Senegal’s Growth Projected at 6% Amid Rising Global Oil Prices

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Following the conclusion of International Monetary Fund (IMF)’s visit to Dakar, Senegal over review of IMF’s Policy Support Instrument (PSI) approved in June 2015, the international financial organisation has projected the country’s growth at 6% for the fifth consecutive year.

A staff team from the IMF led by Michel Lazare, at the conclusion of the visit, said that growth in Senegal is expected to stay strong in 2018, as the 6% projection is expected to be driven by both public and private investment.

The growth is supported by strong performances in the construction and services sectors, but was hindered in the agricultural sector by late and insufficient rainfall.

The IMF noted that inflation in the country over the twelve months through September was below one percent and is projected to remain low for the rest of 2018, while the program implementation in the first half of 2018 was said to be broadly satisfactory.

While most quantitative targets were met at end-June, the fiscal deficit target was met partly through a slower-than-expected execution of public spending to compensate for the large shortfall in domestic revenues.

Furthermore, the ceiling on the share of the value of public sector contracts subject to single sourcing has not been respected since December 2017 mainly due to spontaneous offers.

Revenues are now projected to fall short of the December 2018 target by 0.9 percent of Gross Domestic Product (GDP), rising global oil prices, coupled with stable retail energy prices, continued pressure on current expenditures, and substantial treasury financing of SN La Poste has further contributed to a very challenging budget situation.

This, the financial team said, led to an accumulation of unmet obligations to the energy sector and payment delays to other suppliers and economic operators.

Meeting the December-end fiscal targets for 2018 under the PSI will require major efforts, as the authorities have agreed to cut substantially non-urgent domestically-financed capital expenditure and non-wage current spending to stay within the agreed fiscal envelope.

“To help contain fiscal pressures and risks to completion of the review, the authorities have agreed to significantly strengthen public financial management through: (i) permanently limiting Treasury financing of SN La Poste, and (ii) ceasing use of various budgetary letters that commit central government to expenditures beyond the current budget year or to expenditures outside the budget.

“Most of the structural reforms for the seventh review have been implemented. But there have been delays in the operationalisation of the payment of taxes via mobile phones, and limited progress has been made in implementing the action plan for reducing tax expenditures,” the IMF said.

They team added that the 2019 draft budget is consistent with the WAEMU fiscal deficit target of 3 percent of GDP, however, achieving this target will prove challenging given the recent weakness of revenue collection and the adverse fiscal impact of persistently high global oil prices.

In the medium term, Senegal needs to develop a tax policy and revenue administration strategy to reach the WAEMU tax revenue to GDP target of 20 percent over the medium term.

They also need to set up a fiscal framework to manage the oil and gas wealth in line with international best practices that should aim at limiting the procyclicality of fiscal policy.

The debt management strategy should aim to increase the share of domestic debt in total debt and rely on concessional debt whenever possible.

“The second phase of the Plan Senegal Emergent (PSE) aims to address the structural challenges to prolong recent strong growth performance. The authorities are implementing measures to reinforce the implementation of key reforms in the PSE, including; to further develop the financial sector and improve the flow of credit to small and medium size enterprises, reduce energy costs, and simplify tax administration to improve the business environment and allow the private sector to drive sustainable growth,” the IMF added.

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