FILE PHOTO: Ousmane Sonko speaks after he was appointed prime minister by Senegal’s newly-elected President Bassirou Diomaye Faye, in Dakar, Senegal April 2, 2024. REUTERS/Abdou Karim Ndoye/File Photo

NAIROBI, June 9 (Reuters) – Domestic political turmoil and a deepening debt crunch have pushed Senegal’s bonds to near-record lows in recent weeks.

The selloff accelerated after President Bassirou Diomaye Faye sacked Prime Minister Ousmane Sonko, moving to take direct control of efforts to resolve the debt crisis.

Here are some questions and answers on the latest phase of the country’s debt crunch.

HOW HAVE THE LATEST EVENTS COMPLICATED THE DEBT ISSUE?

Faye said in late May he would personally lead talks with the International Monetary Fund to resolve the debt crisis.

Shortly after, he sacked Sonko, who had opposed debt restructuring as a “disgrace”. Analysts said his removal could signal a potential policy shift.

However, Sonko’s election as speaker of parliament soon after complicated matters, given parliament approves key executive decisions and his PASTEF party holds 130 of 165 seats.

Sonko announced PASTEF would not participate in a new government, raising the prospect of political gridlock.

New Prime Minister Ahmadou Al Aminou Lo, a seasoned economist and former regional central bank official, confirmed that Cheikh Diba would retain his position as finance minister.

But the government remains without a full cabinet, potentially complicating IMF talks and efforts to resolve the crisis.

HOW DID THE DEBT CRISIS COME ABOUT?

In September 2024, Senegal’s new government said it had uncovered previously unreported debts from the prior administration, though their full scale remained unclear.

The IMF estimates this extra debt at more than $11 billion based on end-2023 numbers. Some analysts put it closer to $13 billion – more than a quarter of total debt.

The Fund froze Senegal’s $1.8 billion financial support programme after the revelation, triggering a bond selloff and rating downgrades.

To secure an IMF programme, Senegal needs to address the “hidden debt” fallout, agree a credible plan to stabilise its finances, and resolve how to deal with its debt burden — including potentially restructuring it.

Putting public finances on a sustainable footing will require tough choices — raising revenues, curbing spending, or potentially reworking debt if the burden proves too heavy.

An IMF team will visit Dakar this month to discuss financing needs and reform priorities as part of the government’s request for a new programme.

HOW MUCH DOES SENEGAL OWE AND TO WHOM?

Total debt – excluding borrowing by state companies – stood at 23.67 trillion CFA francs ($42.15 billion) at the end of 2024, or 119% of gross domestic product, government data showed.

Nearly a third of total debt is held in regionally issued bonds and loans. Of the around $28 billion of external debt, it owes around half to multilateral and government lenders, mainly on concessional and semi-concessional terms.

Commercial creditors hold the other half. At the end of last year, Senegal had more than $7 billion outstanding in international bonds – nearly a fifth of total debt. About a tenth of the total debt was in the form of export credits.

Senegal last received financing from the IMF in late 2023. Since then, the government has relied on regional markets and retail bond sales to fill the gap left by the absence of cash from the Fund and other concessional financing.

HOW COULD THE REGIONAL FINANCIAL UNION AFFECT SENEGAL’S PATH?

Senegal is part of the West African Economic and Monetary Union (WAEMU), sharing a central bank, currency and financial market with countries including Ivory Coast and Benin.

This provides support: the CFA franc, is pegged to the euro with France guaranteeing convertibility, helping anchor stability, low inflation and debt servicing costs.

Pooled reserves at the regional central bank also support external payments.

However, Senegal’s heavy borrowing on the regional market (UMOA-Titres) has left banks across the bloc exposed, raising the risk of broader financial strain. Any restructuring — especially if it includes regional debt — could have wider repercussions for the financial system.