Earlier this month, credit rating agency S&P downgraded Senegal to CCC+, citing the country’s weak government finances. “Despite steps taken to boost growth and tax collections, debt levels and the size of the interest bill mean that Senegal’s public finances remain uncertain, particularly in the absence of a comprehensive official support program,” S&P said on November 14.
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Last year, the IMF suspended a $1.8 billion funding package for Senegal after it discovered $7 billion of borrowings by the government had been concealed by the previous administration.
Talks continue between Dakar and the IMF for a new bailout package as they discuss what the government should do to restore public finances. But both sides have so far failed to agree on the way forward.
How high is Senegal’s public debt?
In its latest ratings review, S&P estimated Senegal’s public debt to rise to $42.1 billion, or 119 percent of gross domestic product (GDP), at the end of 2024, making it one of the most indebted countries in Africa. That figure does not include the approximately 9 percent of GDP owed to state-owned enterprises (SOEs).
Since 2008, Senegal has become heavily dependent on borrowing to finance infrastructure projects. But during the COVID-19 crisis and the subsequent surge in global interest rates, Due to which loans became more expensive, costs increased due to decreased income. In turn, Senegal’s fiscal pressures increased significantly.
To address its debt load, the government is now hoping to reduce the fiscal deficit – the amount by which public expenditure exceeds taxes coming into the public purse – from 12.6 per cent of GDP in 2024 to 5.4 per cent next year and to just 3 per cent of GDP by 2027.
But S&P’s outlook is much less rosy. The agency is projecting the fiscal deficit to be 8.1 percent of GDP next year and 6.8 percent of GDP in 2027. As such, S&P estimates the debt-to-GDP ratio will reach 123 percent next year, before falling slightly in 2027.
What is the reason for the current standoff with the IMF?
In March 2024, Bassirou Diomaye Fay won the Senegalese presidential election. He contested the elections in place of disqualified opposition leader Ousmane Sonko, who was barred from contesting in a defamation case involving the then Tourism Minister. But after the vote Sonko became Prime Minister of Faye.
In September 2024, the new Pastef Party government ordered an audit of the country’s public finances. Senegal’s Court of Auditors found that the previous administration under President Macky Sall had significantly underestimated the level of public debt.
The Court estimated that Senegal’s actual debt-to-GDP ratio was close to 100 percent, compared to previously reported around 70 percent, revealing approximately $7 billion in undeclared borrowing, which largely arose from not including the liabilities of SOEs.
The IMF supported the auditors’ assessment, calling it a “conscious decision” by the Sall administration to conceal the true extent of Senegal’s debt. After this the IMF suspended its $1.8 billion loan package. Senegal, which it approved in 2023.
IMF loan packages are generally repaid in installments. By the time it put the Senegal program on hold, the IMF had disbursed $700 million of the entire amount. The IMF’s Executive Board must now decide whether to continue the arrangement. If its review goes against Dakar, the board can ask the government to repay the disbursed funds.
If its review is favorable, the IMF may decide to continue the program and release the next tranche of funding soon.
For context, the IMF’s $1.8 billion loan is equivalent to almost half of Senegal’s 2024 deficit. The result is that it will provide the necessary funds for public expenditure. Without it, Senegal would face a huge fiscal shortfall.
Why has the IMF not yet reached any decision in this regard?
On November 6, after a two-week visit to the West African nation, the IMF mission chief for Senegal, Edward Gemayel, said, “We are committed and determined to move as quickly as possible to help.”
A few days later, Prime Minister Sonko revealed that Gemayel’s team had urged Senegal to undertake restructuring – in which old debt is converted into new debt with longer maturities, lower interest rates or less debt stock – so that the country would pay less. But these arrangements generally reduce public expenditure and slow growth.
Countries that default on their debt typically struggle because they are forced to cut spending to stabilize their finances, leaving less money for public services and investment. Investor confidence also falls, making it harder and more expensive for governments to borrow.
At a meeting of Pastef officials on 8 November, Sonko, who has considerable influence over economic policy, said he rejected the IMF’s proposal to restructure Senegal’s debt. But his decision to reject the IMF plan has left Dakar with few options to close his country’s fiscal gap.
Looking ahead, the Prime Minister must persuade the Washington-based IMF to release its frozen debt by presenting a credible fiscal plan that restores Senegal’s finances without resorting to debt restructuring.
But Gemayel has already warned that the government’s 2026 budget is “very ambitious”, citing large tax increases. “We’ve never seen anything like this before,” he said. “So, they need to be careful.”
What impact has this had on Senegal’s economy?
Sonko’s decision to reject the IMF’s restructuring plan has unsettled investors. On Monday, November 10 – the first trading day after Sonko’s cabinet meeting – Senegal’s 2031-dollar bonds fell 4 percent to $73.1. Elsewhere, its notes due in 2048 fell 2.4 cents to $60.30.
“Bonds fell as market players reacted to the IMF’s restructuring request,” said Leeuw Esterhuysen, Africa analyst at Oxford Economics. “There is clearly a high level of debt distress and little prospect of IMF funding any time soon.”
“It looks like the fund is making a new loan contingent on Dakar accepting the restructuring,” Esterhuysen told Al Jazeera. “At present, the government is not taking any action… which will increase the deadlock,” he said.
Another sign of market concern is that the cost of insurance against default – in the form of credit-default swaps – nearly doubled in the days to November 12, rising from 750 to 1,120 basis points, or 3.7 percentage points.
During a speech at a rally in Dakar on 11 November, Sonko insisted, “Senegal is a proud nation. We will not be treated like a failed state. Raising tax revenues is better than accepting debt restructuring.”
Since 2020, Zambia, Ghana, Ethiopia and Chad have all been forced to restructure their debt. But the lengthy and drawn-out process coupled with economic difficulties have made debt write-offs unattractive to other African governments.
Kenya, another debt-ridden country, opted for costly business-tax hikes and subsidy cuts last year. These measures were aimed at reducing Kenya’s budget deficit. But they also sparked deadly protests, highlighting the political risks associated with austerity.
What effect has this had on the political situation in Senegal?
Sonko opposes the IMF-backed restructuring because “he does not want to weaken his 2024 election campaign promise to restore Senegal’s sovereignty”, said Paul Melly, adviser to the Africa program at Chatham House.
Melly also said that Sonko is struggling with “tension” between himself and President Faye. Earlier this month, it emerged that Sonko’s party rejected Faye’s attempt to lead a revised coalition, a move seen as an attempt to consolidate power.
And although Sonko serves under Faye, he is widely seen as a key power broker, often shaping policy on his own terms. “Sonko was never going to be a subordinate prime minister,” Melli told Al Jazeera.
As such, Senegal’s fiscal situation represents a major political challenge for Sonko. He still wants to emphasize his “sovereignty” line, but may need to cut unpopular spending to stay ahead of debt payments.
How can Senegal solve its debt problem?
In recent weeks, the government has imposed new tariffs on tobacco, alcohol, gambling and widely used mobile money transfers. It has also made efforts to cut down on travel expenses and car purchases as part of its internal efforts to cut costs.
“It’s a tricky balance,” Melly said. “Despite the economic challenges being great, expectations remain high.”
If the government agrees with the IMF, “it could result in voter disillusionment in the next municipal elections in early 2027.” This may also result in civil strife.
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