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IMF Executive Board Completes the Fourth Review Under the Policy Coordination Instrument and the First Reviews Under the Stand-By Arrangement and the Arrangement Under the Standby Credit Facility, and Concludes the 2021 Article IV Consultation for Senegal

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IMF Executive Board Completes the Fourth Review Under the Policy Coordination Instrument and the First Reviews Under the Stand-By Arrangement and the Arrangement Under the Standby Credit Facility, and Concludes the 2021 Article IV Consultation for Senegal

Fiscal policy must remain anchored in a credible revenue-based consolidation towards a fiscal deficit of 3% of GDP by 2024

WASHINGTON DC, United States of America, January 11, 2022 / APO Group / –

Recent indicators suggest that a strong recovery is taking place, driven by industrial production, services and retail activity. The number of COVID-19 cases remains comparatively low and around 14 percent of the adult population is vaccinated. The results of the program continue to be satisfactory. Along with PCI, the SCF / SBA arrangements are helping to support the authorities’ response to the crisis; promote a broad-based recovery; catalyze additional concessional financing; and strengthen UEMOA’s external position. 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, phasing out energy subsidies, increasing investment in education and social protection, as well as accelerating reforms aimed at overcoming key constraints for private sector development, they 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 Agreement (SBA)[2] and the Agreement under the Standby Credit Facility (SCF). [3] Completion of the reviews allows for the release of SDR 129.4 million (about US $ 180 million), bringing total disbursements under the agreements to SDR 258.8 million (about US $ 360 million).

Senegal‘s three-year ICP was approved on January 10, 2020 and is based on three pillars: (i) achieving inclusive and private-sector-led growth, (ii) consolidating macroeconomic stability through prudent fiscal policy and solid debt, and (iii) manage oil and gas revenues in a sustainable and transparent manner (see Press Release No. 20/06).

Senegal’s 18-month SCF / SBA arrangements, totaling 140 percent of the quota, were approved on June 7, 2021 to help support the authorities’ response to the COVID-19 crisis, catalyze financing additional concessionaire and strengthen the country’s external position. WAEMU (see Press Release No. 21/259). Authorities are meeting their commitments regarding transparency of COVID-19 spending; have released detailed budget execution reports, a special audit of the COVID-19 fund, and an audit on the regularity of COVID-19 recruitment procedures. The final report of the Court of Auditors on the 2020 budget and the execution of the COVID-19 spending is expected in March 2022.

The Executive Board also concluded the 2021 Article IV consultation [4] with Senegal.

A strong economic recovery has been taking place since mid-2020, driven by industrial production and the service sector, and 2021 growth has been revised up from 3½ to around 5 percent. The recovery is expected to continue into 2022 and beyond, with a temporary new boost in oil and gas production in 2023–24.

The 2021 second supplementary budget incorporates additional one-off expenditures related to the use of approximately two-thirds of Senegal’s SDR allocation (0.9% of GDP) to support recovery and strengthen social protection and the health sector, including the national production of vaccines. This, along 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 decreasing to less than 60 percent of GDP. The 2021 current account deficit is projected to widen to 10.6% of GDP and decline to around 5% of GDP in the medium term. The financial system remained resilient during the pandemic, in part due to the accommodative stance of the regional central bank (BCEAO), including the additional provision of liquidity to banks.

The outlook is for stronger and more sustained activity, as the impact of the pandemic is waning, but it is subject to significant uncertainty and risks are sloping downward. These include repeated COVID-19 outbreaks, a deteriorating regional security situation, delays in the start of oil and gas production, and a rapid rise in global interest rates.

Following the Executive Board discussion, Mr. Kenji Okamura, Deputy Managing Director and Acting President, issued the following statement:

“The COVID-19 pandemic interrupted a decade of high growth and development in Senegal. It caused serious difficulties for many households, although the impact on the Senegalese economy was mitigated by the vigorous response of the authorities. Senegal’s economy is now on the way to a solid recovery.

“The outlook is favorable as long as risks and growing vulnerabilities are well managed. Risks are sloping to the downside, including the prolonged impact of the pandemic, higher oil prices, a volatile regional security environment, slower implementation of reforms, and delays in the start of oil and gas production. Public debt has risen continuously in recent years and risks to debt sustainability must be carefully monitored.

“The authorities’ reform agenda, supported by the Policy Coordination Instrument, the Stand-By Agreement and the agreement under the Standby Credit Facility, remains appropriate to achieve the objectives of the strong and inclusive growth program while maintaining macroeconomic stability and risks to debt sustainability are limited. .

“Fiscal policy must remain anchored in a credible revenue-based consolidation towards a fiscal deficit of 3 percent of GDP by 2024, in line with WAEMU commitments. 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, expanding access to quality education and tackling 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 the efficiency and transparency of spending, particularly for SDR-related spending.

“While the financial system remained resilient during the pandemic, long-standing weaknesses, including deficiencies in the AML / CFT framework, will need to be addressed and reforms to promote financial inclusion must be accelerated.”

[1] The PCI is a non-financial tool open to all members of the International Monetary Fund (IMF). It enables them to signal commitment to reforms and catalyze funding from other sources. The establishment of the ICP 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 turn to if faced with a crisis.

[2] In an economic crisis, countries often need financing to help them overcome their balance of payments problems. Since its inception in June 1952, the IMF’s SBA has been the workhorse lending instrument for advanced and emerging market countries. The SBA was updated in 2009 along with the Fund’s broader toolkit to be more flexible and responsive to the needs of member countries. Terms were streamlined and simplified, and more funds were made available upfront. The reform also allows for wider elevated 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 within the framework of 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 countries in the world. low income, even in times of shocks or crises.

[4] Pursuant to Article IV of the Articles of Agreement of the IMF, the IMF holds bilateral discussions with members, generally every year. A team of staff visits the country, collects economic and financial information, and discusses with officials the country’s economic and political developments. Upon returning to headquarters, staff prepare a report, which forms the basis for the Executive Board discussion.

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