The International Monetary Fund (IMF) has approved a $2.2 billion financial support package for Senegal as the West African country moves to restructure part of its external debt following the discovery of previously undisclosed borrowing.
Senegal’s finance ministry announced on Tuesday that it had begun a “debt treatment plan” through a “sovereign initiative”, while the IMF confirmed that it would restart lending to the country after suspending financial support following the revelation of billions of dollars in misreported debt.
The announcement immediately affected Senegalese bonds. Euro-denominated bonds due in 2028 dropped by about seven cents to 49 cents on the euro, while dollar-denominated bonds declined by roughly 2.5 cents to 49 cents on the dollar.
Concerns over potential losses among bondholders have intensified since Senegal’s debt was revised to more than 130 per cent of gross domestic product (GDP) in 2024. The revision followed a government audit that uncovered extensive discrepancies in the reporting of loans.
Although the government has introduced spending reductions, increased some taxes and rebased the country’s GDP, Senegal’s debt remains around 100 per cent of GDP. Moody’s said last week that debt servicing costs now account for almost a quarter of government revenue.
The IMF said additional measures would be required to address the issues surrounding the previously misreported debt.
“Further decisive action will be critical to resolving the misreporting issues and strengthening safeguards to prevent similar occurrences in the future,” the IMF said on Tuesday.
Efforts to reach an agreement with the IMF and address Senegal’s debt crisis had also been complicated by political tensions between President Bassirou Diomaye Faye and former Prime Minister Ousmane Sonko, who was dismissed earlier this year.
Sonko had previously opposed the idea of restructuring Senegal’s debt, warning while serving as prime minister that such a move would bring “shame” on the country. He later became speaker of parliament, a position from which he could challenge the government’s proposed fiscal reforms.
The finance ministry said Senegal intends to pursue debt treatment under an “enhanced” version of the G20-backed Common Framework, which is designed to bring private and official creditors together to negotiate debt restructuring.
The framework has faced criticism over lengthy negotiations and delays in previous debt crises, including those involving Zambia and Ethiopia.
However, Senegal said its proposed restructuring would not cover debt issued in the West African CFA franc, the currency used by members of the regional monetary union.
“These debts will remain outside the scope of this plan, given the significant role of the regional market in financing the state and the economy,” the finance ministry said.
Senegal has increasingly turned to the regional debt market after losing access to international bond markets. However, rising borrowing costs on the CFA franc market have also placed additional pressure on the government’s finances.
Moody’s recently downgraded Senegal’s credit rating further into junk territory, warning that the prolonged absence of an IMF programme had increased the country’s dependence on regional borrowing to meet financing requirements estimated at about 25 per cent of GDP.
The country’s borrowing arrangements have also attracted scrutiny over the use of domestic bonds as collateral.
Senegal reportedly used domestic bonds as security to obtain at least €650 million from banks through total return swaps last year. The terms of those transactions were not disclosed to the IMF at the time.
Bondholders have expressed concerns that the government could seek to keep the swap arrangements and the collateral supporting them outside any restructuring, given their connection to Senegal’s domestic debt, much of which is held by local banks and other financial institutions.
The Senegalese parliament authorised an investigation into the total return swap borrowing last month, adding another layer of scrutiny as the government prepares to negotiate its external debt restructuring.
