Background

Senegal is located on the Atlantic coast in West Africa. It sits on the border of the Sahara desert and the sub-Saharan forests. The mix of oceanic, arid and humid climates results in a variety of ecosystems throughout Senegal’s territories. Agricultural products account for 20 per cent of the country’s total merchandise exports. The fishery sector also plays an important role in Senegal’s economy by generating about 100,000 direct jobs. Much of the land is threatened by desertification due to overgrazing, deforestation and soil erosion from over-cultivation.

In 2008, Senegal led the “Great Green Wall” project. Along with ten other African states, the mission involved planting trees from Dakar to Djibouti, over a 7,000-km long and 15-km wide strip. The country also created a “Green Bank” to lend money with lower interest rates to farmers, fishermen, and breeders. It is hoped that its Long term Vision 2030, released in 2014, will provide guidance on how Senegal could make a Green Economy Transition.

Overall Fiscal Profile

Economic growth in Senegal averaged 3.3 per cent from 2006-2011  and in 2013, GDP growth reached 3.5%, a lower performance than previously expected, due to weak agricultural productivity.  Inflation, to 0.7 per cent.

While the international crises have resulted in higher fiscal deficits (6.7 per cent in 2011), the deficit has been declining since then and reached 5.5% in 2013 and is expected to decline further to 5.1 %in 2014. Taxrevenue is 19.2% of GDP in 2012 and overall revenue (excluding grants) was 20.2% in 2012.

Fiscal Measures for a Green Economy

The Renewable Energy Law, implemented in 2010, was enacted to create incentive schemes for renewable energy. Embedded within the law are a number of tax reliefs. For example, the Law makes provisions for total tax exemption for the purchase of renewable energy materials and equipment intended for domestic use, as well as tax relief for purchasing materials, equipment, and for exploitation and/or research in renewable energy. The law also created the basis for a feed-in tariff scheme in Senegal, as reported by the IEA.

Another fiscal incentive was created in 2009 through the adoption of the National Biogas Programme, which was allocated a direct grant of CFA 240 million to subsidize total initial investment costs, which were partially financed by the government. The project aims to provide sustainable energy for cooking and lighting, while also improving agricultural productivity as biogas waste can be used as fertilizer.

Fossil Fuel Subsidy Reform

Senegal has engaged in many reforms to its energy policy and subsidies. For example, in the 1970s, the government subsidized LPG through exemptions on customs duties on cooking equipment that used LPG. These efforts were made to stimulate the switch from charcoal stoves. In 1988, the government shifted to subsidization of the LPG fuel itself, which had begun to create a fiscal burden. At this point, under the recommendation of the IMF, the country began to gradually reduce these subsidies starting in 1998, in increments of 20 per cent. Prices had been set  based on cylinder size, and various taxes and subsidies were offered for  2.7 and 7 kilograpm cylinders, the two smallest sizes. Plans to abolish subsidies in this regard was put on hold and the government fluctuated subsidy rates (and taxes) on the different sizes to keep end user prices constant.  In 2005 and 2006, the cost of subsidizing the consumption of LPG was 0.2 per cent and 1.4 per cent of GDP respectively. The program led to the successful adoption of new LPG stoves, and also had additional environmental benefits. The Ministry of Environment estimated that the use of LPG avoided consumption of about 70,000 tonnes of wood fuel and 90,000 tonnes of charcoal annually; representing a decrease of 15 per cent in the rate of deforestation.

None the less, these subsidies were found to be benefitting wealthier citizens, as opposed to those less well off, so despite efforts, rural and poor citizens continued to use the LPG stoves. In 2008, the IMF found that the bottom 40 per cent of the population gained only 19 per cent of the total improvement in welfare from the LPG subsidy, while the richest 40 per cent gained 61 per cent. GSI reports that instead of subsidizing LPG, alternative strategies may have been better, such as creating disincentives on the use of charcoal and wood in a more direct way.

Additional Reading

GSI 2010. Strategies for Reforming Fossil-Fuel Subsidies: Practical Lessons from Ghana, France and Senegal. Retrieved from: http://www.greengrowthknowledge.org/sites/default/files/downloads/resource/fossil_fuel_subsidies_their_impacts_and_the_path_to_reform_GSI.pdf

IEA, 2014. Global Renewable Energy Policies and Measures Database. Retrieved from: http://www.iea.org/policiesandmeasures/renewableenergy/?country=Senegal

IMF, 2012. Senegal Staff Report for the 2012 Article IV Consultation. Retrieved from: http://www.imf.org/external/pubs/ft/scr/2012/cr12337.pdf

IMF, 2014. Conflusion of the IMF Mission to Senegal for the Seventh Review of the PSI. Retrieved from: http://www.imf.org/external/np/sec/pr/2014/pr14190.htm