Senegal: Despite robust economic growth, Senegal reels under rising public debt

20 Septembre 2017

DAKAR,  Senegal, September 20 (Infosplusgabon) - Senegal’s economic growth is expected to remain robust above 6 percent, and inflation to be contained at 2 percent in 2017, according to an International Monetary Fund (IMF) staff team that on Tuesday completed a review mission to the west African country.

However, Senegal’s public debt has continued to rise and debt service is expected to increase from 24 percent of revenue in 2014 to 30 percent in 2017, leader of the IMF team, Ali Mansoor, observed.

“Continued fiscal consolidation is required. This will need domestic revenue mobilization, particularly rolling back exemptions with low socio-economic impact, curtailing own-financed investment projects that have not been vetted by the project bank, and strictly limiting net Treasury financing to budgetary operations of the current year,” Mansoor suggested.

In its end-of-mission statement, made available to PANA on Wednesday, the team noted that the macroeconomic outlook for 2018 is favourable, but the rising burden of public debt service requires attention.

In addition, the mission welcomed the Senegalese authorities’ commitment to take measures to eliminate additional borrowing needs beyond the budgetary fiscal deficit by:

(i) restructuring the Post Office; (ii) implementing civil service pension fund reform; and (iii) subjecting ‘comptes de dépôts’ to budgetary rules.

During the 7-19 September visit, the IMF team engaged in discussions with the authorities as part of the fifth review of the IMF’s Policy Support Instrument (PSI) approved in June 2015.

“PSI programme implementation remains broadly satisfactory. The quantitative targets for end-June 2017 were met, except for the indicative target on tax revenue, explained by a shortfall in petroleum revenues. There is significant progress with implementation of the three structural benchmarks on revenue administration and public financial management,” the team said in its statement.

“The pace of fiscal consolidation is programmed to slow down slightly in 2018 reaching a deficit of CFAF 367 billion (3.5 percent of GDP) to provide space to implement projects that are financed with concessional resources.

“To ensure that this relaxation does not lead to excessively high debt service over the medium term, it will be important to curtail tax exemptions, integrate quasi-fiscal revenues into the budget, and ensure the evaluation of all new domestically-financed investment projects. If these measures are implemented in 2018, they are expected to help reduce debt service to 2014 levels over the next 10 years.”

In order to maintain the economy’s growth momentum over the medium term, the IMF team suggested that reforms to the Special Economic Zone (SEZ) framework need to be extended to promote SME development and mobilize foreign direct investment for globally competitive production.

Also, the mission welcomed the authorities’ proposals to use the G-20’s Compact with Africa to extend and accelerate reforms in the SEZ aimed at rules-based economic governance and a transparent tax regime.

In the team’s view, replacing the 50-year tax holidays in the SEZ with income taxes of 15 percent that cannot be exempted was a positive step. It emphasized that further reforms should include subjecting all SEZ investors to the VAT, with a rapid refund regime for exporters.

This would allow controls over who invests in the zone to be relaxed, making it easier for small and medium-sized enterprises to emerge from the informal sector. Support under the Compact with Africa will also enable tackling SEZ bottlenecks in infrastructure, particularly electricity.

Senegal’s fifth review under the PSI is tentatively scheduled to be taken up by the IMF Executive Board in December 2017.

FIN/INFOSPLUSGABON/AKL/GABON 2017

© Copyright Infosplusgabon