Square Peg, Round Hole: Senegal’s Debt Dilemma

After several revisions of Senegal’s debt figure projections for 2024, the authorities have settled on a public and publicly guaranteed (PPG) debt-to-GDP ratio of 138%. As the government seeks an International Monetary Fund (IMF) waiver on past misreporting and aims to secure a new three-year financial arrangement, the IMF faces the unenviable task of applying its debt sustainability tests to a politically transformed and fiscally exposed sovereign—a process that increasingly resembles forcing a square peg into a round hole.

Senegal Broad-Based Public-Sector Debt

Source: Ministère des Finances et du Budget and William Blair, as of October 2025. SDMT is the Stratégie de Gestion de la Dette à Moyen Terme. DPEB is the Document de Programmation Budgétaire et Économique Pluriannuelle. Converted into dollars using USDXOF and USDEUR on December 31, 2024 (633.6 and 1.03).

From Model Reformer to a Credibility Test for the LIC-DSA Framework

For a decade, Senegal stood out within the West African Economic and Monetary Union (WAEMU) as a model of disciplined macroeconomic management. Prudent macroeconomic policies underwritten by the IMF, an expanding tax base, and deepening access to regional markets underpinned the IMF’s classification of Senegal as having strong debt-carrying capacity and only a moderate risk of debt distress under the Low-Income Country Debt Sustainability Framework (LIC-DSF).

That credibility helped justify a wave of concessional and commercial borrowing, reinforcing Senegal’s role as an economic and financial anchor for the West African franc (CFA), which is pegged to the euro.

This narrative around the stability of Senegal’s democracy became challenged during the 2024 political transition. Former president Macky Sall’s attempt to postpone elections triggered a constitutional crisis and opened the way for Bassirou Diomaye Faye’s victory on a platform of rupture, transparency, sovereignty, and justice. Once in office, the Faye administration launched forensic audits of public finances, state-owned enterprises, and Treasury accounts. The findings abruptly transformed Senegal’s image from regional exemplar to test case for the IMF’s credibility.

Unless the IMF concludes that Senegal’s debt is sustainable, or can be made so, the IMF cannot disburse under a new program.

Unless the IMF executive board concludes that Senegal’s debt is sustainable or can be made so through credible adjustment or firm creditor assurances, the IMF cannot disburse under a new program. For bondholders, the assessment will determine whether Senegal must undergo a debt treatment or can secure IMF financing without restructuring.

Zambia, Ghana, and Ethiopia all entered comprehensive debt restructurings after breaching LIC-DSF thresholds that determine the IMF’s ability to lend without prior treatment. Their debt workouts included Eurobond renegotiations: Zambia defaulted in November 2020, Ghana suspended external payments in December 2022, and Ethiopia declared a standstill in December 2023.

In contrast, Senegal’s new government insists its debt remains sustainable and that it is committed to working with the IMF on a credible reform package. IMF Managing Director Kristalina Georgieva reaffirmed the IMF’s “full commitment to working closely with the Senegalese authorities” in October 2025. The IMF mission now in Dakar, scheduled to conclude on November 4, will be pivotal in shaping that judgment.

All Eyes on the IMF Mission

Market attention is focused on any signal from the mission. Senegal’s Eurobonds trade with a degree of distress, with spreads in the J.P. Morgan Emerging Markets Bond Index (EMBI) Global Diversified[1] at 881 basis points and yields around 12%. The curve is inverted, with the 2028 euro-denominated bond yielding over 20% and the long-dated 2048 U.S. dollar bond trading near 63 cents with a yield of about 11.4% as of October 30, 2025.

Even tentative signs of progress toward a program that avoids debt treatment could, in our view, ease spreads and support assess prices.

A staff-level agreement may not materialize at the end of this mission, but even tentative signs of progress toward a program that avoids debt treatment could, in our view, ease spreads and support assess prices. On the other hand, spreads are likely to face significant pressure if comments from the IMF casts any doubt is on Senegal’s debt as sustainable. Ultimately, bond performance will likely hinge on how the IMF applies the LIC-DSF to Senegal’s swollen debt stock.

The Nitty-Gritty of the DSF

The IMF’s engagement with low-income countries is guided by the Debt Limits Policy (DLF) and the joint IMF-World Bank LIC-DSF. The framework gauges a country’s debt-carrying capacity based on macroeconomic indicators and the World Bank’s Country Policy and Institutional Assessment (CPIA) score, and applies solvency and liquidity thresholds to determine sustainability (as shown in the chart below).

Breaches usually imply the need for fiscal adjustment or debt treatment. In cases of outright unsustainability, new IMF lending requires good-faith negotiations with creditors under the Lending Into Official Arrears policy.

IMF LIC-DSF Thresholds and Benchmarks Show Strong Debt-Carrying Capacity

Source: IMF and William Blair, as of October 2025.

The Square Peg

Is Senegal solvent under the LIC-DSF? Not unequivocally. Public data are insufficient to calculate the present value of external public debt as defined by the framework, given the opacity of guaranteed and state-owned enterprise debt terms.

According to the Stratégie de Gestion de la Dette à Moyen Terme (SGDM) 2026-2028, most government-guaranteed projects are externally financed in energy, transport, and industry. Assuming roughly 60% of state-owned enterprise (SOE) liabilities are external implies an additional $3.8 billion to $4.0 billion, or around 12% to 13% of GDP, pushing broad public external debt close to 95% of GDP.

Reconciling public debt levels within the LIC-DSF solvency test is like forcing a square peg into a round hole.

Overall public debt in present-value terms breaches the 70% of GDP solvency ceiling. In the SGDM, the authorities state that the present value of central government debt alone amounts to 110% of GDP. External debt also likely exceeds the 55% of GDP external threshold. Reconciling these levels within the LIC-DSF solvency test is, as we noted, like forcing a square peg into a round hole.  

The IMF’s determination will likely rest on projected debt dynamics through 2035, and on whether credible growth and fiscal consolidation can gradually return indicators to within threshold.

Only under exceptional circumstances, such as systemic spillovers, can the IMF lend without treatment, provided sustainability can be restored with high probability. For Senegal, that hinges on whether its 2026-2028 fiscal-consolidation plan and multilateral support are deemed sufficient to stabilize debt.

The IMF’s Calculus

The IMF faces an institutional dilemma. Senegal’s misreporting episode occurred under IMF surveillance, exposing weaknesses in data validation. Enforcing a strict interpretation of the LIC-DSF would likely trigger a restructuring, with potential contagion across the WAEMU, where sovereign debt underpins regional bank balance sheets. Yet bending the rules risks moral hazard by granting leniency that undermines the framework’s credibility.

Avoiding a debt restructuring in Senegal will likely require a compromise: a classification of “sustainable but at high risk of distress,” enabling continued IMF lending while preserving regional stability. Such pragmatism may avert short-term turmoil but, in our opinion, blurs the line between technical assessment and political judgment, turning debt sustainability from a rule-based metric into a negotiated outcome shaped by institutional and strategic interests.

Conclusion

Senegal’s predicament highlights the broader challenge facing the IMF’s debt sustainability framework: how to maintain discipline while preventing financial instability in a region where sovereigns and banks are deeply intertwined.

The outcome of the current mission will likely test both the Senegalese government’s resolve to restore credibility and the IMF’s willingness to enforce its own rules consistently. Whether the final assessment labels Senegal’s debt sustainable or “at high risk,” we believe the decision will resonate beyond Dakar, serving as a measure of how flexibly the international financial architecture can adapt to the realities of modern frontier-market financing.

For financial market participants, it also raises uncomfortable questions about the moral hazard such flexibility may introduce, given the diminishing disciplining power of markets in a world where official support increasingly sets the terms of solvency.

Yvette Babb is a portfolio manager on William Blair’s emerging markets debt team.

[1] The J.P. Morgan Emerging Markets Bond Index (EMBI) Global Diversified measures the performance of U.S. dollar-denominated sovereign and quasi-sovereign debt issued by emerging market countries, with country weights adjusted to limit concentration.   [2] Present value of external PPG debt divided by GDP. [3] Present value of external PPG debt divided by exports of goods and services. [4] External principal and interest payments divided by exports. [5] External principal and interest payments divided by fiscal revenue. [6] PV of total public (external and domestic) debt divided by GDP.