• Fiscal deficit in 2019 – 2023 period was understated by an average of 5.6% per year. Fiscal deficit in the year 2023 was restated at 12.30% and was 741bps higher than initially reported.
• Public debt ratios in the audit period were assessed to be wider by 16.2% on average per year. Public debt in fiscal year ending December 2023 was adjusted upwards by 25.3% to 99.7% of GDP.
• In subsequent Cabinet meetings following the publishing of the audit report, President Faye’s administration has committed to implement the report’s recommendation although the timelines are open-ended.  We believe that the upcoming IMF review will offer the necessary anchor for adherence to the report recommendation.

Our views:
Fiscus transparency; short-term pain for long-term gain

• In September 2024, the authorities flagged the lack of disclosure in extra-budgetary expenses, non-regularized Treasury advances and expenses financed by local bank debt outside the fiscal framework by the previous administration. This necessitated the special audit of 2019 – 2023 fiscal accounts. The USD 1.5bn IMF programme went off track pending the conclusion of the audit process and to pave way for a new package.
• The restarted fiscal numbers imply that the economy is at a fragile starting point going forward with a baseline 107.0% debt ratio at the end of last year. With the authorities projecting a 7.1% deficit in 2025, this implies debt-to-GDP ratio in the 114.0% range at the end of the year. Despite this deteriorated backdrop, the resolve by the authorities towards fiscal transparency far outweighs the downside risks that have materialized.

The goal towards WAEMU convergence criteria will be bumpy, but worth a try

• Whereas the authorities’ target of 3.0% fiscal deficit by 2027 is probable, the Ministry of Finance was vague with debt ratio reduction to “70.0% over a reasonable timeframe”.  This suggests that the ongoing IMF discussions will rework the economy’s Debt Sustainability Analysis and chart a more likely path to attain the fiscal target. The fiscal authorities ruled out a near-term restructuring but emphasized the need to conduct liability management operations on local debt as has been telegraphed in the 2025 Budget law. Total amortization for this year is estimated at USD 4.6bn, largely skewed towards domestic debt, which Senegal can muddle through in our view.
• Senegal targets to raise USD 7.6bn in total revenue, of which USD 7.2bn will be combined tax and non-tax revenue. The audit report had flagged the non-publishing of the tax expenditures, but the fiscal authorities are progressively rationalizing the foregone revenue. Reforming the General Tax Code and Customs code, and implementation of electronic invoices are intended to boost revenue mobilization.

Remain Neutral on SENEGL for now, awaiting progress with IMF

• We remain NEUTRAL on SENEGL as we monitor progress for a new IMF programme by June 2025. Against the near-term noise from the Court of Auditors report, we welcome the recent developments in the economy’s hydrocarbon sector, which offers some shine as the Faye administration pursues its reform agenda.