On 13 January, Prime Minister Ousmane Sonko publicly ruled out restructuring the nation’s debt, which the IMF places at 132% of GDP.
- Sonko’s stance against debt restructuring is at least partially driven by genuine concerns over its likely impact on the country’s reputation in the international financial markets.
- However, political considerations, especially the need to avert widespread unrest, will make it difficult for the government to enforce public spending cuts in the coming year.
- This, coupled with growing uncertainties over donor funding and persistent institutional weakness in the tax system, will continue to strain public finances, making it difficult for Senegal to meet debt servicing deadlines.
- To avoid a sovereign default, the IMF will continue to push for debt restructuring in Senegal. In our view, Senegal will eventually agree to this with strict guardrails to reduce long-term dependence.
- In the meantime, the authorities will increasingly rely on aggressive tax collection methods, exposing large firms to scrutiny and potentially legal disputes.
Downplaying the debt crisis
Sonko had made a similar announcement in November. He now claims that the country’s debt is sustainable due to the country’s “reasonable” revenue projections, set at 5.4 trillion XOF (USD 9.6 billion). Sonko added that although the country had a “financing problem”, it had been able to meet its debt obligations in the last one and a half years. Sonko’s announcement comes amid negotiations with the IMF for the resumption of a USD 1.8 billion ECF loan. The IMF suspended the programme, as well as any new financial assistance to Senegal, in March, after it uncovered concealed loans worth USD 11 billion. According to the IMF, these were misreported between 2019 and 2023, when former President Macky Sall (2012 -2024) was still in power.
In a press briefing on 5 December, IMF Communication Director Julie Kozack said that the IMF and Senegal officials have made significant progress towards a new programme. She also commended the Senegalese government for disclosing the previously hidden debts.
Posturing
Sonko’s publicised reluctance to renegotiate Senegal’s debts is likely to further complicate the negotiations for a new IMF programme. His hardline stance is driven by his populist leanings, especially fears that a debt restructuring would undermine public faith in his promises of financial autonomy. Beyond this, Sonko, and more broadly, several Senegalese officials, have genuine fears that a restructuring could further undermine the country’s credibility in the international financial markets in the long term. Although their development agenda seeks to gradually reduce the country’s debt burden, boosting access to these markets will be crucial for the country’s growth.
The government is banking on increased revenue from ongoing oil and gas projects to fund the required infrastructure and institutional reforms, but in the meantime, it will need to borrow from commercial markets to fund its operations. Senegal has thus far prioritised regional bonds, and its latest sale at the West African Economic and Monetary Union (WAEMU) Titres market was oversubscribed, raising 560 billion XOF (USD 1 billion) for the government. However, this reliance on the regional bonds market may not be sustainable because investor confidence, even at this level, may wane, especially because the IMF is likely to be increasingly concerned over refinancing.
Political and geopolitical constraints
About 70% of the projected revenue has been earmarked for debt servicing. The government is likely banking on this allocation to reassure the IMF that it will meet its debt obligations in the coming year. However, administrative deficiencies risk hampering tax collection efforts. Moreover, political considerations are likely to undermine fiscal discipline. Socio-economic grievances over the cost of living, which hampered Sall’s position at the last poll, have remained elevated following the March 2024 elections. There is a general expectation among the population that Faye’s administration will prioritise these issues, including by increasing social spending. Failing to meet these expectations could trigger another wave of anti-government protests. The need to avoid this will make it difficult for the authorities to enforce the cuts to primary expenditure, especially given the existing institutional weaknesses in the public finance system.
Moreover, amid growing global geopolitical uncertainties, donor funding will be increasingly restricted, and projected funding for health and other key sectors may be delayed or suspended.
In this context, the IMF will continue to push for the restructuring of Senegal’s external debt, as this would give the government more room to address essential needs without defaulting. Avoiding a default is likely to be a priority for Faye, who would face the bulk of the public backlash in such an event. He is therefore likely to be more open to a restructuring than Sonko. The matter is likely to worsen the competition between the two men, hampering cohesion in the ruling African Patriots of Senegal for Work, Ethics and Fraternity (PASTEF).
Restructure still likely
In light of these dynamics, we maintain that Senegal is likely to agree to a restructuring eventually, although the authorities will push for a short-term to medium-term mechanism. These issues will prolong negotiations between the IMF and the authorities, but ultimately, the need to regain access to much-needed IMF lending will ensure they reach an agreement later this year. A new programme is likely to be announced in Q3 of 2026, easing the fiscal pressures. This will also reduce the threat of a sovereign default, especially because the currency stability resulting from Senegal’s membership in the CFA system will help mitigate the upward pressures on foreign exchange reserves.
However, in the meantime, government suppliers will be increasingly exposed to delayed payments, which could turn into non-payment if the IMF lending does not resume by the end of 2026. Meanwhile, the government’s tax collection drive will expose businesses to mounting tax compliance scrutiny, especially in the next few months. The authorities will retain their friendly attitude towards foreign investors. Despite this, we advise large firms, especially in the oil and gas sector, to beef up their government engagement strategy in anticipation of any disputes.
Sources
Senegal will not need debt restructuring, prime minister says, Reuters
Press Briefing Transcript, IMF
Senegal Raises $1 Billion in Oversubscribed Regional Bond Sale, Bloomberg
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