Senegal’s domestic financing surge: navigating budget challenges in the UEMOA market

Following the disclosure of 2024 budget revisions, which limited its access to Eurobond markets, Senegal has increasingly relied on the public securities market within 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 budget coverage and Dakar’s compelled shift towards regional investors, a strategy implemented while international rating agencies maintain unfavorable pressure on the nation’s sovereign credit profile.

Strategic pivot 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 revelation of a significantly higher public debt than figures previously reported by the former administration, have driven up the cost of foreign currency debt and temporarily closed the window for Eurobond issuances. 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 eight member states of the Union.

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 issuance pace, averaging nearly 330 billion FCFA monthly. Such intensity far surpasses Dakar’s historical average in this segment, indicating that the Treasury is systematically compensating for what it can no longer borrow from external sources.

Sovereign debt comes at a higher cost

However, this financing strategy comes with a notable drawback: higher interest rates. Sub-regional banks, the primary subscribers to public securities, are now demanding increased yields to absorb Senegalese paper. The perceived deterioration of sovereign risk, intensified by successive downgrades from agencies like 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 than its immediate neighbors for comparable maturities.

This scenario presents a twofold challenge. Firstly, it escalates the burden of domestic regional debt service on an already strained national budget. Secondly, it absorbs a growing share of UEMOA’s banking liquidity, potentially creating a crowding-out effect detrimental to other sovereign issuers, such as Côte d’Ivoire, Mali, or Burkina Faso, who also regularly solicit Umoa-Titres, and the financing needs of the private sector.

Restoring credibility to reopen external markets

For Dakar, the stakes 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 is crucial for gradually restoring the confidence of foreign investors and, eventually, reopening access to international markets. In the interim, the regional market serves as an essential buffer, yet it cannot indefinitely substitute the foreign currency flows vital for financing large-scale infrastructure projects, particularly in the hydrocarbons and energy sectors.

The government led by President Bassirou Diomaye Faye and Prime Minister Ousmane Sonko is committed to sustaining this domestic financing trajectory while public accounts are streamlined and a credible financial reputation is rebuilt. Short-term treasury needs are being met, but the pressure from regional interest rates and the rising cost of debt repayment leave minimal room for error. Ultimately, the restoration of budgetary credibility remains the fundamental condition for any financial normalization. The 1311.3 billion FCFA mobilized over four months demonstrates this intense effort.