Reallocations of Special Drawing Rights and Financing of the Economic Recovery in Senegal

The Senegalese economy has recently been hit by a combination of multiple shocks, after a period of sustained growth of 6% on average for six years (2014-2019). In 2020, the COVID-19 pandemic led to the slowdown or even cessation of activities in several sectors, leading to a decline of more than three points in real GDP growth. Economic growth fell from 5.3% in 2019 to 1.5% in 2020 (Direction de la Prevision et des Etudes Economiques [DPEE], 2020, 2021). Geopolitical tensions in Ukraine have hard hit the Senegalese economy in 2022. This combination of external shocks has amplified the effects of climatic shocks which have worsened over the last decade. After a major shock affecting the economy, it is imperative for the Senegalese authorities to undertake reforms in the policies in force, in order to put the economy back on a sustained growth trajectory. These new policies require substantial funding, while the resource needs for dealing with the COVID-19 crisis in the short term have already caused high strain on public finances. After many efforts to bring down the budget deficit to 3.9% in 2019, this deficit rose again to 6.4% in 2020 (DPEE, 2020, 2021). This public deficit is mainly financed by borrowing, which resulted in a rapid increase in debt, rising from 52.5% in 2019 to 67.4% of GDP in 2020. These high levels of debt and public deficit are likely to reduce the chances of mobilizing resources to finance the economic recovery, even in a context of suspension of the West African Economic and Monetary Union (WAEMU) convergence pact. Senegal thus finds itself in the situation of having to find innovative and flexible instruments of financing that would not worsen the public deficit and debt.