Finance minister Cheikh Diba said the country borrowed at around 7 per cent using the structure, compared with 11 to 12 per cent in Eurobond markets.
“The instrument allows the country to borrow at significantly lower cost than international markets,” he said, adding that the savings reached about 36 billion CFA francs ($64 million).
The defence follows reports that Senegal raised about €650 million through deals with lenders including Africa Finance Corporation and First Abu Dhabi Bank, using local-currency bonds as backing.
Pressure after IMF setback
Senegal has been under growing financial strain since the International Monetary Fund froze a $1.8 billion programme in 2024 after previously undisclosed debt was uncovered.
Concerns over transparency and risk
Despite the government’s defence, investors and the IMF have raised concerns about the lack of full disclosure and the risks tied to such instruments.
Total return swaps involve pledging bonds in exchange for cash, but they can complicate debt restructuring because it is unclear how they are classified.
The IMF said it had been informed about the swaps but had not received full details.
“Such total return swaps would be considered as external debt for the purpose of the Fund’s debt sustainability analyses,” a spokesperson said.
Some investors also worry the structure could favour new lenders over existing bondholders if Senegal defaults, a claim the government denies.
Senegal’s approach reflects a wider shift among cash-strapped economies facing high global interest rates.
While the strategy can reduce costs in the short term, analysts warn it could increase risks if debt problems worsen.
For Senegal, restoring investor confidence and securing a new IMF programme remain key to regaining access to global markets.