As of late 2021, Senegal is on the cusp of becoming a significant oil and gas producer. The revenues that it can expect to mobilize present it with an important opportunity to speed the country’s development by increasing public investment. In preparation for this, Senegalese authorities are currently revising the country’s framework for managing its oil and gas revenues, which remains a work in progress. The authors of this report evaluate various aspects of Senegal’s policy framework for managing oil and gas revenues and share recommendations as to how it could be strengthened.
The oil and gas sector it is not expected to transform Senegal’s economy or public finances. Fields that have received a final investment decision are are unlikely to generate revenues over 3 percent of GDP.
Senegal already possesses some of the institutions needed to promote good revenue management of oil and gas revenues, including: (1) a relatively transparent and comprehensive annual budgeting process; (2) robust compliance with Extractive Industries Transparency Initiative (EITI) standards; (3) a relatively free and vibrant media.
Given Senegal’s acute domestic investment needs, the government’s new sovereign wealth fund proposal may be ill-timed. Such funds are not the best vehicle for investing natural resource wealth domestically. Instead, the government should consider investing these funds through the budget. It could also be advisable to employ an expenditure rule limiting government spending, or a non-resource current balance rule preventing governments from squandering resource revenues by running a deficit in other areas, combined with a capital expenditure growth rule to mandate investment.
The national oil company, PETROSEN’s debt accumulation and revenue retention pose significant risks for public finances over the coming years. The government should consider strengthening oversight of PETROSEN, for instance by appointing independent board members, publishing independent audits and clarifying the company’s dividend policy.
Some fishing communities in Senegal are concerned about the impact of oil and gas projects on their livelihoods. If these negative impacts are confirmed, the authors of this report recommend that the government consider compensation through environmental and social management plans, as opposed to allocating a fixed share of resource revenues to sub-national governments.