Balancing short-term politics with long-term debt sustainability
Every leader faces moments when tough choices must be made—decisions that may not win immediate popularity yet are essential for future stability. As former U.S. President Bill Clinton once reflected, ‘Sooner or later, every president must make difficult and unpopular decisions. But given the stakes, we must do what is right, trusting that one day the political winds will shift in our favor.’ This sentiment captures the core tension in Senegal’s current debt management strategy: reconciling the urgency of immediate financial pressures with the necessity of sustainable economic stewardship.
Introduced by economists James M. Buchanan and Gordon Tullock in 1962, the public choice theory highlights the frequent clash between electoral cycles—short-term political horizons—and the longer-term demands of effective governance. In Senegal, this tension is vividly illustrated in the government’s approach to managing a rapidly growing public debt, now standing at 23,666.8 billion CFA francs (excluding public sector and arrears) as of late 2024, equivalent to 118.8% of GDP.
Key debt metrics under scrutiny
The path to debt sustainability hinges on three critical variables: the effective interest rate, the debt-to-GDP ratio, and the average weighted maturity. Adjusting any of these directly impacts the repayment schedule, whether through refinancing, reprofiling, or restructuring. While the government has ruled out restructuring, it is banking on internal mechanisms such as fiscal consolidation and debt refinancing to navigate these turbulent fiscal waters.
The International Monetary Fund has made clear that its support for a new program in Senegal hinges on a credible strategy—one that aligns with both budgetary constraints and broader economic goals. The government, for its part, has expressed readiness to engage constructively with these requirements.
Assessing fiscal capacity and debt service pressure
Under the Economic and Social Recovery Plan (PRES), launched in August 2025, the government aims to generate an additional 3,173 billion CFA francs in tax revenue by 2028. This includes 2,111 billion from direct measures and 1,062 billion from multiplier effects across fiscal and non-fiscal policies. Yet, by the first quarter of 2026, only 54.2 billion had been collected—far below the optimistic projection of 300 billion by year’s end. This gap underscores the structural limits of fiscal expansion in an economy still grappling with a large informal sector, modest digital governance maturity, and a tax-to-GDP ratio of just 18.9% in 2025.
The challenge deepens when comparing projected debt service payments to expected revenue. In 2025, debt service consumed 106.6% of tax revenue. For 2026, the forecasted debt service stands at 5,498 billion CFA francs—against projected tax receipts of 5,384.8 billion. The budget deficit for 2026 is projected at 6,075.3 billion CFA francs, meaning new borrowing will be required just to meet obligations, let alone fund new spending.
This imbalance reveals a harsh reality: relying solely on tax revenue growth to stabilize debt is insufficient. It intensifies the risk of continued refinancing, which, in turn, could further strain liquidity.
Why domestic refinancing may be a short-term illusion
The government has increasingly turned to the West African Economic and Monetary Union (WAEMU) regional market to cover financing needs. In 2025, Senegal raised 4,004 billion CFA francs through public bond offerings—a fourfold increase from 2024—but at a rising cost. The effective interest rate on central government debt reached 3.9% by the end of 2024, with domestic debt carrying a higher rate of 5.3% compared to 3.4% for foreign-currency debt. The average maturity for domestic debt was just 3.6 years, versus 8.7 years for external debt. Moreover, 14.3% of total debt was due within a year.
New issuances on the regional market in 2024 carried yields between 6% and 7%, rising to 7–8% in 2026, reflecting heightened risk premiums. This means the new debt is not only more expensive but also shorter in duration than what it replaces—undermining any hope of cost savings. Despite arguments about currency risk mitigation, the data does not support a net benefit. Foreign-currency debt (23% of the total) costs 56% less on average than domestic debt, yet remains a small share of the portfolio. Thus, refinancing fails to address immediate fiscal constraints and, in fact, worsens the debt trajectory.
Debt dynamics: a snowball effect looms
By the end of 2025, central government debt reached 25,198.48 billion CFA francs—an increase of 1,531.68 billion. While the debt-to-GDP ratio improved to 112%, this was largely due to GDP growth driven by new hydrocarbon production. Without this boost, the ratio would have surged to 124%.
Three factors now define the debt outlook:
- Effective interest rate: At 4.59% in 2025, it exceeds the non-hydrocarbon GDP growth rate of 2.2%, accelerating debt accumulation.
- GDP growth: Still fragile outside the energy sector, constraining fiscal space.
- Primary balance: Consistently negative—–401.7 billion CFA francs in 2025 (–1.8% of GDP). To stabilize debt at 2024 levels, a primary surplus of +2.7% of GDP would have been required. Instead, the primary deficit deepened the imbalance.
Projections for 2026 do not offer relief: a projected primary deficit of –246 billion, an interest rate of 4.79%, and a slight GDP growth uptick to 3.2%. The required stabilizing primary surplus (+1.9%) remains out of reach, increasing the likelihood of a debt spiral in the absence of decisive intervention.
Beyond institutional reform: a call for pragmatic debt diplomacy
Senegal has taken a significant step forward by establishing a General Directorate of Financing and Debt to centralize debt policy. This institutional reform is welcome, yet insufficient. The arithmetic of debt demands more: targeted renegotiations with creditors—multilateral, bilateral, and commercial—focused on extending maturities, reducing interest rates, or even nominal haircuts on select obligations.
Delaying such measures risks compounding costs—not only financially, but economically. Private sector access to domestic capital markets is already constrained by heavy government borrowing. Public investment is being crowded out by fiscal consolidation. The time for ideological posturing has passed. Without pragmatic financial leadership, the inevitable only grows more distant—and more costly.
