In a pivotal move to address its substantial financial challenges, Senegal is set to appoint the American investment bank Lazard as its financial advisor for sovereign debt management. This crucial decision, expected in mid-July, is under close observation by global investors, especially following the recent revelation of significant budgetary irregularities inherited from the previous administration.
Over $13 billion in undeclared debt
The new government has uncovered the full extent of the financial predicament: over $13 billion in public debt remained undeclared, representing more than a quarter of Senegal’s Gross Domestic Product. Analysis from the 2019-2024 public debt statistical bulletin indicates a sharp increase in the debt-to-GDP ratio, soaring from 81.8% five years ago to an estimated 128.6% by the end of 2024. This unsustainable trajectory has drawn international concern. Consequently, the International Monetary Fund has halted a $1.8 billion loan program following the discovery of these discrepancies, leaving Senegal without a vital funding source as it strives to reassure global markets about its fiscal reliability.
Lazard partners with a Parisian firm
The New York-based investment bank, renowned for its expertise in sovereign restructuring, will not undertake this task alone. It is anticipated that Lazard will partner with the Parisian firm Global Sovereign Advisory (GSA) for this critical mandate. This Franco-American collaboration faces the challenge of navigating intricate negotiations with international creditors, multilateral institutions, and financial markets.
The selection process, meticulously conducted by Senegalese authorities, is nearing completion. An official announcement is expected shortly, as Dakar prioritizes swiftly rebuilding investor confidence. Senegalese bond spreads have widened recently, underscoring market anxiety regarding the nation’s debt sustainability.
A new framework for financial governance
Beyond engaging external advisors, the Senegalese government has also reformed its administrative structure. Authorities recently established a new General Directorate for Financing and Debt, an institutional mechanism designed to enhance transparency and accountability for state financial commitments. This new directorate will collaborate closely with Lazard to conduct a thorough diagnostic assessment and formulate refinancing strategies.
The challenge extends beyond merely technical restructuring; it involves restoring the fiscal credibility of a nation once lauded as a model of stability in West Africa. The uncovering of undeclared debts has shaken this reputation, presenting the new government with tough decisions: renegotiating existing contracts, extending repayment schedules, or seeking new financing under potentially more expensive terms.
Senegal’s economic landscape
Senegal, a nation of 18 million people located on Africa’s westernmost tip, has experienced robust economic growth in recent years. This expansion was fueled by substantial infrastructure investments and the anticipated development of its offshore oil and gas reserves. However, this rapid progress was accompanied by an accelerating debt accumulation, which, according to international assessments, lacked adequate oversight.
Dakar, the capital city, serves as the primary hub for the country’s economic and administrative activities. From this crucial port city, the new government, which assumed power in April 2024, is working to rectify a fiscal situation it describes as inherited. The commitment to public account transparency has brought to light the full scale of the undisclosed liabilities, compelling authorities to seek international expertise to navigate this complex financial predicament.
The road ahead for Lazard
The mandate entrusted to Lazard presents considerable challenges. The bank’s initial task will be to conduct a comprehensive assessment of Senegal’s true debt burden, auditing all financial commitments undertaken by the state. Following this, Lazard must devise a refinancing strategy aimed at spreading out repayments to avoid any default, while simultaneously engaging with creditors who often have conflicting interests, including bilateral lenders, multilateral institutions, and sovereign bondholders.
Furthermore, Lazard will be instrumental in assisting Dakar in its ongoing discussions with the IMF to reinstate the suspended financing. Without the Fund’s crucial support, Senegal would struggle to access international markets at favorable rates. Investors are closely monitoring every signal from the authorities, and the appointment of a highly reputed advisor is seen as a strong indicator of commitment to fiscal responsibility.
France’s perspective: a key economic partner under pressure
From Paris’s vantage point, Senegal’s financial crisis serves as a critical test for the stability of the CFA franc zone, to which Senegal remains a member. Senegal holds significant economic partner status for France in West Africa, characterized by robust trade ties and a substantial presence of French companies across energy, telecommunications, and infrastructure sectors.
The inclusion of the Parisian firm GSA alongside Lazard highlights the Franco-African dimension of this issue. French authorities are closely observing the unfolding situation, recognizing that financial instability in a nation like Senegal could ripple across the region. Several other West African countries are grappling with comparable economic pressures, particularly those stemming from rising energy costs and imported inflation.
The official appointment of Lazard is anticipated in the coming days. Financial markets eagerly await concrete announcements regarding the refinancing strategy, while the Senegalese populace ponders the potential ramifications: budgetary adjustments, reductions in public spending, or increased taxation. The new government faces a delicate balancing act, navigating between fiscal discipline and safeguarding social cohesion.
