Senegal is poised to take a pivotal step in managing its public finances amidst a significant financial upheaval. Dakar is set to appoint the American investment bank Lazard as its financial advisor to address the nation’s sovereign debt, a move closely watched by international investors. This decision comes as the country grapples with intense pressure following the revelation of massive budgetary irregularities inherited from the previous administration.

Unveiling over $13 billion in undisclosed debt

The true scale of the crisis became apparent under the new government: more than $13 billion in public debt had gone unreported, representing over a quarter of Senegal’s Gross Domestic Product (GDP). According to the 2019-2024 Public Debt Statistical Bulletin, the debt-to-GDP ratio surged to 128.6% by the end of 2024, a sharp increase from just 81.8% five years prior. This unsustainable trajectory has triggered a wave of international concern.

The International Monetary Fund (IMF) responded by suspending a crucial $1.8 billion loan program following the discovery of these anomalies. This suspension deprives Senegal of a vital funding lifeline at a time when it urgently needs to reassure markets about its capacity to meet financial commitments.

Lazard teams up with Parisian consultancy

The New York-based investment bank, renowned for its expertise in sovereign restructuring, will not undertake this complex task alone. Lazard is expected to collaborate with the Parisian firm Global Sovereign Advisory (GSA) on this mandate. This Franco-American duo will be tasked with navigating intricate negotiations involving international creditors, multilateral institutions, and financial markets.

The selection process, meticulously conducted by Senegalese authorities, is nearing its conclusion. The official appointment could be announced within days, as Dakar strives to swiftly rebuild investor confidence. Senegalese bond spreads have widened in recent weeks, reflecting market anxiety regarding the sustainability of the nation’s debt.

A new framework for financial governance

In parallel with appointing an external advisor, the Senegalese government has restructured its administrative apparatus. Authorities recently established a Directorate General of Financing and Debt, an institutional instrument designed to enhance transparency and traceability of the state’s financial obligations. This new directorate will work closely with Lazard to conduct a comprehensive diagnosis and propose refinancing solutions.

The challenge extends beyond mere technical restructuring. It involves restoring the budgetary credibility of a nation long celebrated as a beacon of stability in West Africa. The discovery of hidden debts has severely tarnished this reputation, compelling the new government to confront difficult choices: renegotiating certain contracts, extending repayment schedules, or seeking new financing under potentially more stringent terms.

Senegal’s current economic landscape

Senegal, a nation of 18 million inhabitants situated at Africa’s westernmost point, has experienced robust economic growth in recent years. This growth was fueled by substantial investments in infrastructure and the anticipated exploitation of its offshore oil and gas resources. However, this rapid development was accompanied by an accelerated increase in debt, which international institutions now deem inadequately controlled.

Dakar, the capital city, serves as the primary hub for the country’s economic and administrative activities. From this bustling port city, the new government, which assumed power in April 2024, is working to rectify a budgetary situation it describes as an inherited burden. The promise of transparency in public accounts has exposed the full extent of past financial concealments, forcing authorities to seek international expertise to resolve the impasse.

The road ahead for Lazard

Lazard’s mandate will be far from straightforward. The bank’s initial task will be to establish a precise assessment of the true debt burden, auditing all commitments undertaken by the Senegalese state. Subsequently, it must devise a refinancing strategy that allows for extended repayments without triggering a default, all while negotiating with creditors who hold diverse interests: bilateral creditors, multilateral institutions, and sovereign bondholders.

Lazard will also support Dakar in its discussions with the IMF to unlock the suspended financing. Without the Fund’s backing, Senegal will struggle to access international markets at acceptable rates. Investors are keenly observing every signal from the authorities, and the appointment of a reputable advisor is widely interpreted as a clear demonstration of seriousness.

France’s perspective: a key economic partner under pressure

For Paris, Senegal’s financial crisis represents a test for the stability of the CFA franc zone, to which Senegal remains a member. Senegal stands as a significant economic partner for France in West Africa, characterized by close commercial ties and a substantial presence of French companies across the energy, telecommunications, and infrastructure sectors.

The involvement of the Parisian firm GSA alongside Lazard underscores the Franco-African dimension of this critical issue. French authorities are closely monitoring the evolving situation, acutely aware that financial instability in a country like Senegal could have broader regional repercussions. Other West African nations are confronting similar economic pressures, particularly those stemming from rising energy costs and imported inflation.

Lazard’s official appointment is anticipated in the coming days. Markets await concrete announcements regarding the refinancing strategy, while the Senegalese population contemplates potential consequences such as budgetary adjustments, reductions in public spending, or increased taxation. The new government is treading a delicate path between ensuring financial rigor and preserving social cohesion.