Senegal is teetering getting ready to 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 widespread forex of Africa’s largest financial union. The equal of a fifth of final 12 months’s provide has already been bought 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 bank, BCEAO, many hope that the native issuance will assist Dakar meet a €330mn fee due subsequent month on €1bn of debt to keep away from changing into the WAEMU equal of what Greece once 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 fee, and others, largely on the idea of the regional debt gross sales.
However there’s something curious about 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 bought on the union’s debt market up to now this 12 months, one-third has gone to Togo — the second smallest economic system of the West African Economic and Monetary Union, and a rustic that hardly featured in Senegal’s native debt gross sales final 12 months. The large consumers are extra normally banks from Senegal and Côte d’Ivoire, though the latter specifically have usually been agents 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 effectively previous 100 per cent of its GDP by the invention final 12 months of a minimum of $7bn in ‘hidden’ borrowing by the earlier authorities, a strange saga the place loans had 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 every part from playing to cellular 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 underneath political stress to keep away from a disaster in any case.
The issue, as Abdoulaye Ndiaye and Martin Kessler not too long ago argued in a Finance for Growth Lab notice, is that “Senegal would want to maintain a major surplus of two per cent of GDP for near a decade” for the plan to work. That is extraordinarily onerous to do for growing nations which have massive funding wants (Jamaica is a rare exception).
However not each growing nation has entry to a euro-convertible forex union with a thriving regional bond market.
Senegal has tapped the WAEMU market, overseen by UMOA-Titres, a regional debt company, in an attention-grabbing sample recently. 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, nevertheless, Senegal held another 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 30th, out of CFAF 125bn bought 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, notice one thing else about these auctions. Senegal’s three-year CFA franc bonds are beginning to pile up rejected bids, because the borrowing value creeps up in direction of 8 per cent. Even when the regional market is cushioning Senegal’s refinancing wants for now, there’s clearly a long term restrict.
There aren’t many Togolese banks with the wherewithal to drop the equal of $300mn on Senegal’s bonds over a couple of weeks.
Togo’s Oragroup is one regional debt market participant. The financial institution can also be within the aftermath of an abortive takeover bid and was classified by Fitch final 12 months as having carried out a distressed debt change. (Fitch then stopped issuing rankings.) Oragroup didn’t reply to a request for remark.
Two bigger African banking establishments are based mostly in Togo.
Ecobank, the large pan-African lender (complete property 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 keep the best confidence within the regional debt market, our subsidiary, Ecobank Togo, did not 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 help the financial growth of the area via our established native operations.”
The West African Growth Financial institution (Banque Ouest Africaine de Développement, or BOAD) can also 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, equivalent to Afreximbank, it claims most well-liked creditor standing on sovereign loans.
BOAD has simply over $6bn in property 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 idea, BOAD would have the firepower to purchase up Senegal’s paper at scale, even when CFAF 170bn would nonetheless be a big improve on current tendencies. 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 concentrated on offering long-term strategic help. This entails financing structural investments and offering technical help to assist governments obtain their nationwide growth plans. Whereas we keep a relentless dialogue with state authorities to help their financial stability, our intervention stays inside the framework of growth financing.
Regarding the particular particulars of sovereign debt auctions, together with the identification 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 offer 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 continues 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 are actually the largest supply of borrowing for governments even when excluding South Africa and Egypt as massive, industrial economies that already concern numerous native debt, based on 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, based on 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 normally go far past the cash saved. Zambia didn’t restructure its home debt in its current default due to this, regardless of vital non-resident holdings. Ghana did, however even then this needed to be very rigorously choreographed alongside regulatory reduction for banks.
As Ndiaye and Kessler additionally wrote of their current notice, any home debt restructuring in Senegal could be much more tough, as a result of these monetary stability dangers may additionally have an effect on the remainder of the forex union. Then again, they warned in regards to 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 danger that arguments towards restructuring CFA debt will weaken: specifically, if fiscal sustainability can’t be restored by treating overseas forex debt alone . . . The Senegal episode shouldn’t be solely a nationwide concern: it checks 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.
