The programme agreed between Senegal and the International Monetary Fund (IMF) for the period 2023-2026 involves the disbursement of loans totalling 1,150 billion CFA francs. Two initial cheques were issued for 2023, for a total of 298 billion CFA francs. Two further payments were planned for the current year, including one for 230 billion in July 2024 and another for 109 billion in December 2024. The IMF’s last review mission, which visited Dakar from 6 to 19 June 2024, concluded that Senegal’s application should be submitted to the Board of Directors of the international institution in July 2024.  This meeting of the Board of Directors, which should validate the first disbursement of this year, was in fact scheduled for 24 July 2024. The meeting has now been postponed until September. The Minister of Finance and Budget, Cheikh Diba, apparently feels the need to prepare himself better, and for good reason! ‘A senior official whispered: “It’s all about being better prepared, because the lenders don’t really understand the circumstances of the last Eurobond.”

Senegal pays cash for its turpitude 

Senegal finds itself in the rather delicate position of not being able to answer the questions of its donors. Important procedures, such as the Budget Orientation Debate and the examination and adoption of a Finance Bill Amendment, have not yet been respected. The petty squabbles between Prime Minister Ousmane Sonko and the National Assembly over the General Policy Declaration have also prevented the parliamentary sittings required for the State Budget management procedures from being held. What’s more, the Finance Bill Amendment has not yet been adopted by the Council of Ministers.

Read the column – Amateurism at every level of the Sonko-Diomaye household

But the most difficult thorn remains the documentation on the issue of the last Eurobond operation. There is an absence or lack of transparency. The Senegalese government has been unable to provide any information on the conditions under which it resorted to the international financial markets on 3 and 4 June 2024 to raise the sum of 450 billion CFA francs. At a press conference in Dakar on 19 June 2024, Edward Gemayel, the IMF’s head of mission, pointed out that this entails over-financing for the country’s public finances and the inappropriateness of the operation.

Moreover, the loan was taken out without the IMF’s knowledge (see our column of 24 June 2024). The Senegalese government wanted to continue its headlong rush, ignoring the IMF’s objections. Public opinion, through the media, civil society and certain political figures, wanted to know more, but the government did not provide the slightest explanation. The situation has caught up with the government, and this could prove to be a black mark on relations with international partners.

The suspended or deferred disbursement of 230 billion francs will weigh on Senegal’s financial policy, and there is no guarantee that the situation will return to normal when the Bretton Woods institutions return. A new IMF mission to Senegal was already scheduled in Dakar in the IMF’s annual calendar for September 2024, and should prepare for the disbursement expected in December 2024. Senegal could therefore combine the two disbursements, which would be a first, but no guarantee can be given as to the feasibility of doing so.

Read the column – Diomaye, President despite himself

In addition, it remains to be seen to what extent the IMF’s public injunction to use the €450 billion Eurobond to reprofile the debt has been complied with. At the time, the IMF recommended “discussing with the government the use of this over-financing to carry out liability management operations”. Mr Gemayel added: “In other words, to buy back more expensive short-term debt with this longer-term, less expensive liquidity. Senegal has borrowed more than it needs for its current requirements, thus creating the availability of surplus funds. Liability management involves reducing debt costs and improving long-term financial stability. Surplus funds, with lower interest rates and longer maturities, would make it possible to repay more expensive debt in the short term and benefit from lower borrowing costs over a longer period. This strategy would optimise the debt structure, reduce over-financing and strengthen debt sustainability.”

Read the column – 450 billion, Ofnac served up on a silver platter!

Moreover, how will we fill the hole in the State’s coffers caused by the non-disbursement of IMF funds? Sources close to the Ministry of Finance and the Budget maintain that, in order to get over the hump, Senegal is considering trying to use bridging loans to be subscribed on the domestic market of the West African Monetary Union (WAEMU). This is likely to be a costly operation, as there is a risk that the markets will become tense in a situation where the IMF does not give its blessing. International institutions such as the ADB, the IDB, the World Bank, the AfDB and the European Union will hardly commit to a country without a formal agreement with the IMF.  While Senegal’s application was withdrawn from the Board’s agenda, other countries in the same group as Senegal, notably Côte d’Ivoire, Togo, Benin and the Democratic Republic of Congo, saw their applications go through like a letter in the post.

The unanswered questions

The government gave a deaf ear when Birahim Seck, general coordinator of the Forum Civil organisation, questioned the transparency of the operation and in particular the use of the intermediary, the British bank JP Morgan.  In these columns, we warned of the risks of falling out with the formal financial markets or, at the very least, of hampering Senegal’s relations with its partners. We expressed real fears about future IMF disbursements in the form of concessional loans. Indeed, “It may appear incoherent for the financial institution to continue lending to a country that has finally revealed to the world that it is in the marvellous and enviable situation of being ‘over-financed’”. The government’s self-proclaimed defenders responded with virulent insults, but this incident seems to have proved us right. So, at the end of the day, we will have to explain how Senegal had borrowed at the most expensive rate in its debt history, namely 7.75%, auctioned off to investors, over such a short maturity of seven years. What is the final rate if we include commissions and other intermediation costs that are kept confidential? The answer is silence. It will no doubt be necessary to explain the conditions under which the intermediary bank JP Morgan was chosen, without any call for competition, and what its links are with the investors carefully targeted in the direct Senegalese bond placement operation. JP Morgan only had to canvass its privileged clients, and many traditional investors were not consulted, as is customary.

Beware, the country’s economy is slackening

On another front, the government must take steps to prevent the economy from sinking. The signs are worrying. It has to be said that budgetary management is marked by a slight increase in the mobilisation of revenue, combined with a prudent execution of expenditure. The fact remains that, generally speaking, Senegal’s economic situation seems to be heading for a serious downturn. There is a real perception, not only among the general public but also among the most authoritative voices, that this is a phenomenon that should henceforth be a matter of real concern. The latest economic reports produced by the Central Bank of West African States (BCEAO) and the Directorate of Forecasting and Economic Studies (DPEE) of the Ministry of the Economy, Planning and Cooperation, both warn of a downturn in several of the country’s economic sectors, which the government would do well to monitor. It is common knowledge that the informal sector, which accounts for the bulk of the country’s economy, is going through a rough patch. Senegal’s trade deficit has also widened considerably. Economic and social sectors that employ large numbers of people are at half-mast.

Read the column – President Diomaye Faye, visiting Bamako and Ouaga, sees the counter-model!

For example, trading activity slowed, in line with the downturn in wholesaling. Similarly, transport activity has slowed, in the wake of rail transport and warehousing and transport auxiliary activities. The low level of traffic at the Port of Dakar is a case in point. As for accommodation and catering services, there is growing concern about the underperformance of the hotel industry. In fact, the media have reported falling revenues in the restaurant sector. Another constant in the BCEAO and DPEE reports is that salaried employment in the modern sector fell, as a result of the decline in the number of jobs filled in the tertiary sector. On the other hand, employment in the secondary sector rose slightly.

IMF – Postponement of the Board meeting: Diba’s complicated Eurobond

The business climate indicator is also gloomy. According to surveys carried out by experts, whose reports are publicly available, this deterioration reflects the unfavourable trend in the opinions of manufacturers, ‘Building and Public Works’ contractors and service providers. This situation seems to be having a serious impact on banks, which are going through a period of relative sluggishness, with deposits shrinking and more and more cash being withdrawn in large amounts. Large depositors seem to be keeping their cash out of the banking system for fear of unexpected seizures ordered by the tax authorities.  Are we beginning to lose confidence in the economic circuit? A climate of insecurity or psychosis is taking hold in the business world. Financial and insurance activities are down, driven by the contraction in financial services. Real estate transactions have ground to a halt and notary’s offices are no longer seeing clients. ‘Money doesn’t like noise’.

POST SCRIPTUM: As usual, this column is going on holiday for the month of August 2024. 

By Madiambal DIAGNE / mdiagne@lequotidien.sn

  • Translation by Ndey T. SOSSEH