In response to a significant financial crisis, Senegal is poised to take a pivotal 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, a move closely watched by international investors. This decision comes amid intense scrutiny following the discovery of substantial budgetary irregularities inherited from the previous administration.
Over $13 billion in undeclared debt comes to light
The new government has unveiled the full extent of the crisis: more than $13 billion in public debt had gone unreported, representing over a quarter of Senegal’s Gross Domestic Product. According to the 2019-2024 Public Debt Statistical Bulletin, the nation’s debt-to-GDP ratio surged to an alarming 128.6% by the end of 2024, a sharp increase from 81.8% just five years prior. This unsustainable trajectory has prompted widespread international concern.
The International Monetary Fund responded by suspending a $1.8 billion loan program after these fiscal anomalies came to light. This suspension deprives Senegal of a vital funding lifeline precisely when it needs to reassure markets about its ability to meet financial commitments.
Lazard partners with Parisian firm GSA
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) on this critical mandate. This Franco-American partnership will be instrumental in navigating complex negotiations with international creditors, multilateral institutions, and financial markets.
The selection process, spearheaded by Senegalese authorities, is nearing its conclusion. An official announcement regarding the appointment is anticipated in the coming days, as Dakar strives to swiftly rebuild investor confidence. Senegalese bond spreads have widened in recent weeks, reflecting market anxieties concerning the sustainability of the nation’s debt.
A new framework for financial governance
Concurrently with the engagement of an external advisor, the Senegalese government has undertaken a restructuring of its administrative framework. Authorities recently established a General Directorate for Financing and Debt, an institutional mechanism designed to bolster transparency and enhance the traceability of the state’s financial obligations. This new directorate will work closely with Lazard to conduct a thorough assessment and propose effective refinancing solutions.
The challenge extends beyond mere technical restructuring. It encompasses the vital task of restoring the fiscal credibility of a country long lauded as a model of stability in West Africa. The revelation of hidden debts has significantly damaged this reputation, compelling the new government to confront difficult choices: renegotiating existing contracts, extending repayment schedules, or seeking new financing potentially under more onerous terms.
Senegal’s economic backdrop
Senegal, a nation of 18 million people situated at Africa’s westernmost point, has experienced robust economic growth in recent years. This expansion has been fueled by substantial investments in infrastructure and the anticipated exploitation of its offshore oil and gas reserves. However, this rapid development has been accompanied by an accelerating debt burden, which international institutions deem to have been inadequately controlled.
The capital city, Dakar, serves as the hub for the country’s economic and administrative activities. From this pivotal port city, the new government, which assumed power in April 2024, is working to rectify a budgetary situation it describes as inherited. The promised transparency in public accounts has exposed the full scale of past financial concealments, compelling authorities to seek international expertise to resolve the impasse.
Lazard’s formidable challenges ahead
The mandate entrusted to Lazard is far from straightforward. The bank’s initial task will involve establishing a precise accounting of the true debt by auditing all commitments undertaken by the Senegalese state. Subsequently, it must formulate a refinancing strategy that allows for the staggering of repayments without triggering a default, all while negotiating with creditors who possess diverse interests: bilateral lenders, multilateral institutions, and sovereign bondholders.
Lazard will also play a crucial role in assisting Dakar during its discussions with the IMF to unlock the suspended financing. Without the Fund’s support, Senegal would face considerable difficulty accessing international markets at acceptable rates. Investors are meticulously scrutinizing every signal from the authorities, and the appointment of a distinguished advisor like Lazard is widely interpreted as a clear indication of serious intent.
France’s perspective: a key economic partner under pressure
For Paris, the Senegalese financial crisis represents a significant test for the stability of the CFA franc zone, a monetary union of which Senegal remains a member. Senegal is a vital economic partner for France in West Africa, characterized by strong commercial ties and a substantial presence of French enterprises across sectors such as energy, telecommunications, and infrastructure.
The involvement of the Parisian firm GSA alongside Lazard underscores the Franco-African dimension of this critical issue. French authorities are closely monitoring the evolving situation, cognizant that financial instability in a nation like Senegal could generate regional repercussions. Other West African countries are also contending with similar economic pressures, particularly those stemming from rising energy costs and imported inflation.
The official appointment of Lazard is expected in the coming days. Markets are awaiting concrete announcements regarding the refinancing strategy, while the Senegalese population contemplates the potential consequences: budgetary adjustments, reductions in public spending, or increased taxation. The new government is navigating a delicate path, balancing stringent financial discipline with the imperative of preserving social cohesion.
