IMF Executive Board Completes Third Review under the PSI for Senegal and Concludes 2016 Article IV Consultation
IMF News, December 2, 2016
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- Published: December 2, 2016
Program performance and macroeconomic outlook
- Program performance through September 2016 has been satisfactory: all end‑June 2016 assessment criteria and indicative targets were met, except for the indicative target on tax revenue, missed by a very narrow margin due to lower-than-projected customs revenue.
- Growth is expected to exceed 6 percent in 2016; inflation remains low.
- The current account deficit has narrowed and is projected to reach 6.5 percent of GDP in 2016, driven by lower oil prices and improved export performance.
- The fiscal deficit has been declining steadily from 5.5 percent of GDP in 2013 and is projected to reach 4.2 percent of GDP in 2016.
Structural benchmarks, reforms, and PSE implementation
- Of the five structural benchmarks (SBs) set for the period from June to October 2016:
- Three were met.
- One has been implemented subsequently.
- One (on the reorganization of the tax office) will be postponed as part of a wider reform.
- Implementation of the first set of PSE projects has helped move Senegal to a higher growth path; sustaining this growth over the medium term requires steadfast implementation of reforms to enable SMEs to thrive and attract FDI for globally competitive production.
- Staff welcomes efforts to revamp the rules for the SEZ, drawing on experience of China and Mauritius, and input from organizations representing investors from China, Europe and the US. The SEZ should move away from tax holidays and adopt a transparent, rules‑based tax regime with reasonable rates.
Fiscal policy, revenue, and public financial management
- Authorities are committed to preserving macroeconomic stability; efforts to increase revenue collection and rationalize public consumption have helped control budget deficits.
- Further vigilance is needed, particularly regarding:
- The wage bill and establishment of a more transparent and fairer public sector wage remuneration system.
- A more equitable and efficient collection of taxes, with significant reductions in tax expenditures.
- The use of comfort letters to encourage bank financing of projects in advance of budget appropriations can undercut fiscal discipline and create contingent liabilities, and should be kept to the absolute minimum.
- Staff welcomes the authorities’ intention to conduct an audit by end‑March 2017 of Treasury pressures (legacy arrears and postal system financial difficulties) and to formulate an action plan as soon as possible.
Debt outlook and public investment financing
- Senegal remains at low risk of debt distress, but debt levels are rising due to increased non‑concessional borrowing, including on the regional market, which has raised the debt service burden on the budget.
- Maintaining low risk of debt distress depends on:
- Sustaining the high levels of growth envisaged under the PSE.
- Adhering to the planned fiscal consolidation path.
- Rapid progress in fostering private investment.
- Recommendations to keep debt on a sustainable path while implementing the public investment program:
- Better selection, evaluation and monitoring of investment projects to ensure strong economic returns.
- Access concessional and semi‑concessional borrowing whenever possible as part of a comprehensive debt management strategy.
Financial sector and private sector development
- The financial sector should play a stronger role in supporting private‑sector led growth. Financial indicators are improving, but from a low level.
- Regional supervision should be strengthened, including to further reduce non‑performing loans.
- Domestic reforms are needed to improve incentives for extending credit.
Risks
- Domestic risks:
- Entrenched rent seeking and patronage that may hinder opening up economic space and ensuring transparent taxation; failure to overcome these lobbies could result in loss of current growth momentum (as has happened four times since 1990).
- External risks:
- Possible increases in the cost of public borrowing.
- Slow growth in key partner countries.
- Security risks in the region that could adversely affect investment, growth and exports.
Key statistics (selected figures from Senegal: Selected Economic and Financial Indicators, 2014–21)
- GDP at constant prices (annual percent change): 2014: 4.3; 2015: 6.5; 2016: 5.9; 2017: 6.6; 2018: 6.8; 2019: 7.0; 2020: 7.1.
- Consumer prices (annual average): 2014: -1.1; 2015: 0.1; 2016: 1.3; 2017: 1.1.
- Current account balance (official transfers included, percent of GDP): 2014: -8.9; 2015: -7.4; 2016: -8.7; 2017: -6.5; 2018: -6.9; 2019: -6.8.
- Revenue (percent of GDP): 2014: 24.8; 2015: 25.1; 2016: 24.3; 2017: 26.4; 2018: 25.0; 2019: 24.7; 2020: 24.6; 2021: 24.5.
- Total expenditure (percent of GDP): 2014: 29.8; 2015: 29.9; 2016: 28.6; 2017: 30.7; 2018: 28.7; 2019: 27.7; 2020: 27.6; 2021: 27.5.
- Net lending/borrowing (overall balance, excluding grants, percent of GDP): 2014: -8.5; 2015: -7.7; 2016: -7.2; 2017: -7.0; 2018: -6.3; 2019: -5.7; 2020: -5.8; 2021: -5.5.
- Gross domestic investment (percent of GDP): 2014: 24.0; 2015: 27.0; 2016: 27.2; 2017: 27.4; 2018: 27.3; 2019: 26.6; 2020: 27.8.
- Total public debt (percent of GDP): 2014: 54.2; 2015: 56.9; 2016: 55.1; 2017: 59.3; 2018: 57.3; 2019: 56.0; 2020: 54.9; 2021: 53.3; 2021 (memorandum row) 52.5 (table shows continuing series).
- External public debt (percent of GDP): 2014: 40.3; 2015: 41.1; 2016: 39.3; 2017: 39.9; 2018: 38.7; 2019: 37.5; 2020: 36.5; 2021: 35.8; 35.1 (continuation in table).
- External public debt service (percent of exports): 11.0 (2014); 10.0 (2015); 8.8 (2016); 9.4 (2017).
- External public debt service (percent of government revenue): 10.4 (2014); 15.7 (2015); 12.9 (2016); 11.6 (2017); 12.4; 12.5; 12.2 (later years shown in table).
Source: Press Release No. 16/537 — IMF Executive Board Completes Third Review under the PSI for Senegal and Concludes 2016 Article IV Consultation (December 2, 2016).