Recent indicators suggest that a strong recovery is underway, driven by industrial production, services, and retail activity. COVID-19 case numbers remain comparatively low and about 14 percent of the adult population is vaccinated. Performance under the program remains satisfactory. Concurrently with the PCI, the SCF/SBA arrangements are helping support the authorities’ crisis response; promote a broad-based recovery; catalyze additional concessional financing; and strengthen the external position of the WAEMU. The completion of the first reviews under the SCF/SBA allows the disbursement of SDR 129.4 million (about US$180 million). Maintaining macroeconomic stability, improving public service delivery, gradually phasing out energy subsidies, stepping up investment in education and social protection as well as accelerating reforms aimed at overcoming key constraints to private sector development will support strong, inclusive, and job-rich growth.
Today, the Executive Board of the International Monetary Fund (IMF) completed the Fourth Review under the Policy Coordination Instrument (PCI)[1] and the First Reviews Under the Stand-by Arrangement (SBA)[2] and the Arrangement under the Standby Credit Facility (SCF). [3] The completion of the reviews enables the release of SDR 129.4 million (about US$180 million), bringing total disbursements under the arrangements to SDR 258.8 million (about US$360 million).
Senegal’s three-year PCI was approved on January 10, 2020 and is built around three pillars: (i) achieving inclusive and private-sector-led growth, (ii) consolidating macroeconomic stability through prudent fiscal policy and sound debt, and (iii) managing oil and gas revenues in a sustainable and transparent manner (see Press Release No. 20/06).
Senegal’s 18-month SCF/SBA arrangements, for a total amount of 140 percent of quota, were approved on June 7, 2021 to help support the authorities’ COVID-19 crisis response, catalyze additional concessional financing, and strengthen the external position of the WAEMU (see Press Release No. 21/259). The authorities are delivering on their commitments regarding the transparency of COVID-19 spending; they have published detailed budget execution reports, a special audit of the COVID-19 fund and an audit on the regularity of COVID-19 procurement procedures. The final report by the Audit Court on the 2020 budget and COVID-19 spending execution is expected by March 2022.
The Executive Board also concluded the 2021 Article IV consultation [4] with Senegal.
A strong economic recovery is underway since mid-2020, driven by industrial production and the services sector, and 2021 growth has been revised upwards from 3 ½ to about 5 percent. The recovery is expected to continue in 2022 and beyond, with a further temporary boost from oil and gas production in 2023–24.
The second 2021 supplementary budget incorporates additional exceptional spending related to the use of about two/thirds of Senegal’s SDR allocation (0.9 percent of GDP) to support the recovery and strengthen social protection and the health sector including domestic vaccine production. This, together with additional spending on energy subsidies, will bring the 2021 deficit to 6.3 percent of GDP. Senegal’s public sector debt is projected to reach 73 percent of GDP in 2021 before gradually declining to under 60 percent of GDP. The 2021 current account deficit is projected to widen to 10.6 percent of GDP and decline to about 5 percent of GDP over the medium term. The financial system remained resilient during the pandemic, in part owing to the regional central bank’s (BCEAO) accommodative stance, including additional liquidity provision to banks.
The outlook points to sustained stronger activity, as the impact of the pandemic is abating, but is subject to significant uncertainty and risks are tilted to the downside. These include repeated COVID-19 outbreaks, a deteriorating regional security situation, delays in the start of oil and gas production, and a rapid rise of global interest rates.
Following the Executive Board’s discussion, Mr. Kenji Okamura, Deputy Managing Director and Acting Chair, issued the following statement:
“The COVID-19 pandemic interrupted a decade of high growth and development progress in Senegal. It caused severe hardship for many households, although the impact on the Senegalese economy was mitigated by the authorities’ forceful response. Senegal’s economy is now on track for a robust recovery.
“The outlook is favorable provided risks and rising vulnerabilities are well-managed. Risks are tilted to the downside, including the protracted impact from the pandemic, higher oil prices, a volatile regional security environment, slower reform implementation, and delays in the start of oil and gas production. Public debt has risen continuously in recent years and risks to debt sustainability need to be carefully monitored.
“The authorities’ reform agenda, supported by the Policy Coordination Instrument, the Stand-By Arrangement and the arrangement under the Standby Credit Facility, remains appropriate to achieve the program objectives of strong and inclusive growth while maintaining macroeconomic stability and containing risks to debt sustainability.
“Fiscal policy should remain anchored by a credible, revenue-based consolidation towards a fiscal deficit of 3 percent of GDP by 2024, in line with WAEMU commitments. The communication and implementation of the medium-term revenue mobilization strategy and steps to limit fuel subsidies while protecting the vulnerable are essential in this regard.
“Achieving more inclusive growth will also require further improving the business environment, enhancing the social safety net, broadening access to quality education, and addressing youth unemployment. The SDR allocation provides additional policy space to support the health sector and economic recovery. Ongoing reforms to improve public financial management will help strengthen spending efficiency and transparency, particularly for SDR-related spending.
“While the financial system remained resilient during the pandemic, long-standing weaknesses will need to be addressed, including deficiencies in the AML/CFT framework, and reforms to promote financial inclusion should be accelerated.”
[1] The PCI is a non-financing tool open to all members of the International Monetary Fund (IMF). It enables them to signal commitment to reforms and catalyze financing from other sources. The establishment of the PCI is part of the Fund’s broader effort to strengthen the global financial safety net—a network of insurance and loan instruments that countries can draw on if confronted with a crisis.
[2] In an economic crisis, countries often need financing to help them overcome their balance of payments problems. Since its creation in June 1952, the IMF’s SBA has been the workhorse lending instrument for emerging and advanced market countries. The SBA was upgraded in 2009 along with the Fund’s broader toolkit to be more flexible and responsive to member countries’ needs. Conditions were streamlined and simplified, and more funds were made available up front. The reform also enables broader high access on a precautionary basis.
[3] The SCF provides financial assistance to low-income countries (LICs) with short-term balance of payments needs. The SCF was created under the Poverty Reduction and Growth Trust (PRGT) as part of a broader reform to make the Fund’s financial support more flexible and better tailored to the diverse needs of LICs, including in times of shocks or crisis.
[4] 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.
© Press Release 2021
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