IMF Executive Board Concludes 2012 Article IV Consultation with Senegal

Public Information Notice (PIN) No. 12/142
December 14, 2012

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

On December 10, 2012, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Senegal.1

Background

Senegal’s growth has been sluggish in recent years, with implications for poverty reduction. Average growth was relatively strong in 1995–2005 (4.5 percent) and accompanied by a large drop in poverty incidence (from 68 to 48 percent). Due partly to a series of exogenous and internal shocks (i.e., food and fuel global prices, global financial and economic crisis, and more recently, the electricity sector crisis and drought in the Sahel), growth decreased to an average of 3.3 percent in 2006–2011. As a result, poverty incidence barely decreased during this period and still stood at 47 percent in 2011. Wide disparities exist between rural areas, where poverty incidence is higher than the national average (at 57 percent), and urban areas (at 33 percent).

Fiscal deficits and debt ratios have increased in recent years. The fiscal deficit, which was below 4 percent of Gross Domestic Product (GDP) in 2007, stood at 6.7 percent of GDP in 2011. Higher deficits were justified to a large extent by the response to successive shocks. Meanwhile, the public debt-to-GDP ratio has increased continuously and is expected to exceed 45 percent in 2012.

After a tense campaign, President Sall was elected by a large majority and the governing coalition secured a broad majority at the legislative elections in July 2012. With a strong popular mandate, the government is now facing the challenge of accelerating reforms and meeting people’s high expectations.

The authorities are addressing Senegal’s macroeconomic challenges in the context of an economic program supported by the IMF's Policy Support Instrument (PSI) approved in December 2010 (see Press Release No. 10/469). The key objectives of the program are: (i)  pursuing a prudent fiscal and debt policy and improving expenditure quality so as to maintain macroeconomic stability and lay the groundwork for higher, sustainable growth; (ii) raising revenue to create more fiscal space for priority spending, including additional infrastructure investment; (iii) further strengthening public financial management and governance to enhance fiscal transparency, budget planning and execution, improve the productivity of public expenditure, and reduce budgetary risks; and (iv) stimulating private sector development through structural reforms, particularly in the energy and financial sectors, and other reforms related to the business climate.

Executive Board Assessment

Directors commended Senegal’s satisfactory program implementation despite the challenging internal and external environments. Although a moderate pickup in growth is expected in the near term, the economy remains exposed to substantial risks. Directors welcomed the authorities’ continued commitment to their program to ensure macroeconomic stability, strengthen the economy’s resilience to shocks, foster higher and sustainable growth, and reduce poverty.

Directors noted that, while Senegal still faces a low risk of debt distress, high fiscal deficits and rising debt ratios need to be addressed. They welcomed the authorities’ commitment to keep the deficit under 6 percent in 2012 and their determination to reduce the deficit further in the medium term to levels that are consistent with fiscal and debt sustainability. Directors also highlighted the importance of stronger debt management. They welcomed the recently finalized medium-term debt strategy, and encouraged the authorities to rely primarily on concessional financing.

Directors underscored the need to improve public financial management and government spending efficiency and transparency. They commended ongoing efforts to reduce the cost of running government, streamline public agencies, and rationalize expenditure in key sectors. Directors stressed that phasing out the costly and poorly targeted energy price subsidies while strengthening social safety nets is a priority. Sustained progress in all these areas will be necessary to meet the country’s fiscal objectives and make room for critical social and development needs.

Directors noted that the financial sector is generally robust. However, the rising level of NPLs and concentration of lending need to be closely monitored.

To move Senegal to a path of higher, sustainable, and inclusive growth, Directors stressed the need to address infrastructure gaps, remove inefficiencies in government operations, and improve the business climate. They welcomed the tax and customs reforms that are underway and called for timely implementation of the new energy investments and restructuring of SENELEC, the national power utility. Directors also encouraged the authorities to deepen and strengthen the financial system to support their growth strategy.


Senegal: Selected Economic and Financial Indicators, 2011–17
 
  2011 2012 2012 2013 2014 2015 2016 2017
    EBS/ 12/85 Proj. Proj. Proj. Proj. Proj. Proj.
 
  (Annual percentage change)

National income and prices

               

GDP at constant prices

2.6 3.9 3.7 4.3 4.8 5.0 5.1 5.2

Of which: nonagriculture GDP

4.8 3.2 2.9 4.0 4.8 5.1 5.2 5.3

GDP deflator

4.3 2.2 2.2 2.4 2.4 2.5 2.4 2.5

Consumer prices

               

Annual average

3.4 2.5 1.5 1.6 1.8 1.8 1.8 1.8

End of period

2.7 2.2 1.6 1.8 1.8 1.8 1.8 1.8

External sector

               

Exports, f.o.b. (CFA francs)

7.1 3.2 4.4 6.9 3.6 5.4 8.4 9.2

Imports, f.o.b. (CFA francs)

8.9 9.0 9.5 4.2 3.4 3.3 6.1 7.0

Export volume

-2.7 0.4 -1.0 4.4 4.9 5.5 6.1 6.4

Import volume

4.3 4.7 3.4 3.2 4.2 4.4 4.5 4.8

Terms of trade ("–" = deterioration)

5.6 -0.4 -0.4 1.7 -0.7 0.7 0.6 0.5

Nominal effective exchange rate

1.4

Real effective exchange rate

1.1
(Changes in percent of beginning-of-year broad money, unless otherwise indicated)

Broad money

6.7 7.5 6.0 7.4        

Net domestic assets

9.0 7.6 10.4 7.4

Domestic credit

10.2 7.0 9.5 7.0

Credit to the government (net)

-2.0 1.7 1.8 1.3

Credit to the economy (percentage growth)

18.8 5.6 10.6 7.6
  (Percent of GDP, unless otherwise indicated)

Revenue

20.2 20.7 20.9 20.8 20.9 20.9 20.6 20.7

Grants

2.2 2.7 2.9 2.7 2.7 2.7 2.6 2.6

Total expenditure and net lending

29.0 29.8 29.7 28.4 27.9 27.5 26.9 26.7

Overall fiscal surplus (+) or deficit (–)

               

Payment order basis, excluding grants

-8.9 -9.1 -8.8 -7.6 -7.0 -6.6 -6.3 -6.0

Payment order basis, including grants

-6.7 -6.4 -5.9 -4.9 -4.3 -3.9 -3.7 -3.5

Primary fiscal balance ¹

-5.2 -4.9 -4.3 -3.1 -2.7 -2.4 -2.1 -1.9

Gross domestic investment

28.7 30.8 30.3 30.1 30.2 30.5 30.5 30.5

Government

10.5 12.6 12.1 11.8 11.8 11.9 11.7 11.6

Nongovernment

18.2 18.2 18.2 18.3 18.4 18.6 18.7 18.9

Gross domestic savings

12.5 12.8 12.8 13.5 14.3 15.5 16.4 16.9

Government

5.4 7.7 7.9 8.8 9.1 9.5 9.6 9.8

Nongovernment

7.1 5.1 4.9 4.7 5.3 5.9 6.7 7.1

Gross national savings

22.6 22.5 22.7 23.0 23.5 24.2 24.5 24.9

External current account balance

               

Including current official transfers

-6.1 -8.3 -7.6 -7.1 -6.7 -6.3 -5.9 -5.7

Excluding current official transfers

-6.8 -8.9 -8.4 -7.8 -7.4 -7.0 -6.5 -6.3

Total public debt

40.0 44.9 45.0 46.8 48.1 48.7 49.0 49.0

Central government domestic debt

11.3 12.2 12.3 12.2 12.7 12.9 13.0 12.8

External public debt

28.8 32.6 32.7 34.6 35.4 35.8 36.1 36.2

External public debt service

               

Percent of exports

14.0 7.4 7.3 7.6 6.8 7.4 7.2 7.0

Percent of government revenue

17.2 8.7 8.4 8.7 7.5 8.1 8.0 7.7

Gross domestic product (CFAF billions)

6,818 7,243 7,225 7,718 8,286 8,921 9,600 10,351
 

Sources: Senegalese authorities; and IMF staff estimates and projections.

¹ Total revenue and grants minus total expenditure and net lending, excluding interest expenditure


1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm.



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