Senegal has rejected claims that it secretly borrowed €650 million ($754 million) to avert a potential default, insisting its financial operations were conducted in line with established transparency standards.
The response follows a report by the Financial Times, which alleged that the West African nation quietly secured funding from the Africa Finance Corporation and First Abu Dhabi Bank under terms that could prioritise these lenders over existing bondholders.
Government Defends Funding Strategy
In a statement released late Tuesday, Senegal’s finance ministry said the transactions were part of a broader effort to diversify funding sources and financial instruments as the country navigates rising debt obligations.
Officials emphasised that the deals were not concealed and complied with “market transparency rules”, adding that the borrowing terms were more favourable than those currently available on international markets.
The loans reportedly carry an interest rate of 7.1% and are structured to mature in 2028.
Complex Financial Instruments
According to reports, the borrowing involved domestic sovereign bonds combined with derivatives known as total return swaps.
These instruments can give lenders priority repayment in the event of a default, raising concerns among investors about the potential implications for existing bondholders.
The arrangement included:
- Up to €350 million secured in May through the Africa Finance Corporation
- A further €300 million agreement signed in June with First Abu Dhabi Bank
Debt Burden and Fiscal Strain
Senegal is currently facing significant fiscal pressure, with:
- A budget deficit nearing 14% of GDP
- Public debt estimated at 132% of national output by the end of 2024
Despite these challenges, the government recently repaid $471 million in international debt, easing immediate default concerns.
Political and Economic Context
The administration that took office in April 2024 has accused former president Macky Sall of concealing the true scale of the country’s debt.
These claims were reinforced by findings from the International Monetary Fund, which confirmed that inaccurate reporting of budget deficits and public debt occurred between 2019 and 2023.
As a result, the IMF has suspended a $1.8 billion support programme agreed in 2023, pending further clarification and reform commitments from Senegal’s new leadership.
Investor Concerns and Outlook
The controversy highlights growing scrutiny over sovereign borrowing practices in emerging markets, particularly the use of complex financial instruments that may alter creditor hierarchies.
While Senegal maintains that its strategy is both transparent and cost-effective, analysts warn that investor confidence could be affected if concerns over debt sustainability and repayment structures persist.
Path Forward
Moving forward, Senegal faces the dual challenge of restoring fiscal credibility while ensuring access to affordable financing.
Achieving this balance will be critical as the country seeks to stabilise its economy, rebuild trust with international partners, and manage one of the region’s highest public debt burdens.
