IMF Completes Fifth Review Under Policy Coordination Instrument, and Second Reviews under Stand-By Credit Facility and Stand-By

  • The war in Ukraine and trade sanctions against Mali are having significant spillovers on Senegal.
  • The authorities are taking temporary and targeted measures to support the most vulnerable and to stabilize food prices, while preserving debt sustainability.
  • Rebuilding buffers is critical through an accelerated implementation of the domestic revenue mobilization strategy, prudent debt management, and enhanced spending efficiency, notably by gradually phasing out subsidies and reducing recourse to single source procurement.
  • Washington, DC : Today, the Executive Board of the International Monetary Fund (IMF) completed the Fifth Review under the Policy Coordination Instrument (PCI) and the Second Reviews under the Stand-by Arrangement (SBA) and the Arrangement under the Standby Credit Facility (SCF). The completion of the reviews enables the immediate release of about US$215.78 million (SDR 161.82 million) to Senegal. The Board also approved an augmentation of access and a waiver of the non-observance of performance criterion, and the modification of a performance criterion and quantitative targets. As a result, total access under the blended 18-month SBA/SCF arrangements approved in June 2021 (See Press Release No. 21/159)was increased by about US$172.6 million (SDR 129.44 million), from about US$650 million (SDR 453 million), at the time of approval, to about US$776.67 million (SDR 582.44 million).

    Soaring global fuel and food prices, compounded by the war in Ukraine, and, to a lesser extent, the freeze on trade with Mali due to sanctions by the Economic Community of West African States (ECOWAS), are disrupting the post-pandemic recovery and exacerbating difficult policy trade-offs. As a result, growth this year was revised down to about 5 percent , whereas inflation is expected to reach 5.5 percent, driven by higher food and energy prices.

    The authorities have adopted a supplementary budget in May 2022 to accommodate the temporary and targeted measures to support the most vulnerable and to stabilize food prices consumed by lower and middle-income households, while preserving debt sustainability. The new spending incorporated in the supplementary budget will bring the fiscal deficit this year to 6.2 percent of GDP compared to 4.8 percent of GDP in the initial budget. Public debt is expected to reach 75 percent of GDP in 2022.

    Despite these challenges, the outlook points to robust economic activity over the medium term provided appropriate policies are implemented. However, this outlook is subject to significant uncertainty and risks are titled to the downside. These include a protracted war in Ukraine, a prolonged freeze on trade with Mali, a flare-up of the COVID-19 pandemic, a deterioration of the regional security situation, rising social demands, a severe tightening of external financial conditions, and the possible impact of adverse climate conditions.

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

    “Performance under the program has been broadly satisfactory despite a challenging environment. The Senegalese economy entered 2022 with strong growth momentum but the spillovers from the war in Ukraine are hampering this rebound.

    “The post-pandemic recovery is now facing headwinds from soaring global fuel and food prices and an increasingly challenging external environment. Near-term growth prospects have weakened, inflationary pressures have emerged, and fiscal and external financing needs have increased.

    “The authorities’ fiscal policy response to these challenges appropriately supports vulnerable households through temporary and targeted measures as well as a relaxation of the fiscal deficit. Reducing debt vulnerabilities, which have been growing steadily over the last decade, will need a steadfast implementation of the medium-term fiscal consolidation strategy anchored by reaching a fiscal deficit of 3 percent of GDP by 2024.

    “Rising energy subsidies due to higher global oil prices are an important fiscal risk. The recent increase of selective energy prices, carefully designed to protect the most vulnerable, is a step in the right direction to mitigate this risk. Over the medium-term, a gradual elimination of energy subsidies is a priority, which should be accompanied by measures to strengthen existing social safety nets.

    “Fiscal and external resilience will need to be further strengthened through an accelerated implementation of the domestic revenue mobilization strategy, prudent debt management, and enhanced spending efficiency, notably by reducing recourse to single source procurement. Finalizing the fiscal framework to manage oil and gas revenues, and improving the business environment to attract private investment and create jobs remain a priority.

    “While the financial system is overall sound, vulnerabilities need to be monitored and deficiencies in the AML/CFT framework need to be tackled with greater urgency to avoid possible negative macroeconomic and reputational repercussions.”

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