Macroeconomic performance and outlook
Real GDP growth has been above 6% on average since 2015, propelled by the Plan for an Emerging Senegal (2014–18). Growth slipped to 6.0% in 2019 from 6.7% in 2018. Public investment in infrastructure, agricul- ture, and energy kept the fiscal deficit at 3.6% of GDP in 2018 and 2019, above the WAEMU convergence threshold of 3%. Given the low fiscal pressure (15% of GDP) and domestic savings, this deficit was partially financed by external borrowing, which raised the public debt to 54.7% of GDP in 2018 from 47.7% in 2017. Infla- tion in 2019 remained low at 0.2%.
Worsening terms of trade due to rising oil prices and equipment imports increased the current account deficit in 2019 to 8.8%, projected to rise to 9.7% in 2020 and 9.8% in 2021. The mobilization of external resources (direct foreign investment and eurobonds) as well as healthy migrant remittances made it possible to meet current account financing needs.
The poverty rate fell from 57.3% in 2001 to 46.7% in 2011. Unemployment is rising (14.6% in 2018), driven by the weak labor force participation of women (21%) and the entry of young people (18%) to the labor force.
Tailwinds and headwinds
Real GDP growth should reach 6.3% in 2020 and 6.8% in 2021. The second Plan for an Emerging Senegal (2019–23) calls for implementing reforms to stabilize the macroeconomic environment, stimulate private invest- ment, and accelerate the economy’s structural trans- formation. The country faces a low risk of debt distress, according to the IMF.
To improve the productivity and competitiveness of businesses and to lower production costs, the gov- ernment created industrial clusters and established a broad program to shift its energy mix toward renew- ables (from biomass and fossil fuels). A cluster devel- opment strategy has been adopted for the creation of agricultural processing zones in the northern, central, and southern regions.
The government also created a program for youth entrepreneurship and a program to professionalize occupations.
A new bridge over the Gambia River opened in Jan- uary 2019 and the Rosso bridge connecting Senegal to Mauritania is scheduled for completion soon. Both will foster interregional trade. The adoption in 2020 of a single currency, the eco, by ECOWAS members will also strengthen regional integration and reduce trans- action costs.
The economy faces constraints related to energy distribution, water control, basic infrastructure develop- ment (particularly in agriculture), and access to land— limiting productivity and reducing competitiveness.
The private sector, particularly small and medium business, struggles with high borrowing costs, compli- cated administrative procedures, and a relatively unat- tractive legal, fiscal, and regulatory framework. A short- age of skilled workers (roughly 70% of the labor force is unskilled) remains a major challenge in revitalizing the public sector.
Budget constraints over the past two years linked to the increase in energy subsidies led to a build-up of domestic arrears to the energy and fuel sectors and to private businesses.
Health sector preparedness
Senegal has a well-established baseline health system, but there are underlying structural weaknesses. The 2019 Global Health Security Index ranked Senegal 95 among 195 countries in preparedness for dealing with an epi- demic. Its score of 37.9 is below the global average of 40.2, pulled down by inadequacies in detection, prevention, and equipment. If the epidemic accelerates, significant ten- sions could arise within the health system.
The government established a response and solidarity fund of CFAC 1 trillion to fight the effects of COVID–19. Opera- tionalizing this fund involves redirecting budget policy. As a result, the government should significantly increase sub- sidies by CFAF 250 billion to strengthen the health system and support households affected by the crisis.
Reprioritizing investment projects has already allowed a reallocation of CFAF 100 billion. Some projects financed by external resources will be reprogrammed in agreement with donors. By not passing on the fall in the price of oil to domestic prices, there should be savings in fuel and electricity subsidies. The government has also planned to accelerate payments to state suppliers, an estimated CFAF 302 billion, to generate recovery in the private sector. In partnership with the banking sector, the government cre- ated a financing mechanism, in the form of cash loans or investment, to support companies affected by the crisis. To deal with the fall in demand due to public health require- ments on social distancing, the government has also taken a series of tax measures to support the formal sector.
Senegal is one of the West African Economic and Monetary Union (WAEMU).The domestic debt rate in 2018 stood at 16.83% of GDP and that of external debt at 63.06 . This difference is due to the fact that Senegal favors non-concessional resources. Financing on commercial terms will only be used for projects with a high level of profitability demonstrated as much as possible Senegal has a prudent debt policy with the application of its Medium-Term Debt strategy 2019-2022 which consists in resorting to debt at lower cost and risk, through the following objectives:
- reduction of risks linked to debt management, in particular foreign exchange, refinancing and interest rate risks;
- lower borrowing costs;
- alleviation of the debt service pressure on the State treasury;
- develop and deepen the domestic market for public securities in Senegal.
These objectives should enable Senegal to minimize the factors of vulnerability in order to safeguard debt sustainability. Particular attention will therefore be paid to the borrowing conditions, namely interest rates and maturities.
As part of its market development activities, the UMOA Titres Agency has carried out a project to set up issuers' yield curves of the Public Securities Market of the UEMOA zone (MTP) with objective:
- to improve transparency on the MTP
- to contribute to better price formation during the auctions
- to make investors aware of the relationship between primary and secondary markets
- to provide local / international investors with a reference of price for securities issued by the States
The conditions for yield curves constructions have not yet all been observed on the (MTP). It was thus retained:
- in the short term, to develop a first version of yield curves taking into account the specificities of the MTP, while being sufficient evolutionary to support its development;
- in the medium / long term, define the necessary ways and means to Continuous improvement yield curves models following the evolution of the MTP.
Senegal government securities yield curve extends to 7years.
Yield curve calculation models
The yield curve is constructed on the basis of primary market returns. The model used is the Nelson-Siegel Svensson .
Yield curve managed by
Agence UMOA-Titres is responsible for the yield curve.
Agence UMOA-Titres website
Challenges in building an efficient yield curve
Fragmentation of the market
Narrow investor base: comprising homogeneous investors such as banks.
Low liquid secondary market
Guide to Buying Bonds
Procedures for market participation
The primary subscription of Treasury bonds and bonds is reserved for credit institutions, management and intermediation companies (SGI) as well as regional financial institutions with a settlement account in the books of the Central Bank.
Other investors, natural or legal persons, irrespective of the State in which they are established, may also subscribe to Treasury bonds and bonds on the primary and secondary market through credit institutions and SGI. located in the territory of the Union.
Emissions on the primary market of the MTP (Marché des Titres Publics) are made by auction.Each issuance should be advertised at least 7 days before the auction by describing the issuance characteristics. Bidders submit to the Central Bank, sealed in a ballot box reserved for this purpose, a submission form specifying the amounts and the interest rates or the price offered. Submissions may also be made electronically in the conditions defined by the Central Bank.
Later than one hour after the deadline for bids submission, the National Directions of the BCEAO transmit electronically, by fax or any other means of rapid communication accepted by the Central Bank, the main submissions to the principal agency of the BCEAO, which is organizing the auction.
Treasury bills are eligible for refinancing by the Central Bank. Investors and the Central Bank may buy or sell Treasury bonds on the secondary market, awarded by private treaty. In this context, they are required to post the purchase price and sale, which they are willing to transact.
Bond issues can be done by syndication managed by CREPMF.[http://www.crepmf.org/Wwwcrepmf/Reglementation/pdf/Instructions/INSTRUCTION_N36_2009.pdf]
Treasury bonds can be traded on the secondary market. As such, they can be exchanged at the Regional Stock Exchange (BRVM) or outside the BRVM.
On the primary market by auction, the settlement date is T+1 of the issue date.On the secondary market, the payment of purchases of Treasury bonds and bonds by the primary subscribers is made by debiting their settlement account with the Central Bank on the value date of the issue of these securities. settlement date is the first business day following the conclusion of the transaction for domestic transactions and the third business day following the conclusion of the transaction for transactions between two (2) Member States. The Contracting Parties are free to agree on a term greater than these minima for the settlement of transactions, IF the instructions given by both parties are identical, the transaction is directly offset on the agreed value date. In the event of a discrepancy, the Central Bank suspends the transaction and notifies both parties of this decision for correction.
Treasury bills and Treasury bonds incomes are tax-free throughout the territory of the Member States of the WAEMU.But for non-members, the tax rates are different from one country to another. In Senegal, the tax rate one securities income is equal to 6%.
|Rating Agency||Current rating||Outlook|
|Standard and Poor’s||No rating||No outlook|
The securities market has a system of Specialists in Treasuries. The credit institutions and the SGIs may be approved as SVT under the conditions specified by an Instruction of the Central Bank. As such, they must respect certain commitments that confer special advantages. These commitments and benefits are specified by an instruction from the Central Bank.
List of Primary Dealers
BANK OF AFRICA SENEGAL
IMMEUBLE ELAN - ROUTE DE NGOR, ZONE 12, QUARTIER DES ALMADIES
BANQUE REGIONALE DE MARCHES
IMMEUBLE LA ROTONDE RUE DR THEZE X ASSANE NDOYE
CBAO GROUPE ATTIJARIWAFA BANK
1, PLACE DE L’INDEPENDANCE
CORIS BANK INTERNATIONAL
26 Avenue Jean JAURES X André Peytavin
KM 5 AVENUE CHEIKH ANTA DIOP
Openness to international investors
No restrictions prevent foreign investors from trading in the public securities market. They may subscribe to Treasury bonds and bonds on the primary and secondary markets through credit institutions and SGI located within the Union.
There are no significant limits on foreign investment nor are there generally differences in treatment of foreign and national investors, either in terms of the level of foreign ownership or sector of investment.
Restriction on FX and profit repatriation
WAEMU has unified foreign exchange regulations. Under these regulations, there are no restrictions for transfers within the community, and designated commercial banks are able to approve routine foreign exchange transactions inside the community. The transfer abroad of the proceeds of liquidation of foreign direct investments no longer requires prior governments approval.