Senegal’s international bonds fell on Tuesday following Prime Minister Ousmane Sonko’s announcement that the government would reduce electricity and fuel prices for citizens.
The move sparked investor unease over how the debt-heavy nation plans to balance fiscal pressures while negotiating a new programme with the International Monetary Fund (IMF), Reuters reported.
The country’s euro-denominated 2028 bond dropped 2 cents to 82.88 cents on the euro, while the 2033 dollar bond slipped 1.43 cents to 69.32 cents on the dollar.
The IMF, which currently has representatives in Dakar for discussions on a new lending arrangement, has urged Senegal to phase out energy subsidies to improve fiscal sustainability.
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Investors expressed concern that Sonko’s decision to cut consumer energy costs, potentially expanding subsidy expenses, was announced during active IMF negotiations.
“While one could definitely argue that the cost of Senegal’s energy subsidy will still be significantly lower than prior years due to lower international oil prices, the sense has been that the IMF would like to see an explicit adjustment to the tariff structure,” said Thalia Petousis, a portfolio manager at Allan Gray.
Senegal is grappling with a debt-to-GDP ratio exceeding 100%, following the revelation of billions in previously undisclosed liabilities by the former administration.
The IMF must still approve a misreporting waiver linked to that hidden debt, which prompted the suspension of its $1.8 billion programme last year.
Earlier this month, updated government figures showed a sharp rise in projected debt service obligations, which were revised upward by about 3.2 trillion CFA francs ($5.8 billion).
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Image Credit: Law Guide
