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Economic transformation and diversification require solutions that take account of the political economy of reform. This book explores the process of economic transformation, using Senegal as an example. Sound macroeconomic and fiscal policies are prerequisites for achieving this kind of transformation, but these policies need to include the appropriate industrial policies and good economic governance, which provide incentives to help small- and medium-sized enterprises emerge from the informal sector and for foreign direct investment to use the country as a platform for globally competitive production. In many low-income countries extensive rent seeking and patronage have generated stability at the expense of inclusive growth and held back development. Although policymakers know what is needed to address these problems and achieve economic transformation and diversification, how to do it remains a challenge. This book shows how the political economy of reform may be navigated to achieve transformation. For example, the use of special economic zones may solve the problem if good global governance is emphasized, along with linking the zones to the global economy.

Senegal --- Exports and Imports --- Finance: General --- Macroeconomics --- Public Finance --- Taxation --- National Government Expenditures and Related Policies: Infrastructures --- Other Public Investment and Capital Stock --- National Government Expenditures and Related Policies: General --- General Financial Markets: General (includes Measurement and Data) --- International Investment --- Long-term Capital Movements --- Taxation, Subsidies, and Revenue: General --- Public finance & taxation --- Finance --- Labour --- income economics --- Investment & securities --- Expenditure --- Financial services industry --- Public investments --- Expenditures, Public --- Public-private sector cooperation --- Investments, Foreign --- Income economics

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Senegal's fiscal deficit and public debt have been on the rise in recent years owing partly to an ailing and inefficient oil-based energy sector. In this paper we use a two-sector, open-economy, dynamic general equilibrium model to investigate the effects of varying fiscal policy instruments one at a time and of policy packages that increase public investment in energy and infrastructure in scenarios with varying degrees of debt finance and with different types of supporting fiscal adjustment. Lowering the fiscal deficit by raising taxes and cutting government expenditure has adverse effects on growth, real wages and the supply of public services. Senegal does not need, however, to undertake such difficult fiscal adjustment. A public investment program that coordinates new investment in low-cost hydroelectric, coal or gas-fired power with a phased contraction of the oil-based sector raises the total supply of energy by 70 percent, increases real wages and real GDP, stimulates private investment, and significantly reduces the fiscal deficit in the medium long term. More aggressive investment programs borrow against future fiscal gains to combine new energy investments with either delayed or frontloaded investments in non-energy infrastructure. These programs lead to much higher real wages and real GDP while keeping public debt sustainable and the fiscal deficit low in the medium and long term.

Fiscal policy --- Economic stabilization --- Electric power distribution --- Renewable energy sources --- Alternate energy sources --- Alternative energy sources --- Energy sources, Renewable --- Sustainable energy sources --- Power resources --- Renewable natural resources --- Agriculture and energy --- Electricity --- Power distribution, Electric --- Electric power systems --- Power transmission --- Electric power transmission --- Electrification --- Adjustment, Economic --- Business stabilization --- Economic adjustment --- Stabilization, Economic --- Economic policy --- Tax policy --- Taxation --- Finance, Public --- Distribution --- Government policy --- Infrastructure --- Macroeconomics --- Public Finance --- Industries: Energy --- Fiscal Policy --- International Lending and Debt Problems --- Debt --- Debt Management --- Sovereign Debt --- Institutions and Growth --- National Government Expenditures and Related Policies: Infrastructures --- Other Public Investment and Capital Stock --- Investment --- Capital --- Intangible Capital --- Capacity --- Energy and the Macroeconomy --- Macroeconomics: Consumption --- Saving --- Wealth --- Energy: Demand and Supply --- Prices --- Public finance & taxation --- Petroleum, oil & gas industries --- Government debt management --- Energy sector --- Consumption --- Energy prices --- Public financial management (PFM) --- National accounts --- Economic sectors --- Debts, Public --- Saving and investment --- Energy industries --- Economics --- Senegal