Senegal is teetering on the point of default, however somebody in its fellow West African Financial and Financial Union member nation of Togo actually likes shopping for up its treasury payments.
Locked out of worldwide bond markets by a ‘hidden debt’ scandal and with an IMF bailout nonetheless up within the air, Senegal is borrowing much more this 12 months within the West African CFA franc, the euro-pegged frequent foreign money of Africa’s largest financial union. The equal of a fifth of final 12 months’s provide has already been offered in 2026.
This has grow to be fairly vital to traders in Senegal’s beleaguered worldwide bonds. Due to Senegal’s entry to pooled reserves of the union’s central financial institution, BCEAO, many hope that the native issuance will assist Dakar meet a €330mn cost due subsequent month on €1bn of debt to keep away from changing into the WAEMU equal of what Greece as soon as was to the eurozone. This debt is buying and selling at about 80 cents on the euro:
On Tuesday, Bloomberg reported ‘funding secured’ for this upcoming cost, and others, largely on the premise of the regional debt gross sales.
However there’s something interested by the place a big a part of the cash is coming from.
Out of CFAF 510bn (greater than $900mn) in bonds and payments that Dakar has already offered on the union’s debt market to this point this 12 months, one-third has gone to Togo — the second smallest economic system of the West African Financial and Financial Union, and a rustic that hardly featured in Senegal’s native debt gross sales final 12 months. The massive consumers are extra often banks from Senegal and Côte d’Ivoire, though the latter specifically have typically been brokers for worldwide traders.
Whoever is shopping for from Togo, they’re doing so at a crucial second for Senegal’s funds.
Senegal’s debt has been pushed nicely previous 100 per cent of its GDP by the invention final 12 months of not less than $7bn in ‘hidden’ borrowing by the earlier authorities, a wierd saga the place loans have been signed and even publicly introduced however disbursements weren’t tracked.
Senegal is set to not default. The federal government as a substitute has a plan to extend taxes, on the whole lot from playing to cell cash, and win again the IMF. Maybe not coincidentally, President Bassirou Diomaye Faye and Prime Minister Ousmane Sonko are former tax officers, though they’re beneath political strain to keep away from a disaster in any case.
The issue, as Abdoulaye Ndiaye and Martin Kessler lately argued in a Finance for Growth Lab be aware, is that “Senegal would wish to maintain a main surplus of two per cent of GDP for near a decade” for the plan to work. That is extraordinarily arduous to do for growing nations which have huge funding wants (Jamaica is a uncommon exception).
However not each growing nation has entry to a euro-convertible foreign money union with a thriving regional bond market.
Senegal has tapped the WAEMU market, overseen by UMOA-Titres, a regional debt company, in an fascinating sample these days. In Senegal’s first home public sale of the 12 months, on January 16, Togolese accounts barely featured amongst consumers of CFAF 154bn of payments and bonds:
On the identical day, nonetheless, Senegal held one other sale. This time, a Togolese whale appeared. A single purchaser from the nation purchased near CFAF 51bn of one-year debt, a full allocation of their bid:
Within the subsequent public sale, on January thirtieth, out of CFAF 125bn offered by Senegal, Togo made up CFAF 60bn — once more, one other full allocation, all in one-year debt:
It’s unknown if that was a single purchaser. However in a following sale of CFAF 143bn of debt on February sixth, Togo once more accounted for CFAF 60bn of bids, once more with the investor(s) receiving a full allocation, however this time on six-month paper:
Senegal’s finance ministry didn’t reply to a request for remark.
Earlier than we begin speculating about identities, be aware one thing else about these auctions. Senegal’s three-year CFA franc bonds are beginning to pile up rejected bids, because the borrowing price creeps up in the direction of 8 per cent. Even when the regional market is cushioning Senegal’s refinancing wants for now, there’s clearly a long run restrict.
There aren’t many Togolese banks with the wherewithal to drop the equal of $300mn on Senegal’s bonds over just a few weeks.
Togo’s Oragroup is one regional debt market participant. The financial institution can be within the aftermath of an abortive takeover bid and was labeled by Fitch final 12 months as having carried out a distressed debt trade. (Fitch then stopped issuing scores.) Oragroup didn’t reply to a request for remark.
Two bigger African banking establishments are based mostly in Togo.
Ecobank, the massive pan-African lender (complete belongings of $32bn on the finish of September), is headquartered in Lomé, Togo’s capital. The financial institution is in each WAEMU nation and is a number one vendor within the area’s debt market. Ecobank Senegal has specifically been a number one participant in Senegal’s debt market for a few years — a degree it isn’t shy about posting on the gramme (good for them!). However that’s the Senegalese subsidiary, not Togo.
“Whereas we preserve the best confidence within the regional debt market, our subsidiary, Ecobank Togo, didn’t take part within the acquisition of this particular issuance,” Ecobank stated (emphasis theirs).
The financial institution added that “we stay dedicated to our long-standing partnership with the Senegalese authorities and proceed to assist the financial growth of the area by our established native operations.”
The West African Growth Financial institution (Banque Ouest Africaine de Développement, or BOAD) can be headquartered in Lomé.
The financial institution’s mandate consists of each nationwide growth and deepening of the union’s capital markets. Like different regional growth banks in Africa, reminiscent of Afreximbank, it claims most popular creditor standing on sovereign loans.
BOAD has simply over $6bn in belongings and is ready to pledge regional bonds at BCEAO for financing. It additionally issued €1bn in worldwide debt on the finish of final 12 months, which might have left it with some money.
In concept, BOAD would have the firepower to purchase up Senegal’s paper at scale, even when CFAF 170bn would nonetheless be a big enhance on latest developments. Senegalese bonds and payments made up simply over CFAF 86bn of BOAD’s debt securities portfolio of CFAF 854bn on the finish of June final 12 months.
BOAD is working with Senegal on an ‘public asset growth’ fund. Serge Ekué, the financial institution’s president, additionally visited the nation and met the president and prime minister final month amid the mysterious Togolese transactions.
So . . . may it’s BOAD?
BOAD stated:
Our relationship with member states, together with Senegal and Togo, is targeted on offering long-term strategic assist. This includes financing structural investments and offering technical help to assist governments obtain their nationwide growth plans. Whereas we preserve a continuing dialogue with state authorities to assist their financial stability, our intervention stays inside the framework of growth financing.
Regarding the particular particulars of sovereign debt auctions, together with the id or quantity of subscriptions by particular traders, the UMOA-Titres company is the competent regional authority. UMOA-Titres is particularly mandated to handle the issuance of public debt securities and is the one entity authorised to supply detailed commentary on the outcomes of those auctions or the profile of the subscribers.
Consequently, BOAD doesn’t touch upon particular market transactions or the funding actions of third events on the regional monetary market.
UMOA-Titres didn’t reply to a request for remark.
For now, the Togolese reality remains to be on the market.
Within the meantime, the thriller sheds gentle on a a lot greater shift within the background of Africa’s capital markets.
Since 2010, Africa’s home bond markets have tripled in dimension to round half a trillion {dollars}, and at the moment are the largest supply of borrowing for governments even when excluding South Africa and Egypt as huge, industrial economies that already subject numerous native debt, in response to the African Debt Database. In WAEMU’s case, greater than a 3rd of the union’s home credit score went to governments as of 2024, in response to the IMF.
Home bonds have principally been stored out of sovereign debt restructuring, as a result of the implications of losses for native banks, insurers, and pension funds would often go far past the cash saved. Zambia didn’t restructure its home debt in its latest default due to this, regardless of vital non-resident holdings. Ghana did, however even then this needed to be very rigorously choreographed alongside regulatory aid for banks.
As Ndiaye and Kessler additionally wrote of their latest be aware, any home debt restructuring in Senegal can be much more troublesome, as a result of these monetary stability dangers may additionally have an effect on the remainder of the foreign money union. However, they warned concerning the penalties of relying an excessive amount of on this borrowing to keep away from a default:
Nevertheless, as time passes and home debt replaces exterior debt, there’s a threat that arguments in opposition to restructuring CFA debt will weaken: specifically, if fiscal sustainability can’t be restored by treating overseas foreign money debt alone . . . The Senegal episode shouldn’t be solely a nationwide subject: it exams the resilience of WAEMU’s built-in financial institution– sovereign system and the regional authorities securities market.
Senegal’s subsequent home debt public sale is scheduled for February twentieth.
Will the Togolese purchaser(s) once more grace the market? Let’s see.
