The clock is ticking on Senegal’s ‘total return swaps’

Senegal is racing against a September 13 deadline for its next international debt payment, following its announcement of a $2.2 billion bailout from the International Monetary Fund and a comprehensive debt restructuring. This restructuring comes two years after a scandal revealed $11 billion to $13 billion in undisclosed public debt, pushing the country's debt-to-GDP ratio to 130% and leading to a freeze on an earlier IMF support program.

The country's total government debt, excluding state companies, stood at $42.10 billion at the end of 2024, or 119% of GDP. Including liabilities from state-related entities and arrears, this figure reaches approximately 131%. Around half of Senegal's external debt is owed to multilateral lenders, while commercial creditors hold the other half, with over $7 billion in international bonds and about a tenth of total debt in export credits. A significant portion of its debt, likely larger now, is in local and regionally issued CFA franc-denominated bonds and loans, which the government has indicated will not be part of the restructuring.

A key challenge involves approximately $650 million in undisclosed total return swaps (TRS) used by Senegal for funding, which offered a yield of around 7% compared to 11% to 12% in Eurobond markets. The treatment of these TRS in the restructuring remains unclear. The decision to restructure, initially resisted by former Prime Minister Ousmane Sonko, became unavoidable after an Iran war curbed investments and increased energy costs, causing projected growth to drop from 6.7% last year to 2.7% this year.

The debt overhaul is part of the $2.2 billion IMF bailout, but approval by the IMF's Executive Board is contingent on Senegal securing financing assurances from institutions like the World Bank and African Development Bank. Senegal plans to use an "improved" version of the G20's Common Framework for debt restructuring, though specifics on how this improved version will function, particularly concerning the exclusion of CFA franc-denominated debt, have not been fully detailed.