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An economic storm in Senegal: the fall of the credit rating and its repercussions

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Between 2019 and 2023, Senegal navigated tumultuous fiscal waters, posting an average deficit of 10.4% of GDP, almost double the 5.5% initially announced. At the same time, public debt reached worrying heights, exceeding 83% of GDP in 2023, according to government revelations.

On 4 October 2024, Moody’s struck a major blow by downgrading Senegal’s credit rating from ‘Ba3’ to ‘B1’, signalling a ‘high credit risk’ that only added to the prevailing anxiety. This major blow reflects an alarming deterioration in the country’s fiscal and debt situation.

Government data revealed in September shows that public debt has soared to 83.7% of GDP in 2023, compared to an initial forecast of 73.6%. This sudden increase reveals unrecorded expenditure and vastly underestimated borrowing, plunging the country into a worrying financial spiral. The budget deficit, meanwhile, soared to an average of 10.4% of GDP over the same period.

Faced with this crisis, the Minister of Finance, Cheikh Diba, spoke out, promising structural reforms as early as 2025. These bold measures are aimed not only at reducing the budget deficit, but also at stabilising public debt, while respecting Senegal’s commitments to the West African Economic and Monetary Union (WAEMU), the Economic Community of West African States (ECOWAS), and international partners.

To regain investor confidence and turn its economy around, Senegal is also turning to the International Monetary Fund (IMF). An IMF mission to Dakar in September revealed that the country’s economy was experiencing a worrying slowdown in the first half of 2024, pointing to a gloomy outlook for the rest of the year. Falling government revenues, combined with rising energy subsidies and interest payments, are further exacerbating the fiscal situation.

Moody’s forecasts are not very encouraging: the budget deficit could reach 7.5% of GDP in 2024, while the government hopes to reduce public debt to below 70% of GDP. The situation therefore remains ‘under watch’, and Senegal’s economic future looks more uncertain than ever. The next steps will be crucial if the country’s promising resources are to be turned around and financial stability restored. 

The Editor (with AE and CA)