Senegal - Interim Poverty Reduction Strategy Paper and assessment

21182 Republic of SENEGAL MIMSTRY OF ECONOMY, FINANCE AND PLANNING INTERIM STRATEGY PAPER Working paper May 8,2000   Table of Contents INTRODUCTION ................................................................. 1 I. RECENT ECONOMIC AND SOCIAL DEVELOPMENT TRENDS ........... ................2 1. The return to growth ....................................................................... ........ 2 2. Gaps in the pattern of growth ............................................................................... .3 II. OBJECTIVES AND STRATEGIES FOR PROMOTING GROWTH AND REDUCING POVERTY ................................................................. 3 1. Objectives ................................................................................3 2. Growth strategies . ................................................................................3 3. Poverty reduction strategy ................................................................................4 III. POLICIES TO PROMOTE GROWTH AND REDUCE POVERTY ............ .................5 1. Macroeconomic and sectoral policies ...............................................................................S5 2. Poverty reduction programs ................................................................................6 IV. SCHEDULE FOR PREPARATION OF POVERTY REDUCTION STRATEGY ........9 MATRIX OF GOALS AND MEASURES ................................................................. 11   INTRODUCTION In recent years, Senegal has returned to a path of economic growth. According to estimates, GDP grew on average by about 5 percent annually over the last six years. This performance can be attributed to an improved macroeconomic and regulatory framework, but also in large measure to the private sector development strategy implemented by the authorities. Yet despite the resumption of economic growth, social indicators remain a cause of concern. The country's economic performance, while strong, has not contributed as much as was hoped to improving living standards or to a substantial reduction in poverty levels. Analysis of the situation shows that social development has been lagging, and that poverty has actually increased. A Priorities Survey (ESP) provided data on living standards that were subsequently confirmed and expanded, with internationally comparable figures, by a household survey (ESAM). The indications are that over 58 percent of households are living below the poverty threshold defined in terms of a minimum caloric intake (2400 calories per day for adults). At the Copenhagen Summit on Social Development in March 1995, which boosted efforts to define alternative strategies for reversing the trend toward impoverishment-especially among rural groups-poverty and exclusion were also recognized as occurring worldwide. More recently, in January 2000 at the Libreville Summit, African Heads of State and Government undertook to redouble their efforts to promote strong and sustainable growth and to reduce poverty by half by the year 2015, in accordance with the Copenhagen commitments. A new dynamic is clearly underway in the efforts now being made by policymakers and national and international development players in the struggle against poverty and exclusion. The initiative on behalf of highly indebted poor countries, of which Senegal is one, is part of this new dynamic. This is the perspective from which this interim paper has been prepared by the Government of Senegal to define a medium-term strategic framework for growth and poverty reduction. It traces the recent evolution of the country's economic situation and outlines the structural and sector policies that will be implemented to correct distortions in the way the benefits of growth are now distributed. The objectives outlined in the document will be subject to review in light of the participatory process the Government plans to undertake. With respect to the preparation of the strategy, starting with the first quarter of 2000, the Government will carry out specific research and studies designed to generate more current information regarding poverty and to update the social indicators. The purpose of this exercise will be to assemble materials to help the authorities obtain a clearer grasp of household living standards. The latest available statistics on social conditions date back to 1994. These efforts should facilitate preparation of a Poverty Reduction Strategy Paper (PRSP) by end-December 2001.  -2 - 1. RECENT ECONOMIC AND SOCIAL DEVELOPMENT TRENDS Senegal recorded GDP growth rates averaging 5 percent over the period 1996-1999. Yet these results are still below the double-digit growth target set for the year 2001 in the Ninth Plan. The productive sector, while relatively healthy, is still characterized by weak integration of economic activities. 1. The return to growth Senegal's authorities undertook to achieve the goals of competitiveness and sustainable human development during the period 1997-1999. To this end, a growth-oriented macroeconomic strategy was adopted, based on promoting the productive sector and encouraging private investment. This approach produced encouraging results in terms of the main indicators: real GDP growth exceeded 5 percent, and inflation was kept at 0.8 percent in 1999, compared to 1.1 percent in 1998 and 1.8 percent in 1997. Economic growth, relatively satisfactory over that period, was stimulated primarily by the tertiary and secondary sectors. The primary sector, on the other hand, had a mixed record, with output declining in 1997 and 1998 before recovering in 1999. Domestic demand was still dominated by expenditures on goods and services. While rising from 12.3 percent in 1997 to 12.6 percent in 1999, the domestic savings rate was still low, however, and not enough to obviate the need for external financing or to sustain an ambitious long-term investment program. Given sound demand management policies, consumer prices showed little fluctuation over the period 1997-1999. Average annual inflation was cut by one half between 1997 and 1998 and fell further in 1999. The reduction in external tariffs implemented in the second quarter of 1998 contributed to the fall in inflation during that year. Fiscal policy achieved an improvement in the basic budget surplus, thanks to a strong increase in revenues despite the lowering of customs duties in April 1998, and a better control over current spending. This surplus, which was 2.7 percent of GDP in 1997 and 2.6 percent of GDP in 1998, fell to 1.7 percent in 1999, reflecting a sharp rise in investment spending financed from domestic resources. During the period 1997-1999 the balance of payments recorded a structural deficit in the trade account, which rose to CFAF 193 billion in 1999 compared with CFAF 160 billion in 1998 and CFAF 154 billion in 1997. This deterioration reflected higher growth of imports than exports with the result that the import coverage ratio (exports/imports) declined from 77 percent in 1997 to 76.2 percent in 1999. Monetary developments over the period 1997-1999 reflected: an improvement in the country's external position; an increase in domestic credit; and a growth in the money supply.  -3- 2. Gaps in the pattern of growth Despite the return to economic growth, some sectors, such as agriculture, which provides the livelihood of 60 percent of the population, participated only marginally in the increase in GDP. The record of economic growth, while appreciable, failed to reduce unemployment rates or improve living standards for the mass of the people. Social development declined and poverty worsened. A Priorities Survey (ESP) of 1991 indicated that 33 percent of the population was deemed poor, based on a per capita indicator of CFAF 110.8 per day and allowing for a daily intake of 2,400 calories. In 1995, the Senegalese Household Survey (ESAM), using the same methodology, concluded that 65 percent of population was considered poor, based on CFAF 392 per day per adult. H. OBJECTIVES AND STRATEGIES FOR PROMOTING GROWTH AND REDUCING POVERTY 1. Objectives Over the coming years, the Government is committed to strengthening its poverty reduction efforts by pursuing a comprehensive strategy, with the aim of reducing the incidence of household poverty by 50 percent by 2015. Poverty is to be measured and evaluated on the basis of the "energy approach," taking account of the variables "food and basic social services", with the cost of the bundle being approximately 1 dollar PPP. The Government will seek to achieve this goal at a faster pace if economic conditions are favorable. Operationally speaking, the strategy focuses on the following main approaches: 1. Pursue quality macroeconomic policies with the aim of achieving strong, sustainable, and balanced growth; 2. Ensure that sectoral reforms and policies are consistent with the national poverty reduction strategy; 3. Continue to implement the Poverty Alleviation Program [Programme de lutte contre la pauvrete (PLP)] currently in progress. 2. Growth strategies In order to achieve these objectives, the Government's strategy will build on the economic and social progress achieved over the period 1995-1999, and maintain the economy on a higher growth path. To this end, the authorities will intensify efforts to strengthen the fiscal position, and to complete structural and sectoral reforms now under way in the areas of agriculture, livestock, fisheries, energy, transportation, private sector development, and promotion of good governance at the central and local levels.  - 4- Implementation of this strategy choice will involve transfer of increasing responsibility to the private sector in order to stimulate broader growth and create jobs. For the State, this implies a refocusing of its mission on meeting social demands more effectively. The strategy will be centered around: * Enhancement of the quality of public expenditure in light of commitments to the 20/20 initiative; * An approach to regional development that involves a more active partnership between the State, social and professional groups, and local communities; * Economic growth supported primarily by private investment in a favorable economic, fiscal, legal, and social environment; * Rational management of the environment to reduce the impact of climatic hazards and human behavior induced by deteriorating living conditions, and to restore the equilibrium of natural eco-systems. 3. Poverty reduction strategy To ensure that the benefits of growth are more equitably distributed and to correct distortions inherent in sector investment programs, a specific anti-poverty program (PLP) was adopted in December 1997. The underlying strategy was developed in consultation with all constituencies (public administration, local communities, civil institutions, and development partners). The overall objectives of the PLP strategy are: ? Promotion of income-generating micro-enterprises supported by an appropriate credit system (micro-credit); * Improvements in access to essential social services, based on cooperation with local governments and grassroots organizations to develop community infrastructure;