Senegal credit rating downgraded to ’B’ by S&P Global Ratings

Investing.com -- S&P Global Ratings has downgraded Senegal’s long-term foreign and local currency sovereign credit ratings from ’B+’ to ’B’, while maintaining the ’B’ short-term sovereign credit rating. This decision follows an announcement by the Senegalese government that budget and debt data for the past four years are subject to revision, resulting in significantly weaker fiscal and debt figures.

The revised data shows that the fiscal deficits between 2019 and 2023 are now double the previously estimated levels. The S&P Global Ratings-estimated debt burden for 2024 is now at 106% of GDP, 32% higher than the previous estimate. This is primarily due to unreported investments funded through external project loans and domestic bank loans.

The Senegalese administration has expressed its intent to implement a significant fiscal adjustment and improve related institutional checks and balances. However, S&P Global Ratings predicts that fiscal deficits will still average 6.5% of GDP between 2025 and 2028, and that debt will remain around 100% of GDP, limiting fiscal flexibility.

The negative outlook on the long-term rating reflects S&P Global Ratings’ opinion that Senegal’s fiscal consolidation path could face significant implementation risks, potentially complicating future financing plans. The next rating publication on the sovereign rating on Senegal is scheduled for May 16, 2025.

In response to the revised figures, the government has proposed a plan to reduce future fiscal deficits to 3% by 2027, a reduction of about 8% of GDP from the 2024 outturn. The 2025 budget, adopted in December 2024, targeted a 4.52% reduction in the 2025 fiscal deficit compared to 2024 levels, to 7% of GDP. To reach this target, the government plans to implement revenue-enhancing reforms, including tax increases and a reduction in tax exemptions.

However, S&P Global Ratings believes that a fiscal adjustment of this size will be challenging to achieve within the proposed time frame. The audit report highlighted weak budgetary management and discrepancies between budgeted and actual expenditure, which are expected to impact the government’s ability to meet its deficit reduction objectives.

Senegal is also facing a spike in debt repayments in 2025 and 2026 due to the amortization of the 2028 Eurobonds. The country is seeking new funding sources to manage this, including a potential new program with the International Monetary Fund (IMF) by June 2025 and a $300 million budget support from the World Bank, expected to be disbursed in the same month.

S&P Global Ratings could lower the rating if Senegal’s financing pressures increase, due to slower fiscal consolidation than planned or limited access to market funding. Conversely, the outlook could be revised to stable if the economy grows faster than forecasted, leading to a quicker reduction in fiscal deficits and government funding needs.

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