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IMF’s virtual mission to Senegal gives it thumbs up in PCI review

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WASHINGTON, DC: A staff team from the International Monetary Fund (IMF), led by Ms. Corinne Deléchat, conducted a virtual mission to Senegal from June 2-12, 2020 and engaged in discussions as part of the first review of the IMF’s Policy Coordination Instrument (PCI) approved in January 2020.

At the conclusion of this mission, Ms. Deléchat stated that the IMF team reached staff-level agreement with the authorities on economic and financial policies that could support approval of the first review of their three-year program under the PCI. The IMF Executive Board could consider the first review in the second half of July 2020.

The COVID-19 pandemic has had a significant impact on economic activity, her statement said, exacerbated by border closures, a curfew and social distancing. The GDP growth rate is projected at 1.1 percent for 2020 compared to 5.3 percent in 2019, forecasts based on the control of the spread of the pandemic, the implementation of measures to support the economy and a gradual recovery of economic activity during the second half of 2020. The forecasts are nonetheless subject to major downside risks.

To mitigate the effects of the crisis attributable to COVID-19, the Senegalese government has set up an economic and social resilience program to strengthen the health system and to support households, the Senegalese diaspora, as well as firms and their employees. In April 2020, the IMF disbursed US$ 442 million (100 percent of Senegal’s quota), i.e., about CFAF 263 billion or approximately 2 percent of GDP under the Rapid Financing Instrument (RFI) and the Rapid Credit Facility (RCF), thus providing immediate liquidity to support the government in its implementation of the national COVID-19 response plan (plan de riposte).

The statement called the performance of the PCI-supported program satisfactory and said that at end-December 2019, all quantitative targets under the program, except for one on the share of single-sourced public tenders, were met and significant progress was achieved in attaining the reform objectives for end-June. In particular, Fund staff welcomed the finalization of the medium-term revenue mobilization strategy, whose implementation in the second half of 2020 would support economic revitalization measures.

A comprehensive assessment of the impact of the pandemic on revenue collection and supplementary expenditure requirements raised the estimated budget deficit to 6.1 percent of GDP in 2020. The Senegalese authorities stated their commitment to implementing temporary, well-targeted and cost-effective measures fully reflected in a revised budget, returning gradually to a budget deficit of 3 percent of GDP through 2022 (WAEMU convergence criterion) as the crisis abates. The Senegalese authorities were also committed to improving transparency and accountability regarding emergency expenditure.

Ms. Delechat’s statement said that with respect to economic support measures, it is important to ensure that financing assistance for firms is properly coordinated and targeted, and to ensure that the requirements for eligibility for the various facilities are clarified. Such support should also be based on appropriate risk-sharing in order to limit moral hazard and fiscal costs. Direct transfers intended for viable firms should be evaluated on a basis of cost-benefit analysis.

The crisis represents an opportunity to expand social safety nets and enhance the effectiveness of the available instruments for supporting small- and medium-sized enterprises (SMEs), her statement said. The Senegalese government will examine the possibility of broadening social safety nets in cooperation with its development partners. In addition, the government intends to accelerate better coordination of entities and programs whose mission is to support SMEs.

The structural reforms of public financial management will continue, with the full implementation of program budgets beginning with the 2021 budget law, tightened control over treasury deposit accounts ( comptes de dépôt), strengthening of the Treasury Single Account, as well as sound debt management. The government is also continuing to prepare the governance framework to manage revenues generated by hydrocarbon operations.

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