Senegal's Growth Prospects are Strong

IMF News, July 12, 2023

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After slowing to 4.7 percent in 2022, growth in Senegal is projected to rebound to over 5.3 percent this year.
Growth is projected to accelerate to 10.6 percent in 2024 and 7.4 percent in 2025.
Non-hydrocarbon growth is expected to reach around 6 percent, assuming prudent macroeconomic policies and steadfast structural reforms implemented under the IMF-supported programs.
Public debt has increased to over 76 percent of GDP.
The production of oil and gas is expected to give the economy a boost for the next few years.
Additional revenues from oil and gas exports will be set aside, in line with the new fiscal rule adopted, to ensure public spending can be sustained in the future, as the country transitions to renewables.

Inflation hit a multi-decade high of 9.7 percent in 2022, driven largely by the surge in food prices, which account for almost half of the CPI basket in Senegal.
Inflation has since eased to around 9 percent and is projected to fall to around 5 percent by year-end but could potentially increase again if commodity prices remain high.
The Senegalese authorities responded by increasing fuel and electricity subsidies—which have soared to nearly 4 percent of GDP—and by raising public sector wages by about 20 percent.
To contain the fiscal deficit, public investments were slashed.
Policy measures highlighted to preserve debt sustainability and help curb inflation:
- Streamlining tax exemptions.
- Gradually phasing out energy subsidies while better targeting social spending to alleviate the impact of declining real incomes.

The IMF and Senegal have agreed to a new 36-month financing arrangement of US$1.5 billion.
The ECF/EFF arrangement is centered around three main pillars:
- (i) reducing debt vulnerabilities by embarking on a credible fiscal consolidation path through further revenue mobilization and the phasing out of energy subsidies,
- (ii) strengthening public sector governance and anti-money laundering/combating the financing of terrorism, and
- (iii) fostering a more inclusive and private sector-led growth.

According to Senegal’s Nationally Determined Contribution (NDC), financing to cover the country’s mitigation and adaptation needs amount to about 7 percent of GDP per year through 2030.
The disbursements under the RSF’s 3-year arrangement amount to around 1 percent of GDP, or about US $324 million.
RSF funds should help mobilize additional financing and support from development partners, such as the World Bank, the UNDP, the AfDB, and the EIB, in addition to domestic resources.
Key reform measures under the RSF:
- Gradually phasing out untargeted subsidies in the electricity sector.
- Adopting an implementation plan to enact a strategy for greener public transport.
- Collecting and disseminating geo-tagged granular risk climate data.
- Integrating climate change considerations into the budget process.

On June 22, Senegal signed a JETP loan agreement with G7 countries and the EU worth $2.7bn.
The JETP partnership aims to support Senegal in:
- developing a climate-resilient strategy for the energy sector,
- increasing the share of renewable energy,
- improving storage and grid stability,
- creating sustainable jobs.
The agreement aligns with the authorities’ NDC and demonstrates commitment to accelerate the transition to clean energy.

Senegal is described as an important pole of stability in West Africa, and the authorities have consistently demonstrated their commitment to implementing transformative reforms.
The IMF encourages all stakeholders to resolve political differences in a peaceful manner to ensure implementation of the ambitious reform agenda and achievement of the country’s full economic potential.

Source: Senegal's Growth Prospects are Strong, July 12, 2023, International Monetary Fund.