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The IMF has agreed a $2.2bn bailout plan for Senegal, in which the west African nation will seek to restructure its external debts after revelations of hidden borrowing left it as one of the world’s most indebted countries.
Senegal’s finance ministry said on Tuesday it had launched a “debt treatment plan” in a “sovereign initiative”, as the IMF said it would resume lending for the first time since billions of dollars in misreported debt were revealed last year.
The country’s euro-denominated bonds due in 2028 plunged by about 7 cents to 49 cents on the euro after the restructuring plan was announced, while US dollar bonds fell about 2.5 cents to 49 cents on the dollar.
Bondholders have been bracing for losses since Senegal’s debt officially swelled to more than 130 per cent of GDP in 2024, after a state audit revealed extensive misreporting of loans. Even after public spending cuts, some tax rises and a rebasing of GDP, the country’s debts are about 100 per cent of GDP, with interest payments consuming nearly a quarter of government revenues, Moody’s said last week.
A deal with the IMF and a reckoning over the debt were delayed because of tensions between President Bassirou Diomaye Faye and former prime minister Ousmane Sonko, before Sonko was sacked this year.
“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.
Sonko, who said as prime minister that a debt restructuring would bring “shame” on the country, became the speaker of Senegal’s parliament this year, where he could yet clash with Faye’s government on fiscal reforms.
The finance ministry said it was seeking a debt treatment under an “enhanced” version of the Common Framework, a G20-backed process to corral private and official creditors into agreeing to restructure debts.
The base framework became a byword for friction and delay in recent defaults, such as in Zambia and Ethiopia, leaving countries reluctant to turn to it.
Senegal’s plan would exclude debts that it had issued under the currency of its regional monetary union, the west African CFA franc, the ministry said.
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”, it said.
Senegal increased its reliance on the regional debt market after it was locked out of international bond issuance, but its CFA franc borrowing costs have also become difficult to bear.
Moody’s cut Senegal’s credit rating deeper into junk last week as it warned that the “prolonged absence of an IMF programme has increased reliance on regional market funding to meet financing needs of about 25 per cent of GDP”.
Last year Senegal used domestic bonds as collateral to borrow at least €650mn from banks through derivatives known as total return swaps, the FT revealed this year.
Terms of the swaps were not shared with the IMF at the time. Bondholders have feared that Senegal will try to exclude the swaps and their collateral from any restructuring because of their links to the country’s domestic debt, held largely by local banks and other institutions.
Last month Senegal’s parliament authorised an investigation by lawmakers into the total return swap borrowing.
