- The Senegalese government has been told to address energy supply bottlenecks if the country is to realise its growth potential.
This was the view of the International Monetary Fund’s (IMF) mission following consultations that ended in Dakar today.
“To raise Senegal’s growth potential, the authorities must accelerate implementation of their growth strategy, giving priority to improving competitiveness through a better business climate and further improvements in governance. Comprehensive reform of the energy sector, in close cooperation with development partners, needs to proceed without further delay in order to limit the significant fiscal costs and economic and financial risks related to that sector,” said the IMF’s head of mission, Norbert Funke, at the end of the visit.
He said while energy supply bottlenecks need to be addressed, the national company, SENELEC’s, operational efficiency also need to be increased, and tariffs and the tariff structure need to reflect the true cost of energy production, while protecting the most vulnerable.
“Because Senegal’s financial sector also needs to make a larger contribution to growth, it is vital to improve the institutional, legal, and operating environment for that sector prudently, while guarding against vulnerabilities,” the IMF mission also added in a statement.
The mission which was in Dakar during 11-25 March, in its outlook also said the Senegalese economy should begin a gradual rebound this year after two years of slower than usual growth resulting from both external and domestic shocks.
“Real GDP growth, which averaged about 2 percent in 2008 and 2009, is expected to pick up to close to 3.5 percent. However, the outlook remains uncertain, with risks that the global recovery will be more hesitant than expected, the threat of renewed problems in the energy sector, and financing constraints that limit the government’s fiscal room for manoeuvre. Annual inflation, which has been negative for more than six months, is expected to gradually return to about 2 percent,” said the IMF mission.
The mission further stated that the difficult economic environment has complicated implementation of some measures of the government’s economic and financial programme, though noting that most quantitative assessment criteria were met, including the limit on central government payment delays, and that key structural benchmarks have been completed.
The IMF however said the overall fiscal deficit was higher in 2009 than envisaged under the program, reaching 5 percent of GDP, stating that revenues fell short, mostly due to tax arrears of public enterprises (mainly SENELEC), and that current expenditure was higher than programmed.
“Public investment, a government priority, rose to 10½ percent of GDP. As the recovery gains momentum, the fiscal stimulus that has been used to cushion the impact of the global crisis will need to be gradually withdrawn to return to the medium-term deficit target of 4 percent of GDP that is consistent with debt sustainability,” said the mission, adding that to reach this target, non-priority expenditure will need to be contained through sound public financial management.
It further stated that in 2010, Senegal’s fiscal deficit should remain below 5 percent of GDP.
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