Senegal

The Senegalese economy is relatively diversified and well-balanced between the primary, secondary and tertiary sectors. The services sector, which is a key source of growth, accounts for about 55% of total value added. The Senegalese economy registered strong growth over the past decade (5% on average over 2010-2019), thanks to its political stability and sound economic fundamentals. It also proved resilient to the Covid-19 shock: economic activity continued to expand by +1.5% in 2020. We expect GDP to grow at a strong pace in 2021 (+5%) and 2022 (+6.1%), driven by construction and gold mining activity and stronger global demand. The services sector (mainly transport, communications, trade, tourism and government services) is set to continue its expansion in the coming years. In addition, oil and gas production that is planned to start as of 2023 is likely to boost growth in the medium term.

Senegal is split between desert and tropical areas, making it vulnerable to droughts, locust invasions, flooding and rising sea levels. Consequently, the country structurally relies on imported food (about 70%) to meet its population’s needs. Favorable weather conditions and abundant cereal production in 2020/21 is likely to be an exception.  The country needs to step up its efforts  to support climate-resilient agricultural production.

Senegal’s monetary policy is determined by the Bank of West African States (BCEAO), following an exchange rate peg between the CFA franc and the euro. As long as the peg is sustained, the current regime minimizes exchange rate risk and provides a strong anchor for price stability, and hence investor confidence. After a food price-driven inflation acceleration in 2021 (3%), we expect inflation to decline progressively to 2% by end 2022.

The strong fundamentals of the Senegalese economy and political stability will continue to support long-term growth. Under the various financial and policy coordination agreements with the IMF, the government plans to implement sector-specific reforms to promote industrialization and job creation through domestic production of staple foods and pharmaceuticals. To foster private sector development, new government policies seek to facilitate access to cheap and reliable electricity while promoting greener energy. The government’s reform agenda also includes easing access to credit and to land, improving the provision of public services through digitalization and reducing labor market skill mismatches.

Senegal has significantly improved its World Bank Doing Business ranking. In 2020, the country was ranked 123 out of 190 countries, moving up 30 places since 2016. Senegal’s ranking in 2020 was particularly good in “starting a business” (60th), “getting credit” (67th) and “resolving insolvency” 96th).  However, despite sustained economic growth, Senegal faces challenges in alleviating poverty. In the 2019 Human Development Report, Senegal was ranked 166 out of 189 countries, placing it in the “low human development” category. Overall, the country’s strong democratic institutions help to maintain political stability. However, increasing social discontent over high levels of poverty and rising youth unemployment may jeopardize political stability, with looming legislative elections (in mid-2022). The risk of terrorist attacks also remains elevated because of the presence of militant groups in the Sahel regions (especially in Mali).