Outlook for 2011-12

• The president, Abdoulaye Wade, has the support of a key committee to run for a third term in 2012 as the candidate of the ruling Parti démocratique sénégalais, neutralising the threat from contenders within the party.
• With the rebels gaining access to increasingly sophisticated weaponry, violence is intensifying in the breakaway Casamance region, undoing tentative progress a year ago towards resolution of the 30-year insurgency.
• The Economist Intelligence Unit forecasts that the fiscal deficit will widen to 6% of GDP in 2011, because of aggressive investment plans, before narrowing to 4.9% of GDP in 2012 as economic growth improves.
• As foreign direct investment inflows, industrial and agricultural output and public works accelerate, we forecast real GDP growth of 4.1% and 4.5% in 2011 and 2012 respectively. Unreliable power supply will remain a key risk.
• In view of recent inflation data and the expectation of higher global commodity prices, we forecast that inflation will rise from an average of 1.2% in 2010 to 4% in 2011, before easing slightly to 2.9% in 2012.
• The current-account deficit is forecast to widen to 10.6% of GDP in 2011, mainly on higher global commodity prices, before falling back to 9.4% in 2012.

Monthly review

• Following the deaths of three soldiers in the troubled region of Casamance, Senegal cut diplomatic relations with Iran on February 22nd, accusing the country of supplying the rebels with increasingly sophisticated weapons.
• Given the intensification of violence, the government rejected a call from the rebels for a referendum on independence for the region.
• Social tensions are running high in Dakar, with two people setting themselves on fire, emulating events that sparked a change of government in Tunisia. Given the very different politics, a similar revolution in Senegal is unlikely.
• Power cuts have worsened in frequency and duration as the electricity utility, Senelec, has struggled to secure sufficient fuel for its generators. A shipment of fuel is being held in harbour for non-payment of an invoice by the utility.
• A new action plan-Plan Takkal-was launched to address the chronic power problems. Objectives include renting short-term generating capacity, introducing electricity meters and restructuring and recapitalising Senelec.
• The government has introduced price caps on basic household goods in response to rising prices. Opposed by the main union for private traders and importers, little capacity exists to monitor and ensure compliance.