IMF says Senegal has the right to make its own decisions about how to deal with its debt
The International Monetary Fund said on Tuesday that it has talked with Senegal about different ways to deal with the country’s “significant debt vulnerabilities.” The government will decide if the debt needs to be restructured, the IMF said.
Last year, the IMF stopped a $1.8 billion aid plan for West Africa’s economy after a new government revealed hidden debts that are now thought to be worth more than $11 billion.
Senegal’s prime minister, Ousmane Sonko, said over the weekend that Fund officials were pushing for a reorganization of the country’s debt. He said that the government would not agree to this, which caused the country’s foreign bonds to drop sharply on Monday.
A spokesperson for the IMF told Reuters that the staff mission to Dakar that finished last week included a discussion of Senegal’s policy options. This was part of the IMF’s job to provide expert analysis and advice for the government to think about.
“The choice and specific nature of debt operations, and whether to seek to restructure debt obligations, remains a sovereign decision,” the official said.
Bonds extend the losses they got recently
Senegal’s foreign bonds kept falling on Tuesday, though only slightly, and are now at levels last seen in July.
A bond from 2031 was bought for 71.77 cents on the dollar, while a bond from 2028 that was paid for in euros was bought for 79 euros.
In order for a government to get a financing program from the Fund, it needs to clearly outline how it plans to fix its finances, including its debt load.
In August, Prime Minister Sonko presented a new plan for Senegal’s economic recovery. He promised to pay for 90% of the plan with money from within the country and avoid taking on more debt.
But the government’s finances are still in a bad spot.
Stuart Culverhouse of Tellimer said in a research note that Senegal’s options are limited because it turned down the chance of renegotiating its debt. This is because Senegal needs to deal with a huge budget deficit and debt that is now expected to be 132% of its GDP.
“Without IMF-backed relief, the government must rely on domestic financing and deep spending cuts, risking social unrest,” he stated.
OVERHAULING DEBT IS UNAPPEALING
Since 2020, Zambia, Ghana, and Ethiopia have all had to restructure their debts. However, other highly indebted African governments don’t want to go through the same long and hard processes.
For example, Kenya, which also has a lot of debt, has chosen to make expensive trade-offs like raising taxes, which led to deadly protests last year.
A professor of macroeconomics and public finance at New York University named Abdoulaye Ndiaye said, “Senegal cannot afford the luxury of waiting until all of its governance and accountability reforms are fully in place before applying for a new IMF program.”
