As Senegal faces a significant financial crisis, the nation is poised to take a crucial step in managing its public finances. Dakar is set to appoint the American investment bank Lazard as its financial advisor to address its sovereign debt. This selection is being closely observed by global investors, particularly in light of intense scrutiny following the discovery of extensive budgetary irregularities inherited from the previous administration.
Over $13 billion in undisclosed debt comes to light
The true extent of the financial crisis was brought to light by the new government: a staggering sum exceeding $13 billion in public debt had remained undeclared, representing more than a quarter of Senegal’s Gross Domestic Product. According to the Public Debt Statistical Bulletin 2019-2024, the nation’s debt-to-GDP ratio dramatically escalated to 128.6% by the end of 2024, a sharp increase from just 81.8% five years prior. This unsustainable trajectory has triggered a wave of international concern.
The International Monetary Fund responded by suspending a $1.8 billion loan program following the revelation of these fiscal discrepancies. This suspension deprives the country of vital funding at a time when it must reassure markets about its capacity to meet its financial obligations.
Lazard to collaborate with a Parisian firm
The New York-based investment bank, renowned for its expertise in sovereign restructuring, will not undertake this task alone. Lazard is expected to collaborate with the Parisian firm Global Sovereign Advisory (GSA) for this mandate. This Franco-American partnership will be tasked with navigating intricate negotiations involving international creditors, multilateral institutions, and financial markets.
The selection process, spearheaded by Senegalese authorities, is nearing its conclusion. An official announcement regarding the appointment could be made in the coming days, as Dakar strives to swiftly regain investor confidence. Senegalese bond spreads have widened in recent weeks, reflecting market apprehension regarding the sustainability of the nation’s debt.
A new framework for financial governance
Concurrently with the selection of an external advisor, the Senegalese government has undertaken a restructuring of its administrative framework. Authorities recently established a General Directorate of Financing and Debt, an institutional mechanism designed to enhance transparency and traceability of the state’s financial commitments. This new directorate is mandated to work in close coordination with Lazard to conduct a comprehensive assessment and propose refinancing solutions.
The challenge extends beyond mere technical restructuring. It involves rebuilding the budgetary credibility of a nation long held as a model of stability in West Africa. The discovery of hidden debts has shaken this reputation, forcing the new government to confront difficult decisions: renegotiating certain contracts, extending repayment schedules, or seeking new financing under potentially more expensive terms.
The context in Senegal
Senegal, a nation of 18 million inhabitants situated at Africa’s westernmost point, has experienced sustained economic growth in recent years. This growth has been fueled by substantial investments in infrastructure and the anticipated exploitation of its offshore oil and gas resources. However, this rapid development has been accompanied by accelerated indebtedness, which international institutions deem to have been insufficiently controlled.
The capital city, Dakar, serves as the primary hub for the country’s economic and administrative activities. It is from this port city that the new government, which assumed power in April 2024, endeavors to rectify a budgetary situation it describes as inherited. The promised transparency regarding public accounts has unveiled the full scale of the undisclosed liabilities, compelling authorities to seek international expertise to resolve the impasse.
Lazard’s impending challenges
The mandate entrusted to Lazard will be complex. The bank’s initial task will be to establish a precise inventory of the actual indebtedness by auditing all commitments undertaken by the Senegalese state. Subsequently, it must devise a refinancing strategy that allows for extended repayments without triggering a default, all while negotiating with creditors holding diverse interests, including bilateral creditors, multilateral institutions, and sovereign bondholders.
Lazard will also support Dakar in its discussions with the IMF to unlock the suspended financing. Without the Fund’s backing, Senegal will struggle to access international markets at acceptable rates. Investors are scrutinizing every signal sent by the authorities, and the appointment of a reputable advisor is widely interpreted as a sign of serious intent.
France’s perspective: a key economic partner under pressure
For Paris, Senegal’s financial crisis represents a test for the stability of the CFA franc zone, to which Senegal remains a member. Senegal stands as a crucial economic partner for France in West Africa, characterized by strong trade ties and a significant presence of French enterprises in sectors such as energy, telecommunications, and infrastructure.
The involvement of the Parisian firm GSA alongside Lazard underscores the Franco-African dimension of this matter. French authorities are closely monitoring the evolving situation, aware that financial instability in a nation like Senegal could have regional repercussions. Other West African countries are grappling with similar economic pressures, particularly those linked to rising energy costs and imported inflation.
Lazard’s official appointment is anticipated in the coming days. Markets await concrete announcements regarding the refinancing strategy, while the Senegalese populace questions the potential consequences: budgetary adjustments, reductions in public spending, or increased taxation. The new government navigates a precarious balance between financial rigor and the preservation of social cohesion.