Senegal's Financial Turmoil: New Audit Unveils Debt Crisis

Senegal's sovereign dollar bonds fell after a government audit exposed greater debt and deficit levels than previously reported. The audit, ordered by President Bassirou Diomaye Faye, revealed troubling financial figures, which have serious implications for the country’s economy. The International Monetary Fund is collaborating with Senegal on appropriate next steps.

Senegal's sovereign dollar bonds plummeted on Friday following a government audit that revealed larger debt and deficit figures than previously reported, according to Tradeweb data. The audit was ordered by recently elected President Bassirou Diomaye Faye, who criticized the previous administration for releasing false figures. This underscores the significant challenges ahead for Senegal, a nation already facing slower economic growth.

"The announcement does sound like a credit-negative event," remarked Evghenia Sleptsova, senior emerging markets economist at consultancy Oxford Economics. The dollar bonds decreased by more than 2 cents in early trading but managed to retrace some losses, bidding roughly 1.3 cents lower between 73.01-85.52 cents on the dollar by 1200 GMT.

The International Monetary Fund, which runs a $1.9 billion bailout program with Senegal, acknowledged receiving initial audit findings from the government and is working on determining the next course of action. The audit illustrated a more than 10% deficit at the end of 2023, vastly different from the 5% reported by the previous government, according to Economy Minister Abdourahmane Sarr.

Public debt averaged 76.3% of GDP as per the audit, compared to the previously reported 65.9%, due to higher-than-published public deficits. Sarr noted that these concerning figures, along with the fear of violating IMF rules, prevented the government from requesting IMF funds that could have been disbursed in July.

Abdoulaye Ndiaye, a professor of macroeconomics and public finance at New York University's Stern School of Business, stated that the unprecedented audit in Senegal highlighted the need for 'courageous choices.' "The results are troubling, and there needs to be a thorough legal investigation," he added.

The IMF has already reduced Senegal's growth forecast for this year and has warned of a wider fiscal deficit due to slow revenue growth. Earlier this month, President Faye called a snap legislative election for Nov. 17 to address the budget deadlock and government waste reduction efforts.

However, the recent initiation of oil production in June and the anticipated gas output by year-end offer a potential boost to government finances.

(With inputs from agencies.)