IMF urges new Senegal govt to tighten belt

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The International Monetary Fund urged new Senegalese President Macky Sall to get rid of energy subsidies offered by his predecessor, warning the West African country’s deficit could rise to untenable levels unless spending fell.

Sall defeated Abdoulaye Wade in a March election after a tense campaign marked by violence but which ultimately passed smoothly and reinforced Senegal’s credentials as the most stable country in mainland West Africa.

Wade rented costly extra capacity to prop up the country’s outage-prone electricity generating sector and offered other fuel subsidies which the IMF estimates would total 150 billion CFA francs or two percent of GDP this year, Reuters reports.
“In the absence of remedial measures, the fiscal deficit could exceed eight percent of GDP this year – clearly, an unsustainable level,” the IMF said in a statement, acknowledging the impact to the economy of last year’s drought and the uncertainty surrounding the election period.
“A large portion of the deficit’s widening appears however to stem from the provision of energy price subsidies … The mission urges the authorities to replace these subsidies with measures that are more efficient and better targeted to the poorest segments of the population,” it added.

Senegal has yet to issue 2011 deficit figures but some economists said it reached around seven percent of GDP. The IMF said it was raising its 2012 deficit target from 5.6 percent to 6.4 percent based on the assumption of further budget savings.
“The new target should be achieved through major efforts to reduce government current spending and the postponement of some non-priority capital expenditure,” it said.

Last year’s failed rains helped knock 2011 economic growth to an estimated two percent, but the IMF said it expected growth to rebound to 3.9 percent this year. It said inflation should remain at moderate levels around 2.5 percent.

Senegal has a $500 million 10-year Eurobond at a coupon of 8.75 percent.

Sall, a trained geologist, has yet to spell out in detail his plans to overhaul Senegal’s decrepit energy sector but has promised long-term investment in renewables such as solar power.

The Fund praised his election pledge to use public expenditure more efficiently and improve governance.