Senegal Economic Outlook
Economic performance remained strong in 2018, with estimated real GDP growth of 7.0%, down slightly from 7.2% in 2017. The primary sector expanded by 7.8% in 2018, driven by agriculture and related activities. The secondary sector recorded 6.9% growth, driven mainly by mining subsectors, agrofood, and construction. The tertiary sector saw 6.7% growth, reflecting strong performance by the retail segment. On the demand side, real GDP growth was driven by 9.5% growth in gross fixed capital formation, 7.7% growth in intermediate consumption, and 6.7% growth in final consumption.
Fiscal management resulted in a deficit of 3.5% of GDP in 2018, up from 3% in 2017, financed mainly by issuing Eurobonds. The total external debt–to-GDP ratio was 62.9% in 2018, down from 64.2% in 2017, but the risk of debt overhang remains low. Inflation was 1.4% in 2018, up slightly from 2017, reflecting a favorable agricultural season and prudent monetary policy. The current account deficit improved from 7.3% of GDP in 2017 to 6.9% in 2018 due to increased agricultural and fisheries exports and lower imports. The terms of trade improved by 4.1%.
The growth momentum recorded since 2015 is expected to continue in 2019 and 2020 due to continued public investment under the Senegal Emergence Plan. Consolidation efforts could bring the fiscal deficit below 3% of GDP after 2020.
These projections are subject to numerous risks, notably rising oil prices. But Senegal may become an oil- and gas-producing country by 2021. Other risks stem from the accumulation of internal arrears, which could slow construction activity, and the increase in current spending as a result of social demands characteristic of an election year. As a member of the West African Economic and Monetary Union (WAEMU), Senegal enjoys a stable macroeconomic environment but may be vulnerable to deteriorating competitiveness due to its limited flexibility to adjust to external shocks.
Tailwinds and headwinds
As part of the Senegal Emergence Plan, authorities have implemented reforms from the Business Environment and Competitiveness Reform Program. In the agricultural sector, these reforms have focused on simplifying tax procedures and suspending or exempting some taxes. In the energy sector, various reforms and investments have doubled installed capacity in six years, to 1,250 MW in 2018. The energy mix plan has increased production and lowered the price of electricity by 10%. Operationalizing the economic zones and industrial projects has provided companies with facilities that are up to international standards. But to amplify the effects of these reforms, authorities should strengthen the land tenure regime and align the education system to the future needs of the workplace.
In terms of regional integration, Senegal was one of the first to adopt and implement the WAEMU Common External Tariff, it signed the Continental Free Trade Agreement, and it has implemented port facilitation reforms to make the port of Dakar more attractive and secure. In this regard, the country has ratified and is implementing relevant regional regulations. In the same vein, Senegal has constructed roads and bridges to connect to Gambia, Guinea, Guinea-Bissau, Mali, and Mauritania. In 2017, Senegal’s exports to Economic Community of West African States members accounted for 39.5% of total exports, and exports to WAEMU members accounted for 30.3%. To further increase trade and reduce the transaction costs related to the movement of people and goods, authorities should develop transport infrastructure, in particular the Dakar–Bamako railway.