Senegal said it will act quickly to reduce its budget deficit after an audit that showed a fiscal and Weaker debt led Moody’s Ratings to downgrade the West African nation.
The company downgraded Senegal’s long-term rating to B1 from Ba3 on Friday night after an audit launched by newly elected President Bassirou Diomaye Faye showed a 10% budget deficit in 2023, almost double the 5.5% reported by the previous administration.
Senegal will launch “ambitious reforms to significantly reduce the deficit from 2025 and consolidate this reduction in the short term“, indicated the Ministry of Finance in a statement. “A clear path will be established to reduce the debt ratio.”
The West African nation’s debt was estimated at 83.7% of gross domestic product at the end of 2023According to the government audit, approximately 10 percentage points higher than the 73.6% previously published.
This indicates “Major past gaps in the accuracy of government accounts and weaknesses in the effectiveness of budget management and fiscal policy,” Moody’s stated. The high debt burden reduces Senegal’s “shock absorption capacity” and leaves the government more susceptible to higher financing costs, he said.
Prime Minister Ousmane Sonko reiterated on September 26 the government’s commitment to making the debt is once again less than 70% of GDP.
Senegal spooked investors last month when it announced an investigation into the previous government’s accounts, which triggered a massive sell-off of its dollar debt. Since then, Investors have rallied on expectations that the country’s long-term economic outlook can support its bonds.
Senegalese authorities are negotiating corrective measures with the International Monetary Fund following the government audit. It seems increasingly unlikely that an amount of US$1.5 billion will be disbursed of a program after a June review before the end of 2024.
Snap parliamentary elections scheduled for November in a bid by Faye to win support for his economic reforms in the opposition-dominated parliament will also dominate the authorities’ agenda. Moody’s placed Senegal’s long-term rating on follow-up review for a possible further downgrade.
“We would downgrade Senegal if it became clear that liquidity pressures on the government were greater than currently expected,” he said. The IMF recently revised Senegal’s economic growth forecast for 2024 to 6% from 7.1% projected in Juneciting a widening fiscal gap, a weak first half and the possible delay in IMF financing.
