Senegal Economic Update 2024: Seizing the Opportunity

STORY HIGHLIGHTS

Mounting international and regional uncertainties will require proactive actions to uphold hard-won socioeconomic gains of the past decade. Political uncertainties linked to the presidential election affected economic activity during the second half of 2023 and in 2024Q1. Furthermore, international and regional financial markets have tightened, resulting in further deterioration of fiscal and external imbalances.
Raising tax revenues provides fiscal space to advance development objectives and plays a pivotal role in improving the living conditions of Senegalese.
This Senegal Development Update focuses on (i) poverty and equity in a context of multiple crises, and (ii) options to boost tax revenue collection through the personal income tax.

Recent economic developments

Senegal’s economy increased in 2023, driven by the resilience of the primary sector. Real GDP growth is estimated at 4.3% – 1.5% in per capita terms in 2023 – slightly above the 3.8% growth rate registered in 2022 and above initial projections of 4.1%.
After reaching a record high of 9.7% in 2022, inflation declined to 5.9%.
The current account deficit (CAD) improved significantly, increasing international reserves.
To counter inflation, the Central Bank of West African States (BCEAO) has raised its policy interest rates by a cumulative 150 basis points since mid-2022 to 3.5% for liquidity calls and 5.5% for the marginal lending facility.

Outlook, risks, and challenges

The outlook remains broadly positive, but it hinges on a solid commitment to macroeconomic stability.
Overall, domestic, regional, and global uncertainties are high, tilting the risks to the downside.

Spotlight 1: Poverty and equity in a context of multiple crises

Senegal has coped relatively well in the context of multiple shocks, with the poverty incidence remaining relatively unchanged at 37.5% in 2021/22 from 37.8% in 2018/19 despite the Pandemic.
Poor Senegalese are still concentrated in rural areas with a relatively high concentration in the groundnut basin.
The observed decline in consumption per capita was mostly felt by better-off households.
The average growth rate of the poorest was less negative than that of the better-off, which led to a decline in inequality at the national level and also in urban and rural areas.

Spotlight 2: Options to raise tax revenue from personal Income Tax (PIT)

Improving domestic revenue mobilization (DRM) is critical for Senegal to achieve its development ambitions.
Senegal’s tax revenue growth and buoyancy steadily improved over the past decade, surpassing its peers, but revenues remain below their potential.
The PIT yields little revenue, and its contribution to total tax revenue has stagnated over the past decade due to a narrow tax base and lack of reform momentum.
Accelerating tax administration and policy reforms on PIT can help boost domestic revenue mobilization efforts.

STORY HIGHLIGHTS