Significant Decline in Senegalese Dollar Bonds Following Credit Rating Downgrade

Senegal’s dollar bonds fell significantly following a rating downgrade by S&P Global Ratings from ‘B+’ to ‘B’. The downgrade stemmed from disclosed financial discrepancies, resulting in an increase in estimated budget deficits and national debt. The Senegalese government has announced a fiscal adjustment plan, but S&P predicts continued fiscal challenges ahead.

On March 4, 2025, Senegal’s dollar bonds experienced a notable decline following the downgrade of the country’s sovereign credit rating by S&P Global Ratings. The downgrade dropped Senegal’s rating from ‘B+’ to ‘B’, which has led to decreased investor confidence. Bonds maturing in 2031 fell to 87.44 cents on the dollar, representing a 0.3% decline, while those maturing in 2048 dropped to 67.17 cents, a 0.2% decrease.

This decline mirrors the diminishing trust in Senegalese financial markets after the rating agency’s announcement, which came after the government acknowledged significant underestimations of budgetary and debt data over the past four years. New evaluations have indicated that budget deficits from 2019 to 2023 are now projected to be twice as large as earlier estimates, with the national debt forecast to rise to 106% of GDP by 2024, a stark increase of 32 percentage points from previous assessments.

In response to these developments, the Senegalese government has proposed a fiscal adjustment plan aimed at improving public finance management and reinforcing institutional controls. Nonetheless, S&P Global Ratings foresees fiscal deficits of approximately 6.5% of GDP from 2025 to 2028, while indicating that the country’s debt will likely remain around 100% of GDP, constraining fiscal flexibility.

The agency has assigned a negative outlook concerning Senegal’s fiscal consolidation strategy, citing substantial implementation risks that may hinder financing plans. Despite this, the Senegalese government has set an ambitious goal to reduce the deficit to 3% of GDP by 2027, marking an 8 percentage point reduction from 2024 levels. The adopted 2025 budget also aims to lower the deficit to 7% of GDP, down from 7.52% in 2024, bolstered by proposed revenue enhancement measures.

Nevertheless, S&P Global Ratings expresses skepticism regarding the feasibility of this fiscal adjustment within the specified timeline. The agency highlights persistent issues of weak budget management and the frequent discrepancies between planned and actual expenditures, which pose significant obstacles to recovery efforts.

In summary, the significant drop in Senegal’s dollar bonds highlights a deterioration of investor confidence following a downgrade in the country’s sovereign credit rating. This situation is exacerbated by the government’s admission of underreported financial data, leading to revised debt forecasts and budget deficits. While the Senegalese government proposes ambitious fiscal measures, concerns remain about the implementation challenges and effectiveness of these strategies in improving economic stability.

Original Source: www.senenews.com