Following the revelation of its 2024 budget revisions, which impacted access to Eurobonds, Senegal has strategically repositioned the public securities market of the West African Economic and Monetary Union (UEMOA) as its primary source of funding. Over the initial four months of the fiscal year, the Senegalese Public Treasury successfully mobilized 1311.3 billion FCFA. This substantial amount underscores the critical need for budgetary coverage and Dakar’s necessary reliance on regional investors. This compensatory financing approach comes at a time when credit rating agencies continue to exert unfavorable pressure on the nation’s sovereign creditworthiness.

Strategic shift to the UEMOA regional market

Senegal’s exclusion from international financial markets was not a deliberate choice but a forced adaptation. Budgetary strains, exacerbated by the discovery of a significantly higher public debt than figures initially disclosed by the previous administration, have driven up the cost of foreign currency debt and temporarily closed the Eurobond issuance window. Lacking immediate alternatives, the Ministry of Finance and Budget turned to Umoa-Titres, the regional agency responsible for organizing Treasury bill and bond auctions for the Union’s eight member states.

The 1311.3 billion FCFA (approximately two billion euros) raised in just four months positions Senegal among the most active issuers in the zone. This figure reflects a sustained issuing pace, approaching 330 billion FCFA monthly. Such intensity far surpasses Dakar’s historical average in this segment, signaling the Treasury’s concerted effort to offset, line by line, what it can no longer borrow from external sources.

The high cost of sovereign borrowing

The consequence of this strategy is evident in the interest rates. Sub-regional banks, which are the primary subscribers to public securities, are now demanding higher yields to absorb Senegalese paper. The perceived deterioration of sovereign risk, amplified by successive downgrades from Moody’s and Standard & Poor’s in recent months, is directly reflected in the premium requested at each auction. Consequently, Senegal is borrowing at a higher cost compared to its immediate neighbors for comparable maturities.

This situation presents a dual challenge. Firstly, it increases the burden of domestic regional debt service on an already strained budget. Secondly, it absorbs a growing share of UEMOA’s banking liquidity, risking a crowding-out effect detrimental to other sovereign issuers and private sector financing. Nations like Côte d’Ivoire, Mali, or Burkina Faso, which also regularly solicit Umoa-Titres, are thus seeing their available absorption capacity diminish.

Restoring credibility to reopen external markets

The stakes for Dakar extend beyond merely covering 2025 maturities. Senegalese authorities are simultaneously negotiating a new program with the International Monetary Fund (FMI), which has been on hold since the debt audit. Securing such an agreement would be crucial for a gradual return of foreign investor confidence and, eventually, the reopening of international market access. In the interim, the regional market serves as a vital buffer but cannot indefinitely substitute the foreign currency flows essential for financing major infrastructure projects, particularly in hydrocarbons and energy.

The government led by President Bassirou Diomaye Faye and Prime Minister Ousmane Sonko is committed to maintaining this domestic financing trajectory while public accounts are stabilized and a credible financial signature is rebuilt. Short-term treasury needs are met, but the pressure on regional rates and the interest bill leave little room for error. Restored budgetary credibility remains the fundamental condition for any normalization.

By Boureima Amadou — Reporter