Senegal’s Dollar Bonds Decline Following Credit Rating Downgrade

Senegal’s dollar bonds dropped significantly following S&P Global Ratings’ downgrade of the country’s sovereign credit rating from ‘B+’ to ‘B’. This decline reflects faltering investor confidence and revised budget estimates revealing drastic increases in projected deficits and debt levels. In response, the Senegalese government has launched a fiscal adjustment plan, yet S&P anticipates challenges in achieving effective fiscal consolidation.

On March 4, 2025, Senegal’s dollar bonds saw a notable decline, as reported by Bloomberg. This decrease followed the downgrade of Senegal’s sovereign credit rating by S&P Global Ratings, placing it into unfavorable territory for investors. Bonds maturing in 2031 decreased by 0.3% to 87.44 cents on the dollar, while those maturing in 2048 fell by 0.2% to 67.17 cents on the dollar.

This market movement reflects a loss of confidence stemming from S&P’s downgrade of Senegal’s long-term sovereign credit rating from ‘B+’ to ‘B’, while maintaining a short-term rating of ‘B’. This situation arose after the Senegalese government admitted that budgetary and debt data for the last four years had been significantly underestimated, necessitating a thorough revision of fiscal figures.

The revised data indicates that budget deficits between 2019 and 2023 are now projected to be double previous forecasts. Furthermore, S&P forecasts that debt will rise to 106% of GDP in 2024, marking an increase of 32 percentage points from earlier estimates. This adjustment accounts for previously unreported national and external loans used to fund investment initiatives.

In response to these complications, the Senegalese government has instituted a fiscal adjustment plan aimed at improving public financial management and enhancing institutional controls. Nonetheless, S&P anticipates continued fiscal deficits around 6.5% of GDP from 2025 to 2028, with debt levels remaining near 100% of GDP, thereby constricting the nation’s fiscal space.

The negative outlook accompanying the downgrade underscores S&P’s apprehensions regarding Senegal’s capacity to implement its fiscal consolidation plan effectively. “Significant implementation risks complicate the country’s financing plans,” reflects the agency’s concerns. Following the Court of Auditors’ report, the Senegalese government set an ambitious goal to reduce the deficit to 3% of GDP by 2027, adapting the 2025 budget to reflect an initial deficit reduction target of 7% of GDP.

Despite these measures, S&P assesses that achieving such fiscal adjustments within the proposed timeline will likely be challenging. The agency points to persistent budget management issues and discrepancies between planned versus actual expenditures that may hinder recovery efforts.

In summary, Senegal’s dollar bonds have experienced a significant drop due to a downgrade by S&P Global Ratings, which has raised concerns about the nation’s fiscal stability. The revised fiscal projections point to substantial budget deficits and increasing debt levels, prompting the government to undertake a fiscal adjustment plan. However, S&P’s outlook suggests substantial hurdles may impede the successful execution of these plans, necessitating vigilant management and realistic expectations.

Original Source: www.senenews.com