Senegal: S&P maintains country’s sovereign rating despite political risk

But in a summary published at the beginning of June, S&P Global Ratings confirmed Senegal’s long and short-term sovereign credit ratings in foreign and local currencies at B+/B, with a stable outlook.

The decision by the rating agency came just two days after Ousmane Sonko, leader of the opposition party, was sentenced to two years imprisonment for “corrupting a minor”. He was found guilty of acting immorally towards an individual younger than 21 after being accused of rape in 2021. Sonko was found not guilty of rape.

His sentencing sparked huge protests in Senegal’s capital, Dakar, during which at least 23 people died, according to Amnesty International.

There are two main reasons for S&P’s stable outlook rating decision. Oil and gas production is due to start in the fourth quarter of 2023 from the Grande Tortue Ahmeyim (GTA) and Sangomar fields. The second is the construction of a deep-water port near the capital, Dakar, which is due to begin operations in 2026-2027.

Another factor that led to the decision is reforms laid out in the Plan Sénégal Emergent (PSE) that enable “the acceleration of activity in the information and computer technology, transport, construction, energy and mining sectors, with a continued increase in gold and phosphate production”.

The rating agency also said the IMF package of almost $2bn, obtained last May, should “rapidly reduce external and fiscal imbalances until 2026”.

Buoyed by oil and gas

The country’s budget deficit, hampered by measures to cushion the ongoing impact of the pandemic, combined with high inflation – on average 9.7%, rather than 7.6% according to the West African Economic and Monetary Union, WAEMU – have led to an increase in Senegal’s gross public debt to around 68% of the GDP in 2022, limiting the country’s capacity to absorb shocks.

Despite the debt burden, S&P forecasts economic growth averaging at least 9% for the 2023 and 2024 period.

In April, the Senegalese Guarantee Fund for Priority Investments and the African Guarantee and Economic Cooperation Fund signed an agreement for 50 billion CFA francs ($86m) to increase SME financing. According to experts, this could help solve some of the main bottlenecks in the economy.

Solid institutions

“Senegal’s relatively solid institutions compared to its sub-Saharan African peers should support the implementation of reforms, and therefore economic growth, until 2026,” the report states.

Nevertheless, S&P Global Ratings highlighted a number of potentially destabilising factors, such as the high budget deficit, which is approaching 3.8% of the GDP over the 2024 to 2026 period.

The agency also expressed concern over energy and fuel subsidies (amounting to 4% of GDP in 2022), but the real disruptive element is the upcoming presidential election in 2024.