Senegal's economy is based on its agricultural sector, primarily peanut production, a modest industrial sector, and a growing services sector. Agriculture, which employs up to 70% of the population and accounts for two-thirds of export revenues; is highly vulnerable to declining rainfall, desertification, and changes in world commodity prices. When the first of a series of droughts struck in the latter part of the 1960s, the economy deteriorated rapidly. As of mid-2003, 43 years after achieving independence, Senegal's resource-poor economy remains fragile and dependent upon foreign donors for continued viability. The country became eligible in 2000 for $800 million in debt relief from the IMF/World Bank Heavily Indebted Poor Countries (HIPC) initiative.
In 1979 Senegal began a long term structural adjustment program under the direction of the World Bank, the IMF, and bilateral donors. The program was aimed at reducing government deficits, the rate of inflation, and the negative trade balance. The government carried out a major program of privatization of the parastatal enterprises, reducing or eliminating its holdings in 30 of the approximately 40 institutions targeted. Some success was realized and from 1991 to 1992 the economy grew 2.5% on average in real terms. However, due to depressed economic conditions, low world prices for its exports, and its lack of international competitiveness, Senegal failed to meet most of its 1992 structural adjustment targets. Consequently, the country sank deeper into debt and low or no growth was predicted for 1993. In February 1993 President Diouf was re-elected for a 7-year term, and his socialist party won a large majority of the legislative seats later that year. In deference to the labor unions and a possibility of political unrest, the government's 1993 budget failed to cut civil service wages. In addition, implementation of legislation to allow employers more flexibility in making layoffs was postponed.
In January 1994, France devalued the CFA franc, causing its value to drop in half. Immediately, prices for almost all imported goods soared as the inflation rate hit 32%. The devaluation was designed to encourage new investment, particularly in the export sectors of the economy, and discourage the use of hard currency reserves to buy products that could be grown domestically. In the face of raising prices, thousands demonstrated against the government. The government responded by imposing temporary price controls in an effort to prevent price-gouging by local merchants and halt the sharp rise in inflation.
After the initial shock, the devaluation began to pay dividends. Senegal was also helped by debt rescheduling and over $1.5 billion in financial aid from the World Bank and other international donors. In 1995, foreign assistance represented almost 40% of the government's budget. This inflow of foreign aid, which was closely tied to progress on donor mandated economic reforms, helped the economy grow at a rate of 4.5% in 1995 and 1996, and over 5% in through late 1990s and into the new century. The inflation rate, which rose to 32% in 1994, fell to 3.3% in 2001.
As of 2003, 82% of GDP represented private activity, and significant parastatal companies had been privatized, including water, telecommunications, mining, and aviation. However, the government still remained the country's largest single employer. The information technology sector was experiencing a boom, as Senegal became fully connected to the Internet in 1996 and Senegalese have become experienced users of that service. Tourism is increasingly a source of foreign exchange, although the fishing sector remained Senegal's chief earner of foreign exchange in 2003.