Senegal's policy documents have just been published by the International Monetary Fund following the approval by its Board of Directors of the program concluded with our authorities. This policy places more emphasis on the need to rely on the private sector to achieve our emergence, after the first phase of the Plan Sénégal Emergent (PSE) failed to deliver on its promises of the beginning of structural transformation, including through private projects, foreign or state-driven, to boost growth. It is true that the IMF's diplomatic language does not always allow things to be presented exactly as they are. We demonstrated this record in our 2012-2018 retrospective report calling for a paradigm shift to promote the private sector through greater economic freedom that we have always lacked (socialist balance sheet, liberal perspective www.cefdel.net).  

Nevertheless, we have had 5 years of strong growth, mainly due to a fiscal policy more expansionary than presented, indirectly financed by the central bank, by reckless external debt, and implemented in a non-transparent way (comfort letters to banks and domestic arrears). This policy has benefited from a favourable external environment (lower oil and food prices without lower taxes on citizens, depreciation of the euro) to give better results than those obtained between 2007 and 2012 with more or less the same policies. In addition, a turnaround in the international economy that is better than in 2007-2012 with the rise in oil prices, as well as a debt to be stabilized, are producing a deceleration in growth. The agricultural sector, which had contributed significantly to the recent acceleration in growth with the support of the state, is projected to decelerate in the new programme. As a result, without the advent of oil and gas in prospect, we would be returning to our historical performance of insufficient growth.

The contribution of Senegalese abroad more impactful than oil and gas
This grace of heaven, however, risks delaying our emergence, because it will loosen the budgetary stranglehold and allow the state to pursue its vision of a socializing developmentalist state without having the necessary instruments of accompaniment, we will come back to this. Senegalese people should know that the oil and gas sector will only add 5% of our GDP annually. In comparison, Senegalese abroad have gradually increased their remittances from 4% of GDP in 2000 to 12% per year today, or 8% of GDP more. These resources have only fuelled an increase in the level of our imports as a percentage of GDP without reducing our trade deficit. Moreover, the additional tax revenues expected from the energy sector are only 1.5% of GDP on average, less than the 2% of GDP grants we receive each year from our partners. A country like Côte d'Ivoire, for example, plans to reduce donations in its budget to almost zero in the next 5 years. These comparisons are worth pondering if we think that the advent of oil and gas will transform our country without us changing the management paradigm.    

The correction of our budgetary slippages to have a new start therefore had to be imposed on us as a prerequisite for the presentation of our new program to the IMF Board (prior actions in the jargon consecrated). It was a question, by a second 2019 amending finance law, and a 2020 finance law, to clear the State's arrears, to stop the non-transparent implementation of actual budget deficits higher than presented to the partners, and to maintain them at 3% of GDP in 2020 and in the medium term in line with our commitments, including in the WAEMU. However, the IMF has not followed through with its logic, because we do not share the strategy of gradually clearing domestic arrears in the program. Senegal's debt capacity must be able to allow it to issue securities, even in foreign currency, and to clear its arrears at once to support the private sector and banks. From this point of view, the debt of state-owned enterprises should not be added to the analysis of public debt sustainability, which would have allowed the central government to transform arrears into a market debt, while taking into account, in the risks, contingent liabilities from failing public enterprises. The inclusion of these contingent liabilities is provided for in the sustainability analysis framework at a lower level than the total debt of state-owned enterprises that was taken into account in the analysis. Indeed, the public companies in question have assets, including with a market value in foreign currency (example, Air Senegal aircraft).  

 
While waiting for the people to become aware, or for the national dialogue to change the situation, we are back at square one with the only gendarme able to ensure that we maintain macroeconomic stability despite our potentially misguided sovereign options. Indeed, although announcing again that the private sector will be the engine of growth in PES II, as was also the case in PES I, the State does not intend to change its method. With the advent of oil and gas, our state now thinks it has the means to implement its true vision of a developmentalist state with the prospect of public-private partnership projects with public resources that must go into other priorities (education, health, etc.).

To ensure that this strategy will not jeopardize our macroeconomic framework, the IMF has therefore imposed on us, and inappropriately in terms of optimality, an anchoring of the program on the total public debt (including state-owned enterprises) to be reduced. This has resulted in a debt strategy that we do not share, because the level of indebtedness of the central government does not need to be reduced but stabilized as a percentage of GDP in line with the level of budget deficit set at 3%.  even if this anchoring by the total public debt makes it possible to avoid excessive external indebtedness in the event of the failure of public-private projects (including with China and others), it does not plan to reduce the share of foreign currency debt in the state's portfolio in such a way as to more deliberate. With a view to reforms aimed at truly handing over growth to the domestic and international private sector in an environment of genuine economic freedom and a state with reframed priorities, our flexible exchange rate regime would be one of the necessary reforms.

A more flexible exchange rate
A more flexible exchange rate would allow the state to attract private investors to its financial market in national currency, and have the exchange rate as an outlet in case its projects, even financed in foreign currency, do not succeed. It is therefore not simply the level of indebtedness that must be contained, its composition in foreign currencies must also be contained in a more proactive way to allow an exchange rate to play its role without the total debt exceeding certain thresholds in the event of a devaluation. We argued this in detail in the report cited at the beginning of this contribution. A debt strategy that favours even concessional external debt does not protect us from the consequences of this exchange rate risk. The Heavily Indebted Poor Countries initiative and the multilateral debt relief initiative were proof of that, although the projects financed by the multilateral countries had been blessed. Moreover, in our current institutional framework where capital flows to exit are not free (Senegalese cannot transfer capital freely abroad) the risk of refinancing a debt in national currency is limited. As a result, the debt strategy that favors long maturities in national currency in an environment where savings are short, and where even non-residents would prefer shorter maturities in national currency because they are less risky, is to be reviewed. The risk of interest rate variability could be worth it in terms of costs saved.  

That said, it is not because the preferable exchange rate policy can only be decided at the level of the West African Economic and Monetary Union (WAEMU) that it should not be a prerequisite for a better strategy than what the program provides. Announcing the desirability of such a policy, as is done in the programmes of countries such as Morocco, should not pose any particular problem. This policy, which allows for an external debt in national currency and a weaker currency in exchange for lower external tariffs, could improve our external competitiveness and reduce our external vulnerability. Lower external tariffs and lower tax rates would also be in line with formalizing our economy and broadening the tax base. If we cannot achieve this paradigm shift at the WAEMU level, Senegal must operate its SENEXIT of this WAEMU and ECOWAS to take its destiny into its own hands and implement the excellent reforms contained in the published program. These reforms are aimed at improving Senegal's performance in terms of economic freedom.  

A WAEMU and ECOWAS Senexit...
If the exchange rate regime is not flexibilized, we will maintain the macroeconomic stability that improved between 2012 and 2019. This improvement is still partially to the credit of President Macky SALL in view of the deficits inherited in 2012, but it was largely fortuitous (oil prices in particular). Otherwise, Senegal will remain a non-emerging country despite oil and gas. Even in the developmentalist paradigm of the state, recognized and implicitly decried in the program (special economic zones, PPP projects with unassessed fiscal risks), a flexible exchange rate regime to accompany the liberalization of the country would help build a more resilient and efficient economy.  

From this last point of view, we say to the teams of the IMF and the Ministry of Finance that the debt strategy described in the IMF program with Côte d'Ivoire presupposes a continuation of the fixed parity with the euro. It assumes this because the external debt continues to have a very important role in weight, which assumes that this debt, if its exchange rate risk is to be contained, will be in euros as preferred by President Ouattara. This anchoring that Senegal seems to share does not therefore presuppose the flexibility of the exchange rate that it needs to build a diversified, resilient, and open economy to the world with job-generating growth led by the private sector, including the national sector. This anchoring presupposes in the case of Côte d'Ivoire, the leadership of a more financially included national private sector and foreign investors well anchored in a country that, over the last 5 years, has gained strength in the indices of economic freedom (see report cited). Indeed, the program published by the IMF shows that Senegal has an informal sector twice as high as in Côte d'Ivoire, a population less educated, and a score on access to credit half as efficient as the BCEAO's policy, which has at times been more Ivorian than regional, is no stranger.

 
The fact remains, however, that Senegal's general policy statement for the next three years is a step in the right direction and represents a change of course from the pes 1 priority statements. Instead of the proactive paradigm of structural transformation of the economy through strategic public-private projects to be implemented "aggressively", the new policy letter places more emphasis on structural reforms to create an environment of economic freedom for the private sector. This, in macroeconomic stability, and macroeconomically responsible management of oil and gas resources. The implementation of programme budgets also allows us to hope that the State will concentrate more where it is expected (education, health, basic infrastructure, strengthening decentralization in the autonomous implementation of social programs).

As a result, public financing instruments (FONSIS, FONGIP, BNDE, CDC, DER, ADPME), if they are to support the "Doomed to Choose" or "Condemned to Choose" paradigm of private sector development paths through State support must be deployed if fiscal room for manoeuvre is really available. However, this room for manoeuvre cannot be achieved to the detriment of the private sector through higher taxes, a crowding-out effect of private banks, or inadequate use of oil and gas resources. Taxes must be used for quality public services in support of citizens so that they can more easily consent to the tax as part of a genuine decentralisation policy. However, the will expressed by the State "to achieve a massive acceleration of private investment through an ambitious program of bankable, mature projects, developed with a dedicated seed capital" seems to indicate a divergence between the priorities of the concluded program and reality. that we will live the next three years.

 
In the latter eventuality, we will have to live with the anchoring by the total public debt of the IMF which will at least allow us to start again if we fail again. Although this paradigm is no more appropriate than that of the developmentalist state without the outlet of the exchange rate in an environment of true economic freedom for all, it will limit the damage.