- Further strengthening of tax and expenditure policy measures.
- Improved public investment efficiency.
- Ensure all investment is consistent with earlier fiscal consolidation plans and Senegal’s absorptive capacity.

Objective:
- Help Senegal exit the trap of low growth and high poverty and make Senegal a hub for West Africa and an emerging economy by 2035.
Three pillars of the plan:
- Higher and sustainable growth through structural transformation;
- Human development and social protection; and
- Improved governance, peace, and security.
Implementation priorities emphasized:
- Attract foreign investment and increase private investment.
- Constrain public consumption and increase public savings to create fiscal space for higher public investment in human capital and public infrastructure.
- Improve delivery of public services and the impact of public spending through public financial management reforms.
- Strengthen social safety nets.

Reforms recommended:
- Improve business climate and governance.
- Investment in human capital and public infrastructure.
- Comprehensive restructuring of the energy sector.
- Increase export competitiveness.
Agriculture and exports:
- Senegal’s export base is relatively well diversified, but high-quality exports bear a comparatively low weight.
- Sectors with comparatively low quality exports, such as food and live animals, constitute a large share of exported products.
- With the labor force concentrated in agriculture, policies fostering agricultural product quality may supplement foreign investment–driven export diversification.

Financial vulnerabilities to address:
- Quality of bank assets and the high level of nonperforming loans.
- Need for continued vigilance and close cooperation with the Banque Centrale des Etats de l’Afrique de l’Ouest and the West African Economic and Monetary Union’s Banking Commission.
- Improve access to financial services.

IMF emphasis on public financing reforms:
- Strengthen budget institutions and public financing.
- Focus on macro-fiscal policy design.
- Develop a medium-term expenditure framework.
- Improve fiscal discipline in budget execution.

Peer-country evidence:
- Between 1990 and 2013, about 40 countries achieved average growth in real purchasing power per capita GDP of 5 percent or more.
- Comparator countries cited include Cape Verde, Guyana, Indonesia, Mauritius, Sri Lanka, Tunisia, Uganda, and Vietnam.
Implication for Senegal:
- Experience of peers suggests structural reforms could lift Senegal’s growth to 7 percent in the medium term, driven by foreign investment–generated exports.
- Authorities have engaged in peer learning and held a high-level brainstorming on “Transforming Senegal into a Middle-Income Economy” at IMF headquarters on December 15–17, 2014.

IMF Survey : New Plan Sets Senegal On Course to Become Emerging Economy