Senegal: Sovereign Debt Developments and Restructuring Considerations

Policy Note

Written by Dr. Mohammed Amin Adam

1. Background

For many years, Senegal was regarded as one of the most stable sovereign borrowers in West Africa. Sustained public investment in transport, energy, roads and other public infrastructure was supported by consistent access to external financing and international capital markets.

That assessment changed materially following a comprehensive reconciliation of public finance data and sovereign liabilities. A review by the Court of Auditors covering the period 2019–2023 found that fiscal deficits and public debt had been systematically under-reported.

According to the IMF, the average fiscal deficit over the period was revised upward by 5.6 percentage points of GDP. Central government debt at end-2023 was restated from 74.4 percent to 99.7 percent of GDP, largely reflecting previously undisclosed obligations, including off-balance-sheet borrowing of approximately 25.3 percent of GDP (IMF).

A subsequent and more exhaustive reconciliation by Forvis Mazars led to a further upward revision of the recognised debt stock. Central government debt was restated to 111.0 percent of GDP at end-2023 and is projected to reach 118.8 percent of GDP at end-2024 (IMF).

The consolidated public-sector debt ratio is higher still once state-related contingent liabilities and arrears are taken into account. Recent IMF estimates place total public-sector debt at approximately 131–132 percent of GDP at end-2024. Government data reported by Reuters put central government debt at CFAF 23.67 trillion, or close to 119 percent of GDP, at end-2024. The difference between these figures reflects differing methodologies for incorporating state-related liabilities and arrears (Reuters).

Importantly, this situation does not reflect a one-off surge in borrowing. It is a recognition shock: liabilities that were previously unrecorded, undisclosed or unconsolidated have now been brought within the sovereign debt perimeter. The resulting revisions have fundamentally changed assessments of Senegal’s debt sustainability, debt-carrying capacity and medium-term financing needs.

2. Nature of the Debt Problem

A full assessment of Senegal’s sovereign position requires analysis across three interrelated dimensions: solvency, liquidity, and institutional credibility.

Solvency

At current levels, Senegal’s debt burden is high relative to its revenue base and to the government’s capacity to generate sustained primary surpluses. Although hydrocarbon production improves the medium-term macroeconomic outlook, it does not by itself resolve the underlying fiscal constraints.

Sustainable debt dynamics will depend on the extent to which growth translates into stronger tax revenue, higher export earnings, lower financing costs and credible, sustained primary fiscal adjustment.

Liquidity

The government faces a heavy debt-service burden, comprising principal repayments, interest costs and near-term refinancing requirements. According to Bloomberg, Barclays estimates that the 2026 fiscal deficit could reach 7.8 percent of GDP on a commitment basis and 9.2 percent on a cash basis once the clearance of approximately CFAF 300 billion in arrears is included. The supplementary budget reportedly sets the commitment-basis deficit at 7.6 percent of GDP (Bloomberg).

The implications extend beyond the headline deficit. High annual debt-service obligations risk crowding out priority spending, delaying payments to suppliers and contractors, and constraining fiscal space for public investment, social programmes and the maintenance of critical public assets.

Credibility and Institutions

The debt crisis is also, fundamentally, an institutional crisis. The reliability of the reported debt stock, of fiscal reporting systems and of expenditure commitment controls has become central to creditors’ risk assessments. Restoring credibility will require reforms that are verifiable, institutionalised and durable, extending well beyond the immediate crisis response.

The IMF has identified a set of priority actions, including centralising debt-management operations, strengthening the National Public Debt Committee, establishing a unified debt database, tightening budgetary commitment controls, completing a comprehensive audit of payment arrears, and progressively consolidating public accounts through a Treasury Single Account (IMF).

These reforms should be treated as integral to the sovereign debt strategy rather than as secondary programme conditionality. Without them, any restructuring is likely to deliver only temporary liquidity relief while leaving unaddressed the structural weaknesses that allowed the debt stock to be understated.

3. Macroeconomic Performance and Fiscal Pressures

Senegal retains important economic strengths. Rising hydrocarbon output has lifted headline GDP growth, strengthened export performance and supported the external position. The IMF notes that economic activity accelerated markedly in early 2025, driven primarily by production from the Sangomar and Greater Tortue Ahmeyim fields.

However, the IMF also observes that non-hydrocarbon growth remains subdued, reflecting payment arrears in the construction sector and persistent structural challenges in parts of industry (IMF).

This distinction is critical: strong headline growth does not automatically improve debt sustainability. From a debt-management perspective, what matters is the extent to which growth generates durable fiscal revenue, foreign-exchange inflows and improvements in the primary balance.

There is a material risk that fiscal consolidation will be pursued primarily through cuts to public investment rather than through structural expenditure reform and stronger revenue mobilisation. Reducing high-return capital spending may ease immediate liquidity pressures, but it can weaken medium-term growth, employment and revenue potential—particularly where such spending supports energy, logistics, agricultural productivity, urban infrastructure and export capacity.

The fiscal adjustment strategy should therefore protect productive investment and well-targeted social spending, while concentrating expenditure rationalisation on:

• Untargeted energy subsidies
• Poorly controlled tax exemptions
• Non-priority recurrent expenditure
• Weak procurement and commitment controls
• Inefficient transfers to public entities
• The accumulation of domestic arrears
• Low-yield or non-transparent quasi-fiscal operations

A credible medium-term fiscal framework must distinguish clearly between temporary expenditure compression and permanent structural savings. The latter carry greater weight in debt sustainability assessments and are regarded as more credible by both official and private creditors.

4. Market Access and Financing Conditions

Senegal’s access to international capital markets has deteriorated significantly. While distressed bond prices and wide spreads do not in themselves signal a payment default, they indicate that new international bond issuance is unlikely to be a viable or cost-effective source of financing in the near term.

When market borrowing costs reach distressed levels, a sovereign becomes increasingly dependent on a mix of official financing, domestic and regional borrowing, retail instruments, liability-management operations and arrears management. Although this mix can ease immediate pressures, it may also raise refinancing risk and shift financial strain onto domestic and regional financial institutions.

Reuters reports that the IMF’s previous programme was suspended following the discovery of the debt misreporting, triggering a sharp sell-off in Senegalese bonds and successive credit-rating downgrades. Reuters also notes that, following the suspension of IMF disbursements, Senegal has relied increasingly on regional borrowing and retail bond issuance (Reuters).

The authorities have since reached a staff-level agreement with the IMF on a proposed 36-month financing arrangement of approximately US$2.2 billion. The arrangement remains subject to the completion of required steps, including the receipt of financing assurances and approval by the IMF Executive Board (Reuters).

5. WAEMU Financial-Stability Considerations

The regional dimension is essential. Reduced access to external markets has deepened Senegal’s reliance on the financial system of the West African Economic and Monetary Union (WAEMU), particularly through CFA franc-denominated Treasury instruments and regional bank financing.

This creates a difficult policy trade-off. Excluding regional debt from a restructuring may be justified on financial-stability grounds, given the significant exposures of banks, pension funds, insurers and other regional investors. Such an exclusion, however, would shift the burden of adjustment onto external commercial creditors, official creditors or Senegalese taxpayers, and could require a deeper fiscal adjustment.

According to Reuters, based on the most recent official data, nearly one-third of Senegal’s debt consists of CFA franc-denominated bonds and loans issued locally and regionally. This share is likely to have risen as Senegal has turned increasingly to regional financing (Reuters).

Before the scope of any restructuring is finalised, the authorities should conduct comprehensive stress tests of sovereign exposures across both banks and non-bank financial institutions. These should assess:

• Direct exposures to Senegalese Treasury bills, bonds and loans
• Maturity concentration and associated refinancing risks
• The impact of maturity extensions, coupon reductions or principal haircuts on capital and liquidity ratios
• Cross-border holdings of Senegalese sovereign assets within the WAEMU region
• Collateral frameworks and their implications for liquidity
• Exposures of pension funds, insurance companies and public financial institutions
• Potential transmission channels through the Central Bank of West African States (BCEAO) and regional payment infrastructure

The overriding objective should be to avoid a restructuring that improves Senegal’s debt metrics at the cost of triggering a regional banking or liquidity crisis.

6. Restructuring Options

The appropriate debt treatment for Senegal depends on whether the core problem is one of liquidity, solvency, or a combination of liquidity, solvency and institutional credibility.

A maturity reprofiling can provide meaningful short-term liquidity relief, particularly where the amortisation profile is heavily concentrated. However, maturity extensions alone may not deliver sufficient net-present-value (NPV) relief if the debt burden is inconsistent with projected revenues and realistically achievable primary balances.

A more comprehensive restructuring could combine maturity extensions, grace periods, coupon reductions and, where necessary, principal reduction or equivalent NPV relief. Such measures are likely to face greater political and commercial resistance, but may be unavoidable if the debt sustainability analysis (DSA) identifies a significant solvency gap.

The IMF-supported programme and the accompanying DSA should therefore set out clearly:

• The required medium-term debt trajectory
• Annual targets for gross financing needs
• A primary balance path consistent with social and growth objectives
• The volume of cash-flow relief required over the programme period
• The degree of NPV relief needed to restore debt sustainability
• The approach to treating domestic, regional, bilateral, multilateral and commercial claims
• The safeguards needed to preserve financial stability

7. Defining the Liability Perimeter

A credible debt operation requires complete and accurate information. Senegal should establish and publish a definitive Public Sector Liability Register, underpinned by independent reconciliation and regular public reporting. At a minimum, the register should cover:

• Central government external debt
• Central government domestic debt
• Eurobonds and other international market instruments
• Bilateral and multilateral claims
• Syndicated loans and commercial bank facilities
• Export-credit obligations
• State-owned enterprise (SOE) debt
• Government-guaranteed liabilities
• Non-guaranteed SOE liabilities with potential sovereign implications
• Public–private partnership obligations
• Supplier arrears and unpaid contractor certificates
• Court awards and legal claims
• On-lending arrangements
• Collateralised borrowing
• Derivatives and swap exposures
• Letters of comfort and other contingent liabilities
• Tax-refund arrears and other obligations with fiscal implications

This exercise is essential because the credibility of the debt stock is now central to Senegal’s sovereign risk profile. Any debt treatment that omits material obligations, or leaves uncertainty over contingent liabilities, is unlikely to restore market confidence.

8. Recommended Approach

Senegal should pursue a coordinated strategy built around the following priorities:

Complete the liability reconciliation. The government should establish a unified, independently verified public-sector liability database and publish regular debt statistics in line with international reporting standards.

Secure an IMF-supported programme. Official financing, a credible fiscal framework and a transparent DSA are needed to anchor negotiations with creditors.

Complete a comprehensive DSA before finalising terms. The analysis should distinguish clearly between short-term cash-flow needs and the structural debt reduction required to restore sustainability.

Define the creditor perimeter precisely. Multilateral, bilateral, Eurobond, commercial, domestic and regional claims, as well as contingent liabilities, should each be assessed separately, avoiding arbitrary exclusions that would undermine comparability of treatment.

Protect WAEMU financial stability. The authorities should carry out institution-level stress testing before determining the treatment of CFA franc-denominated and regional-market claims.

Prioritise high-quality fiscal adjustment. The fiscal programme should reduce inefficient spending and strengthen revenue mobilisation without compromising high-return investment, essential social spending or economic recovery.

Restore institutional credibility. Reforms to debt recording, budget execution, arrears management, Treasury operations and commitment controls should be tied to published milestones and subject to independent monitoring.

9. Conclusion

Senegal’s challenge extends beyond reducing its debt ratio. The central objectives are to restore confidence in the state’s fiscal accounts, rebuild durable financing capacity, and prevent sovereign stress from spilling over into the regional financial system.

A narrow reprofiling may provide temporary liquidity relief, but it will fall short if the DSA identifies a material solvency gap. Conversely, an overly aggressive treatment of regional obligations could create wider financial-stability risks across WAEMU.

The most credible path is a comprehensive but carefully sequenced approach: completing the debt reconciliation; publishing the full public-sector liability perimeter; adopting an IMF-supported adjustment framework; engaging creditors on the basis of a realistic DSA; and designing a restructuring that delivers sufficient relief while safeguarding the integrity of the regional financial system.