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The Executive Board of the International Monetary Fund (IMF) has granted approval for a 36-month Extended Credit Facility (ECF) and Extended Fund Facility (EFF) totaling SDR 1.132 billion (approximately $1.51 billion) to support Senegal. Additionally, an Arrangement Under the Resilience and Sustainability Facility (RSF) of about SDR 242.7 million (approximately $324 million) has been authorized.
The EFF/ECF-supported program aims to address macroeconomic imbalances, reduce debt vulnerabilities, enhance governance, and foster inclusive growth that generates employment opportunities. The RSF arrangement focuses on tackling longer-term structural challenges associated with climate change by implementing appropriate climate policies.
The immediate disbursement under the EFF/ECF amounts to SDR 161.8 million (approximately $216 million).
Senegal’s economy has been adversely affected by multiple shocks, including escalating food and energy prices, tightening financial conditions, weakened external demand, and the appreciation of the US dollar. The country also faces challenges such as heightened regional insecurity and growing socio-political tensions ahead of next year’s presidential elections. Consequently, 2022 proved to be a difficult year with growth slowing to 4.0 percent, inflation accelerating to 9.7 percent, and widening fiscal and current account deficits.
Despite these challenges, the authorities are committed to implementing a growth-oriented fiscal consolidation strategy to reduce the budget deficit to 3 percent of GDP by 2025. They plan to adopt additional revenue measures, improve spending efficiency, and gradually phase out energy subsidies. These efforts aim to rebuild fiscal buffers and set public debt on a downward trajectory in the medium term. Strengthening governance, transparency, and anti-corruption frameworks is also a priority for the authorities.
Medium-term growth prospects are more favorable with the commencement of oil and gas production in early 2024. However, the outlook remains risky, primarily due to factors such as global economic slowdown, tighter financial conditions, prolonged conflict in Ukraine, and further appreciation of the US dollar. Other risks include climate change-related natural disasters, deteriorating regional security, and increased socio-political tensions surrounding the presidential elections.
Following the Executive Board’s discussion, Mr. Kenji Okamura, Deputy Managing Director and Acting Chair, provided the following statement:
“Given the series of external shocks and regional security concerns, Senegal has faced significant strain on its public finances and external stability. The Extended Fund Facility/Extended Credit Facility arrangements will support the authorities’ growth-friendly fiscal consolidation strategy aimed at ensuring debt sustainability, strengthening governance, and promoting inclusive growth. The Resilience and Sustainability Facility arrangement will contribute to addressing climate change challenges through comprehensive reforms that align with Senegal’s climate change mitigation and adaptation goals.
To address rising debt vulnerabilities, steadfast implementation of the fiscal consolidation strategy is necessary, including reaching a fiscal deficit target of 3 percent of GDP by 2025. Accelerated implementation of the medium-term revenue strategy, streamlining VAT exemptions, and broadening the tax base are crucial for revenue mobilization. Gradually phasing out untargeted energy subsidies should be accompanied by measures to strengthen social safety nets. Prudent debt management and improved oversight of state-owned enterprises’ borrowing and public-private partnership operations are essential to mitigate debt sustainability risks.
Structural reforms, including strengthening social safety nets, enhancing governance and transparency, improving the business environment, and addressing weaknesses in the financial sector, will support inclusive and private sector-led growth. Strengthening the anti-corruption frameworks through the empowerment of the anti-corruption agency (OFNAC) and bolstering the asset declaration system for public officials are critical measures. Urgent actions are also required to address deficiencies in the anti-money laundering and combating the financing of terrorism (AML/CFT) framework to avoid potential negative macroeconomic and reputational consequences and to exit the FATF’s grey list.
Mitigating climate change challenges is essential for Senegal’s long-term macroeconomic resilience. The RSF-supported policy reforms should prioritize measures such as coastal erosion protection, improved water management for agriculture, and the integration of climate change considerations into the budget process. Synergies with the World Bank, the Global Center on Adaptation, and other development partners should be maximized to mobilize additional private climate financing.”
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