A staff team from the International Monetary Fund (IMF), led by Mr. Ali Mansoor, visited Dakar from September 7-19, 2017 and engaged in discussions as part of the fifth review of the IMF’s Policy Support Instrument (PSI) approved in June 2015 .
- Economic growth is expected to remain robust above 6 percent and inflation contained at 2 percent in 2017.
- The macroeconomic outlook for 2018 is favorable.
- To maintain growth momentum and debt sustainability over the medium-term, continued progress on reforms is needed.
At the conclusion of this visit, the team issued the following statement:
“Economic growth is expected to remain robust above 6 percent, and inflation to be contained at 2 percent in 2017. However, 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. 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.
“PSI program 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 macroeconomic outlook for 2018 is favorable, but the rising burden of public debt service requires attention. The mission welcomes the 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.
“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.
“To maintain the growth momentum over the medium term, the 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. The mission welcomes 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. Replacing the 50-year tax holidays in the SEZ with income taxes of 15 percent that cannot be exempted is a positive step. 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.
“The fifth review under the PSI is tentatively scheduled to be taken up by the IMF Executive Board in December 2017.”
The team met with the Prime Minister, the ministers or senior government officials responsible for the economy, finance and planning, the civil service, industry and mines, investment promotion, the BCEAO National Director, other senior government officials and development partner representatives. The team wishes to thank the authorities for their hospitality, as well as the close working relationship and climate of openness in evidence throughout the discussions.