By Duncan Miriri and Marc Jones
Senegal’s bonds fell sharply on Monday after Prime Minister Ousmane Sonko became the first top government official at the weekend to say that the International Monetary Fund wanted the country to restructure its debt.
Senegal’s euro-denominated 2028 bond (XS1790105180=TE) and its 2031 dollar-denominated bond (XS2838363476=TE) tumbled almost 3 euro cents and 4 cents respectively, having initially slumped more than 6 euro cents and 5 cents on the news.
An IMF mission to Senegal ended last week without an agreement for a new lending programme. Its previous $1.8 billion package was frozen last year after the then-new government disclosed hidden debts now estimated at more than $11 billion.
The IMF is proposing a restructuring of “this abysmal debt that Macky Sall’s party has burdened us with,” Sonko told a rally in Dakar on Saturday referring to the country’s previous president.
He added, however, that the government did not want to do so as it would be “a disgrace” for the country.
The IMF did not immediately respond to a request for comment.
Zambia, Ghana and Ethiopia have all been forced to restructure their debts in the wake of the COVID pandemic, but the drawn-out processes and economic hardship caused have made other debt-strained governments deeply reluctant to follow suit.
Thomson ReutersSenegal’s struggles
UNEXPECTED MOVE
Senegal, whose debt-to-GDP ratio has ballooned to 132%, has held several rounds of talks with the IMF to try to resolve the undisclosed debt issue. Sonko’s comments, however, are the first time a top official has said the IMF is pushing for a debt overhaul.
“The market wasn’t fully pricing in that the IMF may ask for a restructuring at this point,” said Samir Gadio, head of Africa strategy at Standard Chartered in London.
He put the scale of Monday’s sell-off down to investors who had taken “long” positions in the bonds in recent months on the hope of a new programme being agreed soon.
Analysts at Oxford Economics added that the government’s resistance to restructuring could also be an issue as it “limits the available policy choices”.
Dakar is counting on revenue from new taxes on gambling and mobile transfers, and on the phasing out of tax exemptions, to put its finances on a more sustainable footing, but the IMF has expressed scepticism over the plan.
Other heavily indebted nations like Kenya are also under pressure, but Nairobi has so far avoided default by taking costly trade-offs, including tax hikes that sparked deadly protests last year, and late disbursements of funds to critical social sectors like education.
Senegal’s options, however, are being limited by the debt misreporting case, which requires a resolution by the IMF.
“Progress in the coming months will likely hinge on whether the authorities can present a credible medium-term fiscal framework that satisfies the IMF without resorting to restructuring,” Oxford Economics said.