Sénégal FMI Accord Dette Crise: S&P Dégrade Note, Risque Défaut Élevé

• Senegal's technical agreement with the IMF for a $2.2 billion program is conditional and has not yet resulted in fund disbursement or debt reduction.
• The country faces a severe confidence crisis, with the 2023 budget deficit revised to 12.3% of GDP and public sector debt projected at 132% of GDP by end-2024.
• International eurobond markets reflect high default risk (S&P CC rating, bonds at half face value), while the regional UEMOA market appears stable due to specific prudential rules.
• Senegal plans to use the G20 Common Framework for approximately $5 billion in eurobond restructuring, excluding CFA franc debt to protect the regional market.
• Addressing the crisis requires a comprehensive assessment of all debt, including guarantees and arrears, and improved reconciliation of public accounts.

These regulations do not eliminate sovereign risk but rather influence its timing and manifestation within banking sector accounts.

Senegal is currently navigating a significant sovereign debt crisis, underscored by a technical agreement reached with the International Monetary Fund (FMI) on September 1, 2026. This agreement outlines a three-year program totaling approximately $2.2 billion, yet no funds have been disbursed to date, nor has the nation's debt burden decreased. The proposed FMI support remains contingent on several critical conditions, including the implementation of corrective measures for past erroneous financial declarations, securing additional financing assurances, and final approval from the FMI's executive board.

This engagement with the FMI comes amidst a severe crisis of confidence in Senegal's public finances. The national Court of Accounts recently revised the country's 2023 budget deficit upwards to 12.3% of GDP, a stark contrast to the previously announced 4.9%. The FMI projects that by the close of 2024, the central government's debt will approach 119% of GDP, with the broader public sector's debt reaching an estimated 132% of GDP. While the FMI accord establishes a crucial budgetary framework for the next three years and paves the way for the return of concessional financing, its immediate impact is on the management of debt rather than its overall volume, signaling a shift towards a more structured approach to fiscal challenges.

A striking feature of Senegal's current financial landscape is the stark divergence in how its debt is perceived across different markets. The international eurobond market has expressed profound skepticism, with Senegalese euro-obligations trading at roughly half their face value. This sentiment was further solidified on September 4 when S&P downgraded Senegal's foreign currency rating to CC, indicating an extremely high risk of default. In contrast, the regional public securities market within the West African Economic and Monetary Union (UEMOA) presents a different picture, largely due to specific prudential regulations.

On the same day S&P issued its downgrade, the Senegalese Treasury successfully raised 101.3 billion CFA francs (equivalent to $170 million USD) on the regional market, securing a five-year bond at a 7.89% interest rate. This disparity, termed the 'perimeter premium' by economist Florent Kanga Gbongué, is partly attributable to UEMOA rules. Within the eight-nation bloc, state securities denominated and financed in CFA francs are assigned a 0% risk weighting in banks' capital adequacy calculations. Furthermore, if held to maturity, these instruments are not subject to mark-to-market valuation, and the recognition of depreciation due to credit risk remains optional. While these provisions facilitate state financing and prevent forced sales by banks during periods of stress, they also carry the inherent risk of obscuring financial degradation, making underlying problems less visible without actually resolving them. These regulations do not eliminate sovereign risk but rather influence its timing and manifestation within banking sector accounts.

In response to the escalating debt situation, the Senegalese government has outlined a treatment plan that strategically aims to preserve the regional market by excluding CFA franc-denominated debt from any restructuring efforts. Instead, the focus for debt renegotiation will be on approximately $5 billion in euro-obligations, which the government intends to address through the G20 Common Framework. The FMI agreement is instrumental in facilitating this process by opening avenues for negotiated treatment with creditors, thereby providing a structured pathway for potential debt relief.

Beyond the immediate restructuring, the long-term health of Senegal's public finances hinges on a comprehensive understanding and articulation of its financial balances. This includes a meticulous inventory of all debt stocks, encompassing government guarantees, commitments from public enterprises, and accumulated arrears. A critical indicator in this assessment is the stock-flow adjustment—the discrepancy between changes in debt levels and the reported budget deficit. A persistently high stock-flow adjustment necessitates thorough explanation, as it can signal either legitimate financial operations or, more concerningly, public commitments that are inadequately recorded. The findings of the Court of Accounts have specifically underscored the urgent need for improved reconciliation in Senegal's public accounts, highlighting that the challenge extends beyond isolated financial ratios to the fundamental transparency and accuracy of fiscal reporting.

Lawyers advising clients with exposure to Senegalese sovereign debt, particularly eurobond holders or financial institutions in the UEMOA zone, must monitor the ongoing high default risk and potential debt restructuring under the G20 Common Framework, noting the differential market perceptions and prudential rules that may mask underlying risks.

Source: Original reporting via The Conversation Africa