Press Release No. 07/173

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Press Release No. 07/173

The following statement was issued by the International Monetary Fund (IMF) staff mission to Senegal:

"An IMF staff team, headed by Mr. Johannes Mueller, visited Senegal during July 12-26, 2007 for discussions on a program under the IMF's Policy Support Instrument (PSI).¹ The mission had extensive discussions with the Minister of Finance, the Minister of Budget, the Directeur National of the BCEAO, heads of key government agencies, and other officials. The team also met with representatives of the private sector, commercial banks, and Senegal's international development partners.

"The program negotiations resulted in a preliminary agreement between the Government of Senegal and the IMF staff. The agreement is built around a framework of economic and financial policies for 2007-10, which is complemented by targeted reforms to increase fiscal transparency and governance, strengthen the framework for private sector activity, and enhance the role of the financial sector in providing access to credit and capital. The preliminary agreement will be subject to review and approval by IMF management. The final decision on IMF support for the Government's program will be taken by the IMF Executive Board, which could take place in October. If approved, Senegal would be the sixth African country with a program under the PSI.

"In the mission's view, Senegal's growth prospects are promising provided that appropriately ambitious policies are followed. Growth could accelerate to slightly above 5½ percent on average during 2007-10, after only 2 percent in 2006. Inflation is expected to return to its historical average of about 2 percent over the medium term once the impact of recent increases in administered prices for energy and of food products tapers off. The external current account deficit (including grants) is projected to hover around 10 percent of GDP, to a significant extent financed by inflows in foreign direct investment related to several large investment projects. As a result, the rise in Senegal's external debt will be well contained.

"The program is centered on a sustainable fiscal policy stance. To this end, the fiscal deficit would decline from a peak of 5¾ percent of GDP in 2006 to about 4 percent of GDP over the next three years. While Senegal's traditionally strong revenue performance is expected to continue, a reorientation of spending is needed to provide sufficient allocations to priority sectors—especially health and education—and to clear arrears and reduce payment delays. Such reorientation should be facilitated by the government's intention to reform the energy sector, which would necessitate less budgetary support to the sector. Overall, strengthened expenditure management will be key to achieving the fiscal targets under the envisaged program.

"With respect to fiscal transparency and governance, the program would focus, among other things, on strengthening the procurement framework for spending by the government and agencies, reinforcing the planning, evaluation and monitoring of Senegal's large investment program (including in the context of public-private partnerships); and properly assessing and reflecting budgetary risks.

"The mission is grateful for the very open and frank discussions with the Senegalese authorities."

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¹ The IMF's framework for PSIs is designed for low-income countries that may not need, or want, IMF financial assistance, but still seek IMF advice, monitoring and endorsement of their policies. PSIs are voluntary and demand driven. PSI-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 (PRSP). This is intended to ensure that PSI-supported programs are consistent with a comprehensive framework for macroeconomic, structural and social policies to foster growth and reduce poverty. Members' performance under a PSI is normally reviewed semi-annually, irrespective of the status of the program. (see Public Information Notice No. 05/145).