A Strategic Compass for Navigating Senegal's Debt Crisis

With public debt at around 130% of GDP, Senegal’s options are limited: there are no good solutions. This paper reviews the constraints and difficult choices the government faces in managing the debt crisis. We explore two possible paths. In the first approach, the government seeks to avoid restructuring at all costs. For debt to remain sustainable, it needs to maintain extremely tight fiscal policy for an extended period and refinance existing debt at very low interest rates. We provide quantification of both efforts, and show that such a strategy could work, albeit under very narrow – and to some extent – unlikely, assumptions: the level of consolidation expected would probably deteriorate economic growth and be counterproductive, or politically unsustainable. Moreover, the level of bilateral or multilateral support would need to be substantial: only by securing partners willing to take risks at low interest rates could Senegal refinance its debt due in 2026 and 2027. It would also require large net financing from regional banks, thus transferring risks to the monetary union. In the second approach, the government aims to negotiate with its bilateral and private external creditors to restructure its debt under an IMF program. We argue that this could be achieved through a less radical fiscal adjustment than in the previous scenario, where restructuring is avoided. It would seek to avoid implicating regional lenders, arguing that doing so would worsen the country's prospects and even those of its external creditors. Such a strategy would also involve mobilizing the international community through new multilateral concessional loans, along with high-level political commitments from its main bilateral creditors, France and China, to achieve fast and comprehensive debt relief, comparable to that achieved by private creditors. It also requires strengthening fiscal and prudential oversight within the zone. We argue that while there are considerable pressures to repay, the economic literature teaches us that the costs of delaying a restructuring are higher.