Moody’s Downgrades Senegal Ratings after Court of Auditors Findings
Moody’s Ratings has downgraded the Government of Senegal long-term issuer and foreign-currency senior unsecured ratings to B3 from B1 and changed the outlook to negative. The short-term issuer ratings have been affirmed at Not Prime (NP), saying this concludes the review for downgrade that was initiated at the time of the 4 October 2024 rating action.
In its report, Moody’s said the downgrade is driven by the substantially weaker fiscal metrics revealed by Senegal’s Court of Auditors. The scale and nature of the discrepancies significantly limit Senegal’s fiscal space and contribute to elevated funding needs while indicating material past governance deficiencies.
The court’s findings estimate central government debt at 99.7% of GDP in 2023, around 25 percentage points higher than previously published in official documents and higher than estimated in the preliminary audit by the Ministry of Finance that concluded in September 2024.
“As a result, Senegal is more exposed to adverse shocks than we had previously estimated,” Moody’s said. The negative outlook reflects downside risks related to the fiscal trajectory and government liquidity.
Although the government targets an ambitious pace of narrowing of the fiscal deficit and the B3 rating is predicated on the capacity to sustain debt reduction going forward, what has now been revealed to be a very weak fiscal and debt position will complicate fiscal consolidation efforts.
“While our baseline assumes eventual IMF support, the materialisation of more constrained market funding options would challenge the government’s ability to meet elevated gross financing requirements.”. Senegal’s local and foreign currency country ceilings have been lowered to Ba2 and Ba3 from Baa3 and Ba1, respectively.
The local currency country ceiling is four notches above the sovereign rating to take into account the moderate footprint of the government in the economy.
It also mitigating impact of Senegal’s West African Economic and Monetary Union (WAEMU) membership on external imbalances. The foreign currency country ceiling maintains a one-notch gap to the local currency country ceiling to reflect the assessment of limited transfer and convertibility risks due to the French Treasury guarantee of the peg between the CFA franc and the euro.
On 12 February, Senegal’s Court of Auditors released an audit report on the state of public finances. The court estimated central government debt at 99.7% of GDP in 2023, around 25 percentage points higher than previously published.
It indicated extensive differences from the previously published data on government debt contracted with local banks and drawings on externally financed project loans.
The report’s debt and deficit data are higher than those estimated in a preliminary audit by the Inspectorate of Public Finances (IGF), a unit of the Ministry of Finance, the results of which were announced in September 2024.
After the announcement of the IGF’s preliminary findings, Moody’s downgraded Senegal’s rating to B1 from Ba3 and initiated the review for downgrade. The court’s findings point to a substantially weaker fiscal position than previously stated, even relative to the elements previously considered by Moody’s analysts.
Taking the debt data reconciled by the Court of Auditors as a starting point, analysts estimate the central government debt ratio rose from nearly 100% of GDP in 2023 to 107% of GDP in 2024, reflecting the fiscal deficit of 11.6% of GDP estimated in the authorities’ revised finance law for that year.
The debt ratio is markedly higher than the B-rated 2024 median of 49% of GDP and one of the highest for emerging and frontier markets at comparable wealth levels.
Debt reduction from these levels will be a protracted process, notwithstanding a strong medium-term growth outlook and the government’s ambitious targeted pace of fiscal consolidation, which budgets for deficit reduction of 4.5 percentage points of GDP this year (to 7.1% of GDP).
“We forecast the debt ratio will begin to decline from this year onward but at a gradual pace, remaining close to 100% of GDP by the end of 2027”. Moreover, the debt trajectory is susceptible to shocks stemming from weaker growth, a slower pace of fiscal consolidation or higher borrowing needs by the parastatal sector.
Other debt-related vulnerabilities have also increased. The court estimated guaranteed debt at CFA2.3 trillion, four times the amount previously reported in public debt documents; this adds to contingent liability risks to the government’s balance sheet.
The B3 rating continues to take into account Senegal’s WAEMU membership which represents an essential credit support that helps contain risks arising from the country’s high foreign-currency debt levels and external vulnerabilities more broadly.
The government’s funding needs, and associated refinancing risks, are also higher than previously assessed. The 2025 budget incorporates elevated gross financing needs of around 20% of GDP for this year, including CFA2.9 trillion in amortisation payments.
Senegal’s principal payments will remain elevated over the next few years, in part reflecting the repayment of the amortising 2028 Eurobond, Moody’s said. The audited debt stock includes CFA2.5 trillion in hitherto unreported debt owed to the local banking sector as of March 2024, which risks adding to debt servicing needs in future years.
The B3 rating assumes that the authorities are likely to focus on smoothening the maturity profile to address refinancing risks. The Court of Auditors’ report notes numerous deficiencies in budget and Treasury management and the transparency of fiscal accounts under the previous administration, indicative of material past governance weaknesses.
These include a track record of extra-budgetary spending and non-regularised Treasury advances, incomplete accounting for expenditures financed by project loans and the large stock of hitherto unreported guaranteed debt. The government has affirmed its commitment towards greater transparency and accountability and announced steps to improve public finance management.
The transparency and level of details of the published Court of Auditors’ findings represent a positive sign of the commitment to address past governance failures. Efforts will focus on strengthening the control of expenditures, financing and projects; reforming and unifying public debt management; and enhancing the reliability of public finance information.
Given the deficiencies now indicated by the Court of Auditors and the vast scope of the effort, effective implementation of these reforms that restores Senegal’s fiscal policy effectiveness over time will likely be gradual.
The negative outlook reflects downside risks related to the fiscal trajectory and government liquidity. Although the government targets an ambitious pace of narrowing of the fiscal deficit – key to debt reduction and the restoration of fiscal space – the very weak fiscal and debt positions will complicate fiscal consolidation efforts.
The 2025 budget and accompanying medium-term framework aim for a deficit of 7.1% of GDP this year and further reduction to the regional deficit convergence criterion of 3% of GDP by 2027, a marked but difficult adjustment relative to the average deficit of 11.1% in 2019-23 indicated by the Court of Auditors.
Planned reforms aim at strengthening revenue generation and streamlining expenditures, including through stricter fiscal oversight and an audit of the public sector. “Our baseline scenario integrates a slower pace of fiscal consolidation than targeted by the government, reflecting execution risks to the 24.4% budgeted pace of nominal revenue growth for this year and upside risks to the interest burden following the audit findings.
“We forecast a budget deficit of 7.5% of GDP this year and 4.8% of GDP in 2026. The materialisation of additional fiscal slippages beyond our expectations, for example through material revenue underperformance or delayed policy implementation, would amplify financing needs and undermine the capacity to maintain debt on a downward trajectory”, Moody’s stated.
On the funding side, the financing plan for this year relies on the preservation of a diversified and relatively affordable base of financing, including from concessional sources, the international and regional markets, and the pursuit of new streams such as through the introduction of Diaspora Bonds.
Agreement on a new IMF programme remains pending and is key to unlocking renewed concessional financing; the government has stated it hopes to reach a programme by June. “While our baseline assumes eventual IMF support, any further delays would increase reliance on bridge market financing.”.
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