Senegal to Raise $10bn Locally, Renegotiate Energy Deals Amid Debt Troubles

Senegal has unveiled a comprehensive strategy to mobilise nearly $10 billion over the next three years through increased taxation, reduced subsidies, and renegotiation of energy agreements. This move comes as the West African nation battles a debt crisis that has shaken investor confidence.

The reforms aim to reassure financial markets and international lenders. Just last week, the International Monetary Fund (IMF) indicated it would begin talks with Senegal in the coming month on potential new funding support.

On Friday, Senegalese Eurobonds maturing in 2033 fell by 0.7%, trading at 73.98 cents to the dollar in London by mid-afternoon.

According to a Bloomberg report, Prime Minister Ousmane Sonko, while speaking in Dakar, said the government plans to tighten spending and ramp up internal revenue generation over the coming months in a bid to stabilise the country’s finances.

“Sixty-five years after independence, we must fully assume our future,” Sonko said. “This means making efforts, mobilising our internal resources, and freeing ourselves from the automatic responses that systematically send us back to external assistance.”

President Bassirou Diomaye Faye’s administration disclosed last year that the previous government had left behind $7 billion in hidden debt, contributing to the country’s current fiscal stress. The new plan will be largely domestically funded, with around 90% of the expected $9.9 billion to be sourced internally. The government also intends to phase out subsidies and introduce fresh taxes on mobile money transactions and consumer goods to meet its 5.7 trillion CFA franc revenue goal.

The IMF had suspended a $1.8 billion loan facility last year following the debt revelation, while S&P Global Ratings downgraded the country’s credit status deeper into junk territory.

To improve its fiscal indicators, Senegal’s statistics office is preparing to rebase GDP data. The audit had revealed a debt-to-GDP ratio of nearly 100% for 2023, up from the previously recorded 74.4%. Economy Minister Abdourahmane Sarr revealed that national obligations had climbed to 119% of GDP.

A new agreement with the IMF hinges on Dakar presenting a credible plan for restoring fiscal balance.

“Improving the efficiency of public spending by focusing on high-impact investments, reducing debt through fiscal consolidation and targeting a 3% budget deficit by 2027 to regain access to more favourable external financing,” Sarr explained. “In short, the recovery plan aims to send a strong, positive signal to financial markets.”

Though the administration is open to extending debt maturities, it maintains that it will avoid a complete restructuring.