News Brief No. 02/28

News Brief: IMF Completes Second Review Under Senegal's PRGF Arrangement and Approves US$11 Million Disbursement

April 8, 2002

The Executive Board of the International Monetary Fund (IMF) has discussed Senegal's performance and completed the second review of the third annual arrangement under the Poverty Reduction and Growth Facility (PRGF). As a result, Senegal will be able to draw up to SDR 9 million (about US$11 million) under the arrangement immediately.

Senegal's three-year PRGF arrangement was approved on April 20, 1998 (see Press Release 98/15) for SDR 107.01 million (about US$134 million). So far, Senegal has drawn SDR 87.47 million (about US$109 million).

The PRGF is the IMF's concessional facility for low-income countries. It is intended that PRGF-supported programs will in time be based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners, and articulated in a Poverty Reduction Strategy Paper (PRSP). This is intended to ensure that each PRGF-supported program is consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty.

PRGF loans carry an annual interest rate of 0.5 percent, and are repayable over 10 years with a 5 ½-year grace period on principal payments.

After the Executive Board's discussion on Senegal, Mr. Eduardo Aninat, Deputy Managing Director, and Acting Chair, stated:

"Senegal's macroeconomic performance in 2001 continued to be characterized by rapid growth and low inflation. Despite the emergence of important financial imbalances in the groundnut and power parastatals, covered by budgetary transfers, the overall budget deficit, excluding grants, was contained at less than 4 percent of GDP, in part through a delay in investment expenditure.

"The Fund welcomes the Senegalese government's resolve to address the structural problems of the groundnut sector, which still accounts for a large share of rural employment. The authorities are urged to step up efforts in this area, building on the measures implemented in 2001 to stem fiscal pressures, encourage further private sector involvement, and pave the way for the scheduled privatization of the groundnut marketing company (SONACOS) by mid-2003.

"Regardless of the outcome of the discussions on the privatization of the power utility (SENELEC), major operational improvements are required to avert supply bottlenecks and fiscal pressures, as are timely investments to expand SENELEC's capacity. The government's decision to raise tariffs on March 1, 2002, is commendable and in addition to cost-cutting measures, further tariff adjustments later this year may be necessary-especially if fuel costs turn out to be higher than originally projected.

"The Fund welcomes the government's first steps toward reducing the unfunded future liabilities of the civil service pension fund. In the interest of securing long-run fiscal sustainability, it will be important to deepen and broaden the pension reform, in cooperation with the World Bank, as soon as feasible-if necessary in a phased manner.

"The Fund looks forward to completion of the full PRSP during the next few months, which is expected to lay a sound foundation for future Fund support through an arrangement under the PRGF. The PRSP will also provide a framework for allocation of resources that will be freed up under the enhanced Heavily Indebted Poor Country Initiative. To sustain the investment in the social sectors, it will be important to speedily implement the conditions for reaching the completion point under the HIPC Initiative-especially improving the size and quality of basic social services. In the meantime, the Fund will continue to support Senegal's efforts to reduce poverty by extending the interim assistance under the HIPC Initiative until end 2002," Mr. Aninat stated.