Senegal’s Credit Rating Further Downgraded

Things are not improving for Senegal. Over the weekend, Moody’s downgraded the country’s sovereign rating once again. The rating agency lowered Senegal’s rating from Caa1 to Caa2, while maintaining a negative outlook. This is another worrying sign for the Senegalese government.

To justify this downgrade to Caa2, a category that indicates very high credit risk, Moody’s explains that it “reflects a higher risk of default” that could result from persistent liquidity pressures or debt treatment intended to mitigate them. In short, the agency believes that the risk of Senegal encountering difficulties in servicing or refinancing its debt has increased.

Moody’s also cited the increased refinancing risks and the continued high level of debt burden. Despite progress in discussions with the IMF, the agency emphasises that the prolonged absence of concessional financing and fiscal anchoring is forcing Senegal to rely more heavily on regional financial markets to refinance its debt maturities.

The rating agency also said the public liquidity risk is acute. Financing needs are being met primarily through borrowing on regional markets, while access to international capital markets remains prohibitively expensive.

“This financing structure has increased refinancing risk, weakened Senegal’s ability to bear the cost of its debt (interest payments rising from 16.1% in 2023 to 23.7% of revenue), and complicated the debt structure through the use of collateralized financing, which could complicate any future debt restructuring,” the rating agency notes.

Regarding the negative outlook, Moody’s acknowledges the government’s commitment to further reducing the deficit. However, it emphasised that several factors are limiting this fiscal adjustment, including social pressures, political and institutional tensions, lower-than-expected growth, and high levels of subsidies, particularly for energy.