SENEGAL’S economy is constrained by its vulnerability to shocks, the government’s issuer rating (B1, positive) is supported by solid growth prospects and further fiscal consolidation plans, says Moody’s Investors Service in its annual Senegal Credit Analysis, published today.
Moody’s report is an update to the markets and does not constitute a rating action. “In spite of high public investment over the past few years, the existing lack of sufficient infrastructure development in transport and energy continues to constrain real GDP growth, which is also vulnerable to volatility in the agricultural sector.
However, we expect the country to benefit from solid economic growth over the coming years and from the continuation of fiscal consolidation, which is likely to help stabilise debt levels,” said Aurelien Mali, Senior Analytical Advisor — Africa at Moody’s and one of the authors of the report.
The positive trends are reflected in Moody’s decision to change Senegal’s rating outlook to positive from stable this month. With the recently launched Plan Senegal Emergent (PSE), Senegal’s government is looking to address its economic and structural challenges through investments to reduce electricity shortages, widen its transportation network in support of natural resource development in gold, zircon and phosphates, and expand air and port infrastructure in hopes of turning Dakar, the capital, into a regional hub for trade and logistics.
Over 2014-18, the PSE calls for 17 large reforms and 27 large projects at a cost of roughly $19 billion. The government’s ultimate aim is to transform Senegal into an emerging economy by 2035.
The US-base rating agency’s forecasts that Senegal’s growth will rise and remain in the vicinity of 6% over the next few years. That is slightly lower than the government’s medium-term growth projections in its ambitious new development agenda, which targets real GDP growth of 7%-8%, double the average over the past decade.
In addition, authorities are implementing wider capital spending and reforms. Its initiatives to improve debt metrics, along with strong donor support for the country’s PSE, are likely to support structural reform, according to Moody’s.
The government is establishing credibility in fiscal discipline through efforts to bring the fiscal deficit down from 6.7% of GDP in 2011 to an expected 5.1% by the end of 2014. Moody’s believes that the government will stabilize its debt burden to around 50% of GDP by the end of 2018.
However, the rating agency notes that Senegalese authorities’ high growth targets will likely require more than just strong increases in public investment, as a lack of improvements in institutional efficiency, as well as in governance, continues to hinder economic development.
The total factor productivity of the country declined from 1995-2012 in spite of an accumulation of capital, though the PSE aims to address this by improving the quality of public investment and reforming the business environment. But Moody’s also notes that Senegal’s growth has incrementally picked up in the past few years, in spite of fiscal consolidations efforts.
African Eye News.com
