Senegal is opting for a debt reprofiling rather than a principal haircut in its upcoming negotiations with creditors, according to an unnamed official from the nation's finance ministry. This approach aims to extend maturity dates and reduce interest payments without directly cutting the face value of the debt. The government announced its debt treatment plan on September 1, following a staff-level agreement with the International Monetary Fund for a new $2.2 billion program, conditioned on restoring debt sustainability after the discovery of over $11 billion in previously undisclosed borrowing.
This debt treatment is expected to exclude CFA franc-denominated domestic debt, focusing instead on international bonds, which amounted to over $7 billion outstanding at the end of 2024. International creditors, therefore, are likely to bear a larger portion of the adjustment. S&P Global Ratings recently downgraded Senegal's credit score to CC from CCC+ with a negative outlook on September 4, citing an "extremely likely" distressed debt exchange or default on foreign-currency commercial debt. Moody's had previously downgraded the country to Caa2 in August, estimating private creditors could face 10-20% losses.
The uncertainty surrounding the restructuring terms has led to significant investor anxiety, with Senegal's euro-denominated 2028 bond experiencing a sharp selloff. Investors are particularly concerned about how Dakar will organize the vote across its five outstanding international bonds, as the government has not yet disclosed whether creditors will vote bond by bond or under an aggregated structure. The fragmented investor base, including active funds, banks, pension funds, and index-tracking investors, further complicates negotiations, as does the treatment of total return swaps, a form of derivative financing that involves contractual protections not enjoyed by ordinary Eurobond investors.
The new IMF agreement's success hinges on securing creditor agreement and implementing fiscal reforms, especially given that Senegal's debt burden reached approximately 130% of GDP after the undisclosed borrowing came to light. The specifics of the reprofiling, including the size of any haircuts, maturity extensions, and interest-rate changes, will only become clear once Senegal publishes the full restructuring terms and voting mechanism. Citi also noted on September 4 that the West African Development Bank (BOAD), the African Export–Import Bank, the Africa Finance Corp., and Ecobank Transnational Inc. are most exposed to corporate credit risk under Senegal's planned debt treatment.
