Senegal’s dollar bonds fell significantly due to a downgrade by S&P Global Ratings, which cut the sovereign credit rating from ‘B+’ to ‘B’. This downgrade reflects deeper fiscal challenges, including underestimated deficits and a projected rise in debt to 106% of GDP by 2024. The government has announced plans for fiscal adjustments, but S&P warns of significant risks to execution. The situation raises critical questions about the country’s economic future and financing capabilities.
On March 4, 2025, Senegal’s dollar bonds experienced a notable decline, as reported by Bloomberg. This downturn was triggered by the American rating agency S&P Global Ratings’ decision to downgrade Senegal’s sovereign credit rating, resulting in reduced investor confidence. Specifically, bonds maturing in 2031 dropped by 0.3% to 87.44 cents on the dollar, while those due in 2048 fell by 0.2% to 67.17 cents on the dollar.
The decline mirrors the financial market’s reaction to S&P Global Ratings’ downgrade of Senegal’s long-term sovereign credit rating from ‘B+’ to ‘B’. The short-term rating remained at ‘B’. This move came after the Senegalese government acknowledged that its budgetary and debt data over the past four years had been underestimated, necessitating a comprehensive revision of the figures. The revised data now shows that budget deficits from 2019 to 2023 are expected to be double the initial projections.
Consequently, S&P Global Ratings estimates that the debt will reach 106% of GDP by 2024, reflecting an increase of 32 percentage points from previous estimates. This revision is largely a result of accounting for both previously undeclared external and domestic loans, aimed at funding investment projects. In response, the Senegalese government announced a fiscal adjustment plan that emphasizes improved public finance management and enhanced institutional controls.
Despite these efforts, S&P Global Ratings forecasts fiscal deficits of around 6.5% of GDP from 2025 to 2028, indicating that debt levels will remain near 100% of GDP, thereby constraining fiscal flexibility. The downgrade has been assigned a negative outlook, underscoring S&P’s apprehensions regarding Senegal’s potential to effectively implement its fiscal consolidation strategy, indicating that “significant implementation risks complicate the country’s financing plans.”
In light of the circumstances, the Senegalese government has set an ambitious goal of reducing the deficit to 3% of GDP by 2027, down from 11% in 2024, underlining a commitment to financial discipline. The 2025 budget, which was adopted in December 2024, outlines a plan for gradual deficit reduction to approximately 7% of GDP. This goal is to be achieved through tax increases and the reduction of tax exemptions. Nevertheless, S&P Global Ratings remains skeptical, asserting that “the realization of such a significant fiscal adjustment will be difficult within the set time frame,” citing inadequate budget management and the persistent disparity between planned and actual expenditures as significant hurdles to recovery.
In summary, the downgrade of Senegal’s sovereign credit rating by S&P Global Ratings has led to a substantial drop in dollar bond values, highlighting investor concerns regarding the country’s fiscal health. Though the Senegalese government has initiated a fiscal adjustment plan aimed at reducing budget deficits significantly, challenges in implementation remain prevalent. The situation underscores the necessity for improved budget management and the establishment of credible fiscal frameworks to regain investor confidence and stabilize financial markets.
Original Source: www.senenews.com
