Senegal: Risk Assessment
Country Risk Rating
Business Climate Rating
- Strong track record of political stability
- Relatively diversified economy
- Support from international donors under the Emerging Senegal Plan, in particular the IMF with its Economic Policy Coordination Instrument
- Part of the West African Monetary Union (WAEMU)
- Headway in business climate (average score, except for insolvency resolution) and governance (even though corruption persists)
- Significant oil and natural gas reserves off the coast, as well as many other minerals, including gold, phosphate, platinoids, iron and barite
- Fast population growth
- Growth and exports at the mercy of weather events and commodity prices (groundnuts, cotton, horticulture)
- Net importer of energy and food products
- Inadequate energy and transport infrastructure
- Significant debt
- Half the population is affected by poverty
Rebounding from the mild recession
In 2020, the COVID-19 crisis derailed the strong growth recorded by the country over the past few years. Even in the absence of a strict lockdown, the measures taken to combat the virus, combined with the collapse in external demand, were enough to cause a mild recession.
The recovery that began in the second half of 2020 is expected to gain momentum in 2021. Agriculture (17% of GDP, but 70% of the labor force) will act as the main channel for the rebound. The sector should benefit from a return to normal (or at least an improvement) in transport, as disruptions in this area had made it difficult to sell products and hindered access to imported inputs. The resulting increase in agricultural incomes will have a beneficial effect on household consumption (72% of GDP), which has been relatively spared thanks to the resilience of agriculture. Consumption should also benefit from an improvement in expatriate remittances (between 10% and 15% of GDP in normal times), which were badly hit by the crisis in Europe. Conversely, households will not be able to count on a pronounced recovery in tourism (8% of GDP and 9% of jobs). The transport and accommodation sectors will therefore continue to struggle. Investment (25% of GDP) is set to improve, without regaining its pre-crisis level. Concerning gas, phase I development of the Grand Tortue Ahmeyim field, which is shared with Mauritania, and the Sangoma field will return to a normal pace following the delays caused by the crisis. Under phase II of the Emerging Senegal Plan (2014-2035), the second Priority Action Plan (PAP 2a), which has been adjusted as a result of the crisis, plans to focus on food, health and pharmaceutical sovereignty by 2023, while continuing the development of renewable energies, tourism, transport, information technology and telecommunications. Public investment, which was put on hold momentarily due to the crisis and the urgent needs that it created, will therefore be restarted and should be widely supported by domestic and foreign private participants. Development of the gold sector is also expected to continue. Exports (22% of GDP) will benefit as transport gets back on track, but also as global demand recovers. This will be true for refined petroleum products, gold and rare metals, phosphoric acid, fish and shellfish, groundnuts and cement, but not really for tourism.
Accounts reflect the prospects for gas revenues
Senegal’s public deficit was already slightly over the WAEMU criterion (3% of GDP), but the pandemic caused the public accounts to moderately worsen in 2020. The increase in public spending under the Resilience Plan (7% of GDP), despite cuts and the maintenance of revenues thanks to increased international aid, caused the deficit to widen and increased the debt, 80% of which is held by foreign, mostly official, creditors. The deficit was once again financed by increased aid from international donors, as well as regional debt issuances, while the G20 debt service suspension initiative (DSSI) saved the equivalent of 0.6% of GDP. In 2021, the deficit is expected to shrink, without returning to its previous level, due to the absence of exceptional spending, increased domestic revenues and the DSSI extension. The risk associated with the debt was previously considered moderate but has increased due to the delay in bringing the gas fields on-stream (pushed back from 2020 to 2023) and the reduced likelihood of additional revenues.
The large current account deficit is linked to the goods deficit (over 10% of GDP), which in turn reflects imports of equipment for projects, particularly in the gas sector. Transfers from expatriates and international partners are a mitigating factor. Despite the emergency aid granted by multilateral institutions, the deficit is thought to have increased slightly in 2020 because of the decline in expatriate remittances, exports and tourism revenue, which was partially offset by the decrease in imports of goods and services due to the slowdown in major projects and the fall in oil prices. Because of the reduction in foreign direct investment (FDI: 4% of GDP in normal times), multi- and bilateral partners covered a larger share of the deficit than usual through project loans. In 2021, the current account deficit could widen further as imports recover faster than exports, while tourism and remittances continue to recuperate. However, FDI will accelerate, facilitating financing of the deficit.
A stable political situation but tensions are present
The 2019 presidential election saw Macky Sall win a second term. Since 2017, he has had a large parliamentary majority (125 seats out of 165) through the Benno Bokk Yaakaar coalition. Since its re-election, his second government, which he formed in November 2020, featured seven members of the opposition, including his main opponent in the presidential election, Idrissa Seck. Conversely, several heavyweights from the president’s own party were not reappointed. The new government will have to tackle growing discontent caused by rising unemployment and poverty, as well as loss of income. Even before the crisis, the country experienced numerous civil service strikes.