Senegal is grappling with significant challenges following a shocking audit that exposed substantial fiscal misreporting by the previous administration, jeopardizing the nation’s economic stability. The revealing report from the Court of Auditors, published on February 12, 2025, confirmed that the past government drastically understating essential financial data, including government debts and fiscal deficits, between 2019 and 2023.
Initially reported at 81% of GDP, Senegal’s central government debt has surged to a staggering 99.7% of GDP as per the new findings. Similarly, the fiscal deficit has ballooned to 12.3% of GDP from a previously stated 4.9% (as reported by the International Monetary Fund in its World Economic Outlook in October 2024). This alarming revelation triggered the suspension of the IMF’s Extended Credit Facility program, originally scheduled to run from June 2023 to June 2026, causing further destabilization in the fiscal landscape.
On February 20, 2025, Senegal's Minister of Economy and Finance asserted that the government would not explore options for debt restructuring or renegotiation. This declaration came at a time when the country was poised for important elections, including the upcoming presidential elections in March 2024 and parliamentary elections in November 2024, which were characterized by the new leadership's promise for enhanced welfare spending and anti-corruption initiatives.
After a sweeping electoral victory in April 2024, President Bassirou Diomaye Faye and Prime Minister Ousmane Sonko pledged to tackle the economic fallout from these financial discrepancies. Both leaders have emphasized the importance of fiscal transparency and accountability as they gear up for impending discussions with the IMF regarding reinstating financial support. The IMF's mission chief in Senegal, Edward Gemayel, stated his call for Senegal to prioritize current spending while attempting to reach a new program quickly to enable the release of requisite financing.
Gemayel underscored the need for “cleaning up public finances, as the debt has risen to a very high level,” highlighting the dual challenge for the government to restore fiscal health while simultaneously attracting fresh investment. The remarks came in light of a downgraded credit rating for Senegal following the audit's findings, making immediate financial support paramount as the government struggles to meet pressing financing needs.
Discussing the ongoing initiative to stabilize the economy, Gemayel noted that the Senegalese administration was actively engaging in steps recommended by the IMF and was optimistic about potential negotiations concerning a new program forecasted to commence discussions by April 2025, with possible funding secured by June 2025.
Despite the fiscal turmoil, Senegal's economy is predicted to grow significantly, with a projected GDP growth of 9.3% in 2025. This anticipated growth is primarily attributed to ongoing investments and developments in the hydrocarbon sector, bolstered by stable private consumption trends. Yet, these austerity measures may lead to socio-political unrest as the government struggles to maintain pre-electoral promises amid tightening fiscal conditions.
The IMF has also highlighted the necessity of phasing out excessive energy subsidies that have escalated to an alarming 4% of GDP since the COVID-19 pandemic began. Gemayel critiqued the current subsidy structure, asserting that it disproportionately benefits wealthier households rather than the vulnerable population, thus underscoring the need for structural reforms in the public sector.
In light of these developments, the Senegalese government faces an uphill battle amidst widespread skepticism regarding its ability to adhere to the promises made during the electoral campaign. The consequences of continuing austerity amidst potential public backlash pose a threat to political stability, especially since international observers view Senegal's membership in the West African Economic and Monetary Union (WAEMU) as a mitigating factor for short-term risks associated with currency transfer and convertibility.
In summary, the situation in Senegal is precarious, stemming from the compounded effects of prior mismanagement and current economic expectations. The government's immediate priority lies in engaging transparently with the IMF to negotiate sustainable fiscal solutions, while also laying the groundwork for future growth fueled by hydrocarbon development. However, how the administration reconciles the need for austerity with its public promises remains a critical question for the nation's immediate future as it seeks to navigate through these turbulent waters and regain the confidence of its stakeholders.
