Senegal's international bonds drop after low demand at regional auction

By Duncan Miriri and Anait Miridzhanian

NAIROBI/DAKAR, Dec 15 (Reuters) - Senegal's international bonds fell on Monday after a regional debt auction last week drew weak demand despite higher interest rates, unsettling investors.

The West African nation's government has increasingly relied on regional debt markets for funding while it works to resolve a debt-misreporting case that froze its IMF loan programme in 2024.

Friday's auction raised 30 billion CFA francs ($54.01 million), according to UMOA-Titres, the regional debt issuance agency.

The original quarterly debt auctions calendar had indicated the amount to be auctioned for Senegal last Friday at 90 billion CFA francs. However, Senegal had already tapped markets on December 9 in a transaction that was not on the calendar but raised 35 billion CFA francs.
The yield on the three-year bond rose to 8.47% last Friday from 7.94% at the bond auction three days earlier.

"Senegal's borrowing costs in the domestic market were higher last week," said Charlie Robertson, head of macro strategy at asset manager FIM Partners.

Concerns over a potential restructuring have weighed on sentiment for some time. On Monday, the 2028 euro-denominated bond XS1790105180=TE fell more than 2 euro cents to 67.64 cents, a record low, while the 2031 dollar bond dropped to 59 cents, Tradeweb data showed.

BUDGET APPROVED

Senegal faces a debt crunch after discovering more than $11 billion in previously unreported obligations, pushing the debt-to-GDP ratio above 119% and prompting the IMF to suspend its $1.8 billion programme. Parliament approved the 2026 budget on Saturday.

Official documents show the government expects a budget deficit of 5.37% next year, an improvement on the 7.8% projected for 2025 and about 12% in 2024.

Dakar, which opposes a restructuring, plans to make up any shortfall by raising revenues and tapping regional bond markets.

It expects an additional 762.6 billion CFA francs in revenues from taxes on gambling, mobile financial services and export duties.

Leeuwner Esterhuysen, senior economist at Oxford Economics, said relying on regional markets is understandable, but is only a temporary fix, with significant reforms needed to restore sustainability.

"Many feel that the 2026 budget does not contain the measures necessary to achieve this," Esterhuysen said.

Analysts also doubt how much the government can raise from new taxes, while the IMF has warned that the "very high tax yield" assumed poses a significant risk.

Talks with the Fund on a new bailout are ongoing but slower than expected. Short-term commercial loans have also come under pressure, underscoring concerns about Senegal’s ability to meet its obligations.

"This decline in confidence is linked to persistently high debt, the lack of an agreement with the IMF to restructure the debt and overly optimistic budget forecasts," said Djibril Gueye, a Dakar-based analyst and portfolio manager.

($1 = 555.2500 CFA francs)