- Economic activity weakened in the first half of 2024 and prospects remain challenging for the remainder of the year. The fiscal position is expected to deteriorate amid lower revenue collections and increased expenditure on energy subsidies and interest payments.
- Bold measures, including streamlining tax exemptions and phasing out untargeted and costly energy subsidies, are needed to ensure a timely return to the WAEMU deficit target and place public debt firmly on a downward trajectory.
- The authorities reaffirmed their commitment to the reforms underpinning the IMF-supported program and stand ready to implement robust measures to set public finances on a new path towards deficit and debt reduction.
Dakar: A team from the International Monetary Fund (IMF), led by Mr. Edward Gemayel, conducted a mission to Senegal during September 5-12, 2024, to continue discussions initiated in June regarding the authorities' economic program supported by the IMF's Extended Fund Facility (EFF) and Extended Credit Facility (ECF) arrangements of SDR 1,132.6 million (about US$ 1.5 billion), combined with the Resilience and Sustainability Facility (RSF) of SDR 242.70 million (about US$320 million). The EFF/ECF and RSF arrangements were approved by the IMF Executive Board on June 26, 2023.
At the conclusion of the mission, Mr. Gemayel issued the following statement:
"The Senegalese economy grew at a slower pace than anticipated in the first half of 2024. Real GDP growth registered 2.3 percent in the first quarter, with high-frequency indicators suggesting a similar deceleration in the second quarter. This slowdown reflects weaker activity in the mining, construction, and agro-industrial sectors, and to a lesser extent in the primary sector. Headline inflation eased to an average of 2.2 percent y/y in the first half of the year, driven by lower international commodity prices and subdued domestic demand. Budget execution through end-August revealed a significant revenue shortfall, while expenditures remained broadly in line with projections. Consequently, the fiscal deficit widened, and amid lower-than-expected liquidity buffers, the authorities relied on costly external commercial borrowing with short maturities.
Macroeconomic prospects for the remainder of 2024 remain challenging. Real GDP growth is now projected at 6.0 percent, a downward revision from the 7.1 percent forecast in June 2024. Growth in the non-hydrocarbon sector is expected to slow to 3.3 percent, compared to the earlier projection of 4.8 percent. Headline inflation is forecast to average 1.5 percent y/y. The current account deficit is anticipated to narrow to 12.7 percent of GDP, reflecting the commencement of hydrocarbon production amidst subdued non-hydrocarbon export performance. In the absence of additional fiscal measures, the central government deficit is projected to surpass 7.5 percent of GDP, significantly above the 3.9 percent envisaged in the initial budget, driven by lower revenue collections and increased expenditure on energy subsidies and interest payments. As a result, central government debt is expected to remain above the WAEMU convergence criterion of 70 percent.
Absent additional measures, reaching the WAEMU deficit target of 3 percent of GDP in 2025 is likely to take longer than initially anticipated. In this context, the authorities are encouraged to implement bold measures including streamlining tax exemptions and phasing out untargeted and costly energy subsidies, to ensure a timely return to the fiscal deficit target and place public debt firmly on a downward trajectory. In addition, further efforts are needed to address the accumulation of unpaid obligations to private companies, particularly in the construction and energy sectors. An inventory of these liabilities should be compiled, and a settlement plan with a clear and realistic timeline should be established to ensure timely resolution.
Further efforts are needed to advance the structural reform agenda, namely, revising the petroleum product pricing formula, making progress on the diagnostic of electricity production costs, and improving the financial viability of the public electricity company SENELEC, as part of the design of a new electricity tariff structure, including a social tariff aimed at protecting vulnerable households. On the financial front, IMF staff welcomes the progress in implementing the full set of measures recommended by the Financial Action Task Force (FATF) to facilitate the country's exit from the "grey list." These efforts are expected to bolster the business climate and enhance overall economic confidence.
The authorities reaffirmed their commitment to the reforms underpinning the IMF-supported program. They also renewed their commitment to transparency, good governance, and public accountability. The authorities informed the IMF team that the general audit of public finances is nearing completion, and that its findings and recommendations are expected to facilitate the implementation of robust measures to set public finances on a new path towards deficit and debt reduction.
The IMF team expresses its gratitude to the authorities and all counterparts for their excellent cooperation, as well as for the candid and constructive discussions held during the mission. The discussions for the combined second and third reviews under the ECF/EFF and RSF arrangements are tentatively scheduled for late October 2024.
During the visit, the IMF team met with His Excellency, Prime Minister Ousmane Sonko; Mr. Abdourahmane Sarr, Minister of Economy, Planning and Cooperation; Mr. Cheikh Diba, Minister of Finance and Budget; and other senior government officials. The IMF team also had productive discussions with representatives of the business community and development partners."
