Senegal defends use of derivatives-linked financing, citing costs

By Portia Crowe

DAKAR, March 26 (Reuters) - Senegal's finance minister on Thursday defended the government's use of derivative-linked financing and pushed back against accusations of a lack of disclosure, saying the instrument allows the country to borrow at significantly lower cost than international markets.

Finance minister Cheikh Diba said the West African nation used Total Return Swaps to fund operations with a yield of around 7%, compared with 11% to 12% yields in Eurobond markets, adding the gap generated savings of about 36 billion CFA francs ($64 million) for the treasury.

Senegal used TRS across seven operations between April and November 2025, according to a finance ministry statement earlier this week. The transactions have drawn scrutiny amid broader concerns over Senegal's debt reporting, complicating its relationship with the International Monetary Fund as the country seeks to restore confidence and secure a new program.

Diba said on Thursday that the IMF was informed last year of the existence of the swaps as part of regular exchanges.

Details of the swaps were first reported earlier this week by the Financial Times, which said the transactions could give new creditors privileges over existing bondholders, and cited IMF concerns about the extent of information available on such operations.

Diba pushed back against that characterization, saying that there was no embedded preferential treatment, or attached collateral.

However, the minister said higher interest rates could reduce the value of the bonds held by the TRS investors, triggering what he called an “independent amount” of about 30% to cover the risk. He did not detail what would trigger such a call.

"The Senegalese authorities have informed IMF staff about a number of total return swap transactions with lenders," an IMF spokesperson said.

"However, the specific terms of these transactions have not yet been shared with the Fund. In general, such total return swaps would be considered as external debt for the purpose of the Fund's debt sustainability analyses."

The global lender froze funding from a $1.8 billion program after the initial misreporting was discovered in September 2024. Access to international bond markets also evaporated, leaving Senegal dependent on regional markets to meet its financing needs.