Growth surprised on the upside in 2021. However, the outlook is clouded by the impact of the war in Ukraine, which is likely to put the economy under strain; Maintaining fiscal discipline in the face of rising energy and food prices as well as rising social demands, will be critical for preserving debt sustainability; Staying the course with the reform agenda is important to strengthen the resilience of the economy.
A staff team from the International Monetary Fund (IMF), led by Mr. Edward Gemayel, conducted a hybrid mission during March 9-15, 2022, to take stock of recent economic developments, evaluate the economic impact of the war in Ukraine and sanctions against Mali, and take stock of reform progress under the Policy Coordination Instrument, the Stand-By Arrangement, and the Stand-By Credit Facility.
At the conclusion of the mission, Mr. Gemayel issued the following statement:
“The Senegalese economy regained its pre-pandemic trend path in 2021, led by strong industrial production and the services sector. Real GDP growth is estimated at 6.1 percent, about one percentage point higher than previously anticipated. Average inflation was contained at 2.2 percent, though food prices have increased by 2.9 percent. Despite shortfalls in tax revenues, budget execution was broadly in line with target with an overall fiscal deficit of 6.3 percent of GDP.
“The war in Ukraine is, however, casting a shadow on the macroeconomic outlook. Rising global food and energy prices have added to existing policy challenges, including the lingering effects of the pandemic, regional insecurity, and rising social demands in the run up to the July parliamentary elections. Taken altogether, these challenges increase downside risks to growth and are likely to add to inflationary pressure and result in significant additional spending.
“Senegal’s fiscal space has significantly narrowed as public debt has risen steadily over the last decade, largely reflecting the scaling-up of public investment. With limited resources, enhancing revenue mobilization, streamlining and better targeting subsidies, and reprioritizing spending, will be essential to avoid significant budget slippages and preserve debt sustainability.
“Strengthening the resilience of the economy will hinge on advancing key structural reforms, particularly (i) accelerating the implementation of the medium-term revenue strategy (MTRS); (ii) operationalizing the new fiscal framework governing the use of hydrocarbon revenues; (iii) preparing a roadmap to gradually eliminate energy subsidies, while enhancing the existing mechanism to protect the poorest; and (iv) revising the legal framework for public procurement to rely more regularly on open and competitive tenders.
“The IMF team wishes to thank the authorities and other counterparts for their excellent cooperation and candid and constructive discussions during the visit and reaffirms the IMF’s support for the government’s efforts to implement its economic reform program. Discussions for the next review under the Policy Coordination Instrument, the Stand-By Arrangement, and the Stand-By Credit Facility are planned for late April 2022.
“During the visit, the IMF team met with Mr. Abdoulaye Daouda Diallo, Minister of Finance and Budget, Mrs. Sophie Gladima, Minister of Energy, senior government officials, and representatives of business community as well as civil society.”
Growth surprised on the upside in 2021. However, the outlook is clouded by the impact of the war in Ukraine, which is likely to put the economy under strain; Maintaining fiscal discipline in the face of rising energy and food prices as well as rising social demands, will be critical for preserving debt sustainability; Staying the course with the reform agenda is important to strengthen the resilience of the economy.
