Senegal: Fiscal position significantly worse than previously stated

Event

Senegal’s fiscal stability and debt sustainability came under severe pressure following the publication of the Court of Auditors’ report on 12 February. The report confirmed the former government underreported fiscal deficits and government debt during the period from 2019 to 2023. It also revealed Senegal has very restricted fiscal space and high financing needs. In 2023, central government debt would have been at 99.7% of GDP instead of 81% of GDP (as published by the IMF WEO in October 2024) and the fiscal deficit would have been at 12.3% of GDP instead of 4.9% of GDP. As a reaction to this situation, the IMF has suspended its active Extended Credit Facility programme (June 2023–June 2026). It remains unclear for now what the effect will be on the country’s debt servicing obligations and the repayment amounts for the recently disclosed debts. Either way, on 20 February, Senegal’s Minister of the Economy and Finance stated that the government has ruled out the option of debt restructuring or renegotiation.

Impact

In 2024, President Bassirou Diomaye Faye and Prime Minister Ousmane Sonko participated in the March presidential and November parliamentary elections. They were elected on campaign promises of higher welfare spending, anti-corruption efforts and reforming the extractive sector. Following the publication of the audit results, the new government swiftly pledged to enhance transparency, accountability and public debt management while committing to fiscal consolidation to avoid a sovereign default and accelerate the resumption of an IMF financial support programme. As the audit resulted in rating downgrades of sovereign notes, the Senegalese government will struggle to raise funds and meet its immediate financing requirements, making an IMF agreement very urgent. According to a recent IMF press release, great efforts are being made by the authorities to preserve debt sustainability, and discussions with the IMF on how to remedy the situation are ongoing. IMF support is generally expected to return sooner rather than later thanks to the current government’s sound pledges to adopt austerity measures. The internal audit itself is also considered a positive sign of the country’s commitment to resolve failing transparency under its previous rule. Budgetary efforts are expected to be made to narrow the fiscal deficit as of 2025 and, together with growing hydrocarbon revenues, this should help lower the public debt stock.

Despite the anticipated austerity measures, Senegal is still likely to be one of the fastest growing economies in Sub-Saharan Africa. The projected 9.3% GDP growth in 2025 is driven by hydrocarbon investments and exports and stable private consumption. The risk for socio-political unrest will increase as austerity measures will make last year’s election campaign promises harder to fulfil. The outlook for Credendo’s medium- to long-term political risk classification (currently in category 5/7) is tilted to the downside and will hinge on whether hydrocarbon revenues will suffice to cover the jump in public debt liabilities. The outlook for the short-term political risk classification on the other hand remains stable in category 5/7 as the WAEMU (West African Economic and Monetary Union) membership mitigates transfer and convertibility risks in the short term. Furthermore, securing a new IMF programme will be an important next step as it would ensure immediate financing and facilitate a return of investor confidence and international financial support.  

Analyst: Louise Van Cauwenbergh – l.vancauwenbergh@credendo.com