S&P lowers Senegal rating to B with negative outlook

S&P Global Ratings has recently downgraded Senegal's long-term foreign and local currency sovereign credit ratings to 'B' from 'B+'. This decision comes after an investigation by Senegal's Court of Auditors revealed a much weaker fiscal position of the government, which was underreported by the previous administration. The current government has put forth measures to address the situation, including aiming to reduce future fiscal deficits to about 3% by 2027 and exploring innovative financing instruments. However, S&P Global Ratings has expressed reservations about the ambitious fiscal consolidation path outlined by the authorities. The agency believes the path to reduce the deficit significantly by 2027 may be challenging and could potentially impact the country's growth prospects. The flow identified in the budgetary process could also pose execution risks in achieving the consolidation targets set by the government. Despite the government planning to engage with the IMF for a new program, S&P Global Ratings is skeptical about the timeline for establishing a solid economic and budgetary plan. While there is a likelihood of the parties agreeing on a new program, the ambitious target set for June 2025 may be difficult to achieve, given the review processes involved and the significant funding required. The economic outlook and governance issues are also causing concern among foreign investors, as evidenced by the decline in Senegal's euro bonds following Moody's recent downgrade. To regain investors' confidence, Senegal needs to demonstrate strength in governance and adhere strictly to fiscal prudence measures. The government's intention to bring its debt-to-GDP ratio below 70% and reduce the deficit to under 3% by signing a new IMF program and obtaining financial support from the World Bank and local debt markets is seen as a positive step. However, it will be crucial for Senegal to execute these plans efficiently in the next 12 months. Despite the challenges, S&P Global Ratings emphasizes the importance of a credible fiscal consolidation path that bridges the gap between the authorities' projections and the current fiscal situation. While revenue increases are expected to drive the consolidation, expenditure cuts may not necessarily be in absolute terms at this stage. Moving forward, Senegal's ability to demonstrate fiscal prudence and effective execution of its reform measures will be closely monitored by S&P Global Ratings and investors worldwide.