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Senegal: Things are not Always What They Seem
In March 2024, Senegalese Prime Minister Ousmane Sonko and President Bassirou Diomaye Faye were elected with a promise of radical change. Their campaign, which centered on social justice and national sovereignty, resonated with a population facing high living costs and rising unemployment. Following his inauguration in April, President Faye initiated a comprehensive review of the country’s financial situation. The findings, released in late September, raised significant concerns, and suggest that Senegal’s fiscal health may be more precarious than previously believed.
The investigation revealed substantial underreporting of debt and budget deficit levels by the previous administration led by former President Macky Sall. It found that Senegal’s debt as a percentage of GDP was nearly 10% higher than reported, at approximately 84% as of end-2023. Additionally, budget deficits in the last five years were nearly double the initially stated amounts, with revised numbers showing a 10% of GDP deficit in 2023.
These recent revelations underscore the significant challenges facing the new government. Year-to-date fiscal performance suggests another large deficit overshoot in 2024, with public debt levels likely to breach 90% of GDP this year, above the regional monetary union’s 70% of GDP debt ceiling. Additionally, the preexisting IMF program has been suspended. Yet, dollar bond spreads are roughly flat since the revelations. The market is either being complacent or strongly believes the new administration will be able to flex its fiscal policy muscles to collapse the deficit in the near term. While the government’s commitment to fiscal transparency must be commended, we remain cautious. A higher debt load and larger deficit will mean that greater effort is required to sustainably reduce the debt ratio over the medium term. Moreover, the tail risk of a suboptimal parliamentary election result for the government should not be discounted.
The coming months will be critical as the nation seeks to reconcile its financial past with aspirations for a stable economic future. The government’s commitment to credible revenue mobilization policies, a phase-out of energy subsidies and elimination of costly tax exemptions will be essential for regaining the confidence of international partners. Unfortunately, the citizens of Senegal are now left grappling with the potential consequences of past fiscal misreporting—likely facing a higher tax burden, reduced public services, and an increased burden on future generations as the government attempts to restore fiscal sustainability.
While the launch of large oil and gas projects offers promising opportunities for the country down the line, prudent policies will be necessary to ensure that the anticipated transformation meets expectations. Faye and Sonko’s findings highlight the urgent need for good governance and transparency. Such issues of governance often fly under the radar until a new administration conducts a thorough review and prompts the question: who might be next?
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