Senegal becomes latest African economy to slip into debt distress after IMF talks stall

Senegal has become the newest African nation to slip into debt-distress territory, as its Eurobond yields surged to record highs following stalled talks with the International Monetary Fund (IMF).

According to Bloomberg, the risk premium on Senegal’s bonds widened beyond 1,000 basis points, a threshold widely viewed by investors as effectively shutting a country out of global capital markets.

The development places Senegal alongside other strained African sovereign borrowers – Mozambique and Gabon – deepening worries about fiscal sustainability across the region.

Bloomberg reports that Mozambique’s bond spread currently stands at about 965 basis points, while Gabon’s debt traded above the distress threshold earlier this month, underscoring the wider pressure facing African frontier economies.

The immediate trigger came after the IMF concluded a recent visit to Dakar without securing a new funding programme, raising further doubts about the government’s ability to stabilise its finances.

Bloomberg reported that Senegal’s 2031 bonds saw yields soar to nearly 17%, an extraordinary jump that reflects investors’ growing fear of a potential restructuring.

Market sentiment deteriorated further after Prime Minister Ousmane Sonko publicly dismissed the idea of restructuring to address the country’s previously undisclosed debts estimated at $7 billion and frozen under an earlier $1.8 billion IMF arrangement.

His remarks accelerated a selloff, with analysts warning that the country’s refusal to consider adjustments may complicate negotiations.

“It is clear that a significant probability of a debt restructuring is priced into Senegal’s bonds,” said Mark Bohlund, senior credit analyst at REDD Intelligence, in comments cited by Bloomberg.

“This means that Senegal cannot access the eurobond market at the present.” He noted.

Economists also warn that adjustment may be unavoidable. According to Yvonne Mhango of Bloomberg Economics, Senegal will need to generate a 2% primary surplus and its creditors may have to accept haircuts for its debt stock to become sustainable.

“Even with deep fiscal retrenchment, the country’s debt burden will remain unsustainable without cuts from eurobond holders,” she said.

However, some investors believe the fallout will remain contained. Anthony Simond, emerging market debt director at Abrdn, told Bloomberg that Senegal’s troubles are unlikely to spill over to other African economies.

“Senegal is not a systemic problem,” he said. “Most countries in Africa are doing well: decent growth prospects, solid fiscals, reduced debt levels and increasing reserves.”

As the IMF awaits Dakar’s next move, Senegal faces mounting pressure to choose between politically sensitive fiscal reforms and the risk of sliding deeper into financial turbulence.