Press Release No. 05/54

Press Release: IMF Executive Board Completes Second Review Under Senegal's PRGF Arrangement and Approves US$5.3 Million Disbursement

March 8, 2005

The Executive Board of the International Monetary Fund (IMF) today completed the second review of Senegal's economic performance under an SDR 24.27 million (about US$37 million) Poverty Reduction and Growth Facility (PRGF) arrangement. The completion of the review enables a further release of an amount equivalent to SDR 3.47 million (about US$5.3 million), which will bring the total amount disbursed under the arrangement to an equivalent of SDR 10.41 million (about US$15.9 million).

The Board also granted a waiver for the nonobservance of two performance criteria and approved the rephasing of the schedule of disbursements for the remainder period of the arrangement. The three-year PRGF arrangement was approved on April 28, 2003 and is scheduled to end on April 27, 2006 (see Press Release No. 03/62).

Following the Board discussion of Senegal, Mr. Agustín Carstens, Deputy Managing Director and Acting Chair, stated:

"The Senegalese authorities managed the economy well in 2003 and 2004, achieving robust economic growth and low inflation. The fiscal deficit and government indebtedness were maintained at sustainable levels. Progress in structural reforms continued, although its pace needs to be stepped up. Slippages in fiscal governance and transparency are being corrected to ensure budgetary discipline and strengthen procurement rules and practices.

"The macroeconomic outlook for 2005 appears favorable, with continued vigorous economic growth, low consumer price inflation, and a sustainable fiscal position. The fiscal program for 2005 allows for modest increases in current expenditure, keeps the investment outlays in line with the absorptive capacity of the economy and foreign financing, and aims at an ambitious but feasible revenue target.

"The prudent fiscal policy of recent years should be continued over the medium term. The authorities should strive to maintain low budget deficits, collect revenue efficiently, and tighten control on current expenditure to allow for measured increases in capital and pro-poor spending. They should also monitor and control the growth of contingent liabilities, including those arising from public enterprise borrowing and the proposed public private partnerships in the implementation of investment projects.

"Vigorous implementation of structural reforms, especially in the electricity and groundnut sectors, improvements in the business climate, and upgrades to the communication and transport infrastructure will be key to lowering the cost of production, raising the efficiency of the export sector, and preserving the external competitiveness of the economy.

"The authorities are preparing an action plan for the development and soundness of the financial system. The plan should include measures to simplify loan recovery procedures and improve the efficiency of the judiciary system to help reduce nonperforming loans and increase credit availability.

"The issuance of additional government securities on the WAEMU regional market is welcome, as it could spearhead the development of the securities market. However, the excess liquidity in the banking system and the differentiation of reserve requirement ratios across the WAEMU countries could hinder financial development. The authorities should work in a regional context to address some of these issues," Mr. Cartens said.

The PRGF is the IMF's concessional facility for low-income countries. PRGF-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners, and articulated in a Poverty Reduction Strategy Paper, or PRSP. This is intended to ensure that each PRGF-supported program is consistent with a comprehensive framework for macroeconomic, structural, and social policies, to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 percent, and are repayable over 10 years with a 5 ½-year grace period on principal payments.