Senegal makes key debt payments, but more pain looms

By Portia Crowe and Libby George

DAKAR/LONDON, March 13 (Reuters) - Senegal made nearly half-a-billion-dollar debt payments due on Friday, but spending cuts and, according to five sources, delayed payments to other lenders as well as nascent civil unrest cast doubt on how much time the effort buys.

The West African country descended into economic turmoil after a new government uncovered debts that were not reported by the previous administration, now estimated at $13 billion.

The IMF froze funding and access to international bond markets evaporated after the discovery was announced in September 2024, leaving Senegal dependent on regional markets to meet its financing needs.

President Bassirou Diomaye Faye and Prime Minister Ousmane Sonko, who took office in April 2024, have repeatedly said Senegal will not default.

All debt holders had been paid by Friday evening, two sources close to the matter told Reuters.

Yvette Babb, portfolio manager with William Blair, said authorities had been committed to making the payments of roughly $480 million due on Friday on two Eurobonds.

But, she added that Senegal faced "difficult choices" over how to allocate funds and making the payment could mean more pressure to tighten budgets and spending.

Senegalese citizens are already bristling at some of these decisions. A university student died during protests over aid last month, teachers have gone on strike and unions say the construction industry alone has lost tens of thousands of jobs.

The way out will require more tough choices, bond investors and analysts say.

FROZEN FUNDS AND MORE CUTS

Senegal's $13 billion hidden debt is the largest ever in a country with an International Monetary Fund programme, bond investors, sovereign debt experts and lawyers told Reuters.

Mozambique's "tuna bonds" scandal, hidden loans that were ostensibly for the nation's tuna fishing fleet, tallied around $2 billion.

To secure IMF financing, Senegal, like other nations, must ensure debt sustainability, or a credible path towards it.

This often comes via deep, painful reforms or, sometimes, debt restructuring. Sonko said in November the IMF proposed a restructuring, but he said that would be a "disgrace."

The IMF has said it is up to the country's leaders to determine which steps to take. A spokesperson for the fund did not immediately respond to a Reuters request for comment for this story.

Governments of debt-laden countries have other tools at their disposal - such as raising tax revenues, selling assets or securing financial support. However, the IMF pegged Senegal's end-2024 debt at 132% of its economic output, leaving it little wiggle room.

Senegal says spending cuts, higher tax revenues and a growing economy will fix its finances. This month, it announced plans to close 19 government agencies, cutting roughly 1,000 ​jobs, to save at least 55 billion CFA francs ($98 million).

But without the IMF, and the cash a programme unlocks from elsewhere, analysts say the path is murky.

Senegal relied heavily on regional debt markets in 2025, raising more than 3 trillion CFA francs, according to JPMorgan calculations.

This and strong first-quarter tax revenues should enable Friday's payments.

"They've pieced together enough liquidity from the regional market," said Chris Celio, senior economist and strategist with ProMeritum Investment Management.

LATE ON PAYMENTS, LOW ON OPTIONS

Babb of William Blair said prioritising international bond payments made sense if the government wants to avoid default, given the impact missing these could have on sovereign credit ratings.

Senegal is falling behind on payments to other lenders such as France, Britain, Italy and Spain, five sources familiar with the situation told Reuters.

The delays are within grace periods, which are typically 90 days, and are not uncommon. But one of the sources with direct knowledge of the situation said they are longer at times than they had been before and more worrying.

Two of the sources told Reuters that members of the Paris Club of official lenders discussed the delays at a February meeting.

Senegal's finance ministry did not respond to a specific question from Reuters on arrears.

ENOUGH FOR THE IMF, OR JUST EXPENSIVE LOANS?

The government has said it plans to raise 4.132 trillion CFA francs on regional debt markets in 2026. But investors and analysts said it needs billions more in affordable financing.

"I don't think it's realistic," Celio said of the strategy to secure an IMF loan by borrowing short-term regional debt, pursuing asset sales and spending cuts, adding that Dakar needed "a large pool of long-term financing" that allows it to extend loans.

"They have this spike in gross financing needs over the next three years, and by just rolling over the regional debt into six-to-12-month paper - it doesn't solve the problem."

JPMorgan's calculation showed Senegal owes $9.7 billion in interest and amortisation this year, $7.8 billion in 2027 and $8.7 billion in 2028.

Its leaders no doubt have an eye on Zambia, which is still finalising its debt overhaul after six years, while restructuring froze Ghana's domestic debt market.

"Historically, when countries default on their debt, things get really nasty," said Gustavo Medeiros, head of research at Ashmore Group.

($1 = 560.5000 CFA francs)