IMPACTS OF DEVALUATION ON SENEGALESE HOUSEHOLDS - POLICY IMPLICATIONS

In January 1994 the franc CFA was devalued from 50 to 100 FCFA to the French franc. This article uses detailed income and expenditure data t o simulate the impact of the devaluation on real household income and identify the groups in Senegal that are most damaged. Urban households are hit hardest because they consume large quantities of imported ric e and do not earn income from exportables. Surprisingly, one rural are a is as negatively affected as the urban areas, one experiences no cha nge, and a third realizes only a small (5%) increase in real income. T hese small or negative affects occur because consumption of imported r ice is high - which is still the case a year after devaluation - and i ncome from the production of exportable peanuts is low. Relatively str ong positive impacts (14-16% increase in real income) were realized on ly in the two zones where peanuts account for a large share of total i ncome (about 50%). This is perhaps a more negative (or, in some cases, ambiguous) impact in rural areas than we think policymakers expected. The difference from expectations is due to the higher-than-expected l evels of rice consumption and the lower-than-expected shares of income earned from peanut production. These two facts together lead to a gre ater negative demand-side effect and smaller positive supply-side effe cts of devaluation in several rural zones. Attention should be given t o 1. Policies to protect vulnerable groups and 2. Policies to stimulat e investment by groups realizing short-run increases in income (thereb y channeling the short-run benefits into actions that will foster long -run economic growth).