Senegalese Quarter 1 2015 Economic Snapshot
Inflationary pressures in Senegal have been muted for some time now, with the CPI falling by an average of 1.1% in 2014, down from an average increase of 0.7% in 2013. The headline index should return to a higher, albeit still relatively tame by African standards, growth trajectory this year. The reason for this is a slight uptick in the international crude oil price and a spill-over of inflationary pressures from its major trading partners.
We expect Senegal’s real GDP growth rate will accelerate to 4.5% this year, from 3.5% last year on the back of structural reforms emanating from the Plan Sénégal Emergent (PSE) and an increase in foreign direct investment (FDI).
National development plan
Senegal is in the process of its third Poverty Reduction Strategy for 2013-17 renamed the National Strategy for Economic and Social Development (NSESD). The plan also led to the development of a Priority Action Plan that will see heightened state intervention, increased technical and financial partners, more public-private partnerships and citizen participation.
Standard and Poor’s (S&P) released its latest sovereign credit rating statement on Senegal on 19 December 2014. The rating agency affirmed Senegal’s “B+/B” long- and short-term foreign and local currency ratings, keeping both ratings on a stable outlook. The rating agency noted that Senegal’s sovereign credit rating remains constrained by its limited monetary flexibility and low GDP per capita. On the other hand, the rating is supported by the West African nation’s planned investment projects that are assumed to materialise over the next 12 months and promote economic growth.
Moody’s Investors Service issued its annual credit report on Senegal on 7 November 2014. The rating service affirmed Senegal’s “B1” bond rating (equivalent to S&P’s “B+” rating) and changed its outlook to positive. Moody’s indicated that Senegal’s outlook improved due to better medium-term growth prospects through the Plan Sénégal Emergent (PSE), which calls for gains in efficiency and resolution of infrastructure bottlenecks. Moreover, the government’s commitment to fiscal consolidation and the continued implementation of structural reforms to promote good governance and transparency also affected the outlook positively. The “B1” rating however reflects a number of challenges that constrain the rating such as the country’s low per capita income, heavy reliance on foreign assistance and glaring infrastructure deficiencies.
Macro Economic Overview
Despite struggling to kick-start the country’s economy in the past, the Senegalese authorities under the leadership of Mr Sall have stepped up efforts to stimulate economic growth opportunities through the Plan Sénégal Emergent or PSE. This was affirmed in a recently completed Article IV Consultation in which the International Monetary Fund (IMF) lent their support to the country’s economic strategy outline for 2013-17. The main aim of the PSE has been to achieve higher and sustainable economic growth through structural reform, improved human development and social protection, along with improved governance, peace and security. The Fund made a number of suggestions on structural reforms to be implemented and cautioned that in order for the plan to be successful, efforts must be made to promote fiscal and debt sustainability.
Furthermore, the Fund noted that emphasis must be placed on consistent reform implementation and learning from peer experience. Moreover, if the PSE is to be effective, the process of fiscal consolidation, currently underway in Senegal, should continue with the fiscal deficit predicted to decline over the medium term. This improving trend indicates that deterioration in the Senegalese fiscal metrics in the near future is highly unlikely and may have a positive impact on our future sovereign credit rating. Membership to the West African Economic and Monetary Union (WAEMU) has afforded Senegal a great deal of monetary stability.
Senegal pools its foreign exchange reserves with the other seven members of the bloc at the regional central bank, which further helps to mitigate foreign exchange crises. Monetary decisions in the region are made by the regional central bank, the Banque Centrale des États de l’Afrique de l’Ouest (BCEAO). The bank has done a good job of maintaining the currency peg with the euro and keeping consumer price inflation low and stable. The consumer price index (CPI) shrunk by 0.8% on average in 2014, from a 0.7% increase the year before. CPI inflation is set to nudge higher during 2015, and at around 2.72% still remains beneath the BCEAO ceiling of 3%.
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