Senegal will negotiate with creditors the profile and not the restructuring of sovereign debt, Prime Minister Ahmadou Al Aminou Lo announced Tuesday to lawmakers. The distinction is important because reprofiling allows extending maturity deadlines and renegotiating interest rates without implying an automatic downgrade to financial default, unlike what would happen with a restructuring. The announcement came days after the credit rating agencies Standard & Poor's and Moody's downgraded their assessment of the country's ability to meet its financial commitments.
A financial default situation would make it practically impossible for Senegal to access financial markets, which would further complicate the situation because the financial program approved by the technical staff of the International Monetary Fund assumes that the country is able to have normal access to external financing. After lengthy negotiations with the IMF, a technical agreement for financing of 2.2 billion dollars was reached last week, which still requires approval from the institution's board of directors.
Senegal's finances have been under pressure since the discovery, two years ago, of approximately 10 billion dollars in previously undisclosed loans. The Prime Minister highlighted that the debt operation aims to restore sustainability, rebuild confidence and relaunch economic growth, adding that there will not be a drastic adjustment like in the 1980s and that measures such as rationalizing public expenditure, controlling the wage bill and eliminating costly institutions were agreed upon, in addition to an increase in social spending.
The British consultancy Oxford Economics considers that uncertainty regarding the terms of the debt restructuring will keep international bond prices under pressure. The inclusion, or not, of debt in Central African francs plays an important role, since Senegal represents approximately 17% of the lending portfolio of the West African Development Bank, 6% of Ecobank's and 8% of the exposure of the African Finance Corporation, which is one of the main promoters of the Lobito Corridor.
