Senegal Pledges Swift Action on Budget Gap After Ratings Cut
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Loading... - Akuba Appiah
- 07 Oct 2024
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Senegal is facing economic challenges following a Moody's ratings downgrade prompted by a government audit revealing a significantly larger budget deficit and higher debt levels than previously reported. The audit, initiated by newly elected President Bassirou Diomaye Faye, found a 2023 budget deficit of 10%, nearly double the previous administration's figure. Additionally, the national debt was estimated at 83.7% of GDP, considerably higher than the earlier reported 73.6%.
Moody's attributed the downgrade to concerns about inaccurate government accounting, weak budget management, and increased fiscal policy risks. The higher debt burden reduces Senegal's ability to absorb economic shocks and increases its vulnerability to rising funding costs.
Despite these challenges, Senegal's government has pledged swift action to address the situation. The Finance Ministry announced plans for "ambitious reforms" to significantly reduce the deficit starting in 2025 and lower the debt ratio. Prime Minister Ousmane Sonko reaffirmed the government's commitment to returning debt to below 70% of GDP.
The government is engaging with the International Monetary Fund (IMF) to discuss corrective measures, but a disbursement from a $1.5 billion program before the end of 2024 appears less likely.
Senegal's economic outlook faces uncertainty due to the widening fiscal gap, a weak first half of the year, and potential delays in IMF funding. The IMF has already revised its 2024 economic growth forecast for Senegal downward from 7.1% to 6%.
Adding to the complexities, Senegal is preparing for snap parliamentary elections in November. President Faye hopes to secure greater support for his economic reform agenda in the opposition-dominated parliament.
Moody's has placed Senegal's rating on review for a possible further downgrade, particularly if the government faces greater liquidity pressures than anticipated. The country's ability to navigate these economic challenges and regain investor confidence will be crucial in the coming months.
