The Executive Board of the International Monetary Fund (IMF) has granted Senegal a 36-month Extended Credit Facility (ECF) and Extended Fund Facility (EFF) amounting to SDR 1.132 billion (approximately £1.51 billion). Additionally, the Executive Board has approved an arrangement under the Resilience and Sustainability Facility (RSF) of about SDR 242.7 million (around £324 million).
The EFF/ECF-supported programme aims to provide crucial assistance in addressing macroeconomic imbalances by reducing debt vulnerabilities, strengthening governance, and fostering inclusive and job-rich growth. The RSF arrangement is designed to tackle longer-term structural challenges associated with climate change through the implementation of appropriate climate policies.
As part of the decision by the Executive Board, an immediate disbursement equivalent to SDR 161.8 million (about £216 million) will be made under the EFF/ECF.
Senegal’s economy has been significantly affected by various shocks, including escalating food and energy prices, tightening financial conditions, reduced external demand, and the appreciation of the US dollar. The country is also grappling with multiple challenges, such as increased regional insecurity and mounting socio-political tensions ahead of the upcoming presidential elections next year. Consequently, 2022 proved to be a challenging year, marked by a growth slowdown to 4.0 percent, an inflation surge to 9.7 percent, and widened fiscal and current account deficits.
Despite these challenges, the Senegalese authorities remain committed to implementing a growth-friendly fiscal consolidation strategy to limit the budget deficit to 3 percent of GDP by 2025. Their intentions include implementing additional revenue measures and improving spending efficiency, including a phased reduction of energy subsidies. These efforts are expected to rebuild fiscal buffers and steer public debt on a downward trajectory in the medium term. Moreover, the authorities aim to enhance governance, transparency, and anti-corruption frameworks.
Medium-term growth prospects for Senegal seem more favorable, with the commencement of oil and gas production in early 2024. However, the outlook is still subject to significant risks, predominantly skewed towards the downside. These risks encompass lower global growth, tighter financial conditions, an escalation of the conflict in Ukraine, and further appreciation of the US dollar. Other risks involve climate change-related natural disasters, a deterioration of the regional security situation, and an exacerbation of socio-political tensions before the presidential elections.
Following the discussion at the Executive Board, Kenji Okamura, Deputy Managing Director, and Acting Chair issued a statement that partly reads; “Despite the progress achieved through previous fund-supported programmes, Senegal’s public finances and external stability have been severely strained due to a series of adverse external shocks and regional security concerns. In response, the authorities are implementing a growth-friendly fiscal consolidation strategy aimed at ensuring debt sustainability, strengthening governance, and promoting inclusive growth. These efforts are supported by the Extended Fund Facility/Extended Credit Facility arrangements. Additionally, the authorities are implementing a comprehensive reform agenda under the Resilience and Sustainability Facility (RSF) arrangement to address long-term climate change challenges and support the country’s mitigation and adaptation goals.”
