BofA: Delays to IMF discussions could exacerbate Senegal's financing pressures

Senegal is currently facing significant financing pressures, according to a report by the Bank of America. The delay in talks between Senegal and the International Monetary Fund (IMF) could amplify these pressures, impacting Senegal's plans in the Eurobond market and any additional loans the country may be planning to secure. The report also suggests the possibility of a deal being reached by mid-year, pending the outcome of a misreported debt audit. Merveille Paja, Sovereign Credit Strategist at the Bank of America, discussed these pressing issues in an exclusive interview with CNBC Africa. During the interview, Paja highlighted the implications of Senegal re-engaging with the IMF, stating that it could present a tactical opportunity for the country. Following the release of a long-awaited audit report, the Senegal sovereign curve is showing signs of distress, with the market pricing in the probability of future restructuring. Paja discussed the spread differentials between Senegal and other nations in the region, indicating a significant impact on market sentiment post the audit report. The Bank of America report outlines two crucial scenarios for Senegal's future. The base case scenario involves Senegal securing an IMF program in Q2, which would necessitate substantial fiscal adjustments by the government. Paja believes that this outcome could lead to a normalization of Senegal's curve and bolster investor confidence. However, there is a second, less likely scenario that entails a restructuring risk due to delays in IMF discussions. This could exacerbate financing pressures for Senegal, potentially leading to restricted market access and liquidity challenges. One key aspect of Senegal's negotiations with the IMF revolves around the government's commitment to fiscal prudence. Paja stressed the importance of cutting capital expenditure and removing subsidies to address the country's debt challenges effectively. The clarity on Senegal's debt maturity profile and amortization schedule remains a critical factor in the talks with the IMF, as any lack of transparency could impact the country's short-term liquidity. Despite recent credit downgrades by rating agencies, Senegal's bond prices are still attractive to investors, according to Paja. Comparing Senegal to countries like Nigeria and Ghana, Paja noted that Senegal maintains a relatively strong position in the market. Although challenges persist, particularly in the wake of the audit report, Paja remains optimistic about Senegal's prospects post a potential IMF deal in Q2, underscoring the country's resilience and market appeal. As Senegal navigates its financing pressures and engages in critical discussions with the IMF, stakeholders are eagerly awaiting the outcome of these deliberations. The country's ability to address its debt challenges and secure vital financial support will be instrumental in shaping its economic trajectory in the months ahead.