Senegal, along with most sub-Saharan countries, is struggling to limit
the impact of the international financial crisis on its economy, though
unlike many developed nations it should avoid recession and maintain
growth, thanks to a package of prudent measures taken by the
government.
Despite suffering little exposure
to the toxic assets of the subprime market that brought so many
developed economies into crisis, Senegal has been unavoidably hit by
the ripple effect of the global financial crisis.
In its regional economic outlook
for sub-Saharan Africa, issued in late April, the IMF warned that the
progress made by Senegal and other countries in the region - progress
that included lowering inflation to single digits, averaging growth of
6% and strengthening fiscal reserves - was now at risk of being
weakened by the downturn.
The report said that tighter
global credit and investor risk aversion had caused capital outflow and
made trade finance more costly. The economic slowdown was also likely
to increase credit risk and non-performing assets, weakening the
balance sheets of financial institutions and corporations, the study
said.
According to the IMF, remittances
from nationals living overseas, which represent around 7.5% of
Senegal's GDP are also falling. With the economies of many host
countries slowing, this could have a powerful impact on Senegal,
reducing its flow of foreign earnings at a time when most is needed.
However, Senegal's economy should
continue to expand at an enviable rate over the coming year, due in
large part to a series of policies aimed at protecting the country's
financial wealth mitigating the worst effects of the crisis. Following
a visit by an IMF delegation to Dakar in early April, the fund's
mission chief for Senegal, Johannes Mueller, said that in the midst of
the current global environment, the government's efforts to normalise
financial relations with the private sector were commendable, with the
stock of unpaid bills - which at one point totaled more than $500m -
having been sharply reduced over the last few months, which he said
should help shore up economic activity.
While the IMF has predicted that
there will be a drop in foreign direct investments (FDI) and a
potential tightening of credit, the picture its report painted for the
immediate future of the Senegalese economy was by no means bleak. The
country should see real GDP growth of 3.1% this year, actually higher
than the 2.5% recorded in 2008, while the outlook is even better for
2010, when GDP should expand by 3.4%.
Further comfort can be found in
the IMF's expectations for inflation. With commodities prices falling,
consumer inflation should only increase by 1.1% in 2009, doubling to a
still moderate 2.2% the following year.
Though the fund predicts Senegal's
value of exports as a component of GDP will fall this year and next,
dropping to 21.3% this year and 22% in 2010 against the 2008 level of
24.9%, the costs of imports will fall by an even steeper rate, says the
IMF. Last year, the imported goods and services accounted for 47.4% of
GDP, but this will drop to 41.1% this year and ease even further to
40.1% the next. By 2010, Senegal's trade balance will have returned to
near pre-crisis levels, though still running a substantial deficit, the
IMF said.
"In the same vein, the authorities
made good progress in strengthening their public financial management
systems to help enhance budget planning, execution and monitoring, and
prevent a recurrence of the payment delays. For the period ahead, they
intend to pursue additional reforms in this area, as well as to promote
private sector activity," said Mueller.
While the global slump in
commodity prices will affect Senegal's export earnings, it has brought
about a sharp fall in the cost of certain vital imports, particularly
in rice, one of the staples of the local diet.
Though commodity prices are now
well off their peaks of last year, Senegal has embarked on a programme
to strengthen its food security, aiming to reduce its reliance on
imports and its exposure to future price shocks. In May last year, as
food costs spiralled, President Abdoulaye Wade launched a project to
promote higher agricultural production through investments in rural
infrastructure and support to boost yields through the use of more
efficient methods.
The short-term objective of the
programme is to increase rice production from its average harvest of
100,000-200,000 tonnes a year to 500,000 tonnes, and become
self-sufficient in food production by 2015. If successful, the
ambitious programme would relieve the country of one of its biggest
expenditures for imports, as it currently has to meet some 80% of its
rice needs from overseas.
Though it is impossible for
Senegal to avoid the effects of the global recession, careful fiscal
management, mixed with measured spending reductions and investments in
key sectors such as agriculture, will help mitigate the worst of the
crisis and give the country's economy a platform from which to build in
the future.
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