Senegal’s growth in recent years has slowed, and the consequences have impeded any progress toward inclusiveness and poverty reduction. However, a new development plan recently endorsed by the International Monetary Fund (IMF) can boost the economy and set it on the path to acquiring an emerging status.
The country maintained an average growth rate of 4.5 percent during the ten year period between 1995 and 2005 but this slowed to about 3.4 percent due to a spectrum of challenges including poor infrastructure, unproductive subsidies, poor business climate and striking challenges in the energy sector. Senegal was also hit by a number of exogenous shocks such as the global financial crisis, spikes in food prices and, quite recently, the Ebola epidemic.
The plan offers a way of unleashing broad-based and inclusive growth that can transform the nation into a regional hub by establishing structural reforms that are so necessary for continued growth while continuing certain prudent policies that have helped preserve macroeconomic stability in the West African country. Consistent implementation of these reforms can boost growth rates through 4.5 percent in 2015 to 7 percent by 2019.
Dubbed the “Plan Sénégal Emergent,” the development plan is hinged on three core pillars: Higher and sustainable growth through structural transformation, Human development and social protection, and improved governance, peace and security. The idea of establishing structural reforms is geared at attracting more foreign direct investment.
The IMF welcomed these plans and advised that sufficient fiscal space be created by strengthening tax and policy measures including improved investment efficiency in order to adequately facilitate these plans.
The country’s export base is relatively diversified but a large proportion of its exports, mainly agricultural products, are known to be of poor quality. Thus, the IMF advocated for policies that improve agricultural product quality as well. Other recommended reform areas include improvements in the business climate, governance, investment in human capital and restructuring the energy sector.
Vulnerabilities in the financial services sector must be addressed as well as the high level of non-performing loans (NPLs). With these in place, based on the experiences of peer countries and positive feedback from the IMF, Senegal can become an emerging economy within the next two decades.
By Emmanuel Iruobe
