Senegal has secured 650 million euros through private financial transactions, raising concerns among investors and global institutions. Financing was arranged through an agreement with African Finance Corporation and First Abu Dhabi Bank.
Details emerged from documents showing the country did not fully share this borrowing with key institutions such as the International Monetary Fund. This lack of disclosure is important because countries are generally required to report all major debt, especially when facing financial stress.
The development follows earlier findings that Senegal had at least $7 billion in hidden debt from the previous government. As a result, the country’s total debt exceeded $40 billion, or more than 130% of its economic output. These numbers raise concerns about Senegal’s fiscal transparency and stability.
At the same time, Senegal is working to renegotiate a $1.8 billion program with the International Monetary Fund. However, incomplete disclosure of financial arrangements makes this process more difficult. The International Monetary Fund acknowledged that it was aware of the existence of such transactions, but said full details were not provided.
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Get cash quickly using complex financial tools
Instead of using traditional financing, Senegal relied on a financial product called a total return swap. These are complex contracts and are not necessarily recorded as standard obligations, making them less visible on official reports.
In these arrangements, Senegal offered lenders rights to the bonds in exchange for immediate cash. The bonds were issued in West African CFA francs, which are pegged to the euro. The value of the bond used was greater than the amount borrowed, giving the lender strong protection.
Under the agreement with the African Finance Corporation, Senegal will have access to up to €350 million. The company initially issued bonds worth 150 million euros and received 105 million euros by agreeing to pay interest above a floating rate.
In a separate deal with First Abu Dhabi Bank, Senegal arranged financing of 300 million euros, secured by bonds worth about 400 million euros. The transaction also included additional interest charges. Both agreements are scheduled to last until 2028.
Such financial tools are increasingly used by countries facing high borrowing costs and limited access to global markets. These allow governments to raise funds quickly, but they also come with complex conditions and limited transparency.
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Increasing risks and increasing pressure from global institutions
These borrowing methods introduce new risks. One of the key concerns is that lenders in such transactions may be given priority over other creditors. This means they could be repaid first if the country faces financial difficulties and other countries are at a disadvantage.
The World Bank has warned that this type of borrowing is problematic because of insufficient disclosure. It said such arrangements could complicate debt restructuring in times of crisis.
Another concern is the potential cost if Senegal defaults. The agreement includes terms that could result in significant fines. In some cases, lenders may write down the value of pledged bonds, increasing the state’s burden.
The agreement also requires Senegal to maintain a certain credit rating. If the rating falls below a set level, the lender can demand early repayment. This will put further pressure on the country’s credit rating, which has already been downgraded.
Additionally, one agreement required Senegal to set aside €55 million for investment in projects related to the African Finance Corporation, including power plants. The state also recognized the lender as a priority creditor and was required to keep the transaction secret.
The full extent of such swap borrowings remains unclear. Bank of America estimates the total amount could reach up to $1 billion. The documents also mention similar debts involving Société Générale, further raising concerns about undisclosed debts.
These developments highlight the challenges Senegal faces in managing rising debt and limited access to international financial markets.
