By Duncan Miriri
NAIROBI (Multibagger) - Senegal's sovereign dollar bonds experienced a significant decline on Friday following a government audit that unveiled larger debt and deficit figures than previously reported by the administration, as per Tradeweb data.
The newly elected President Bassirou Diomaye Faye, who initiated the audit, pointed fingers at the previous government for releasing inaccurate figures, highlighting the challenges faced by the West African nation amidst slower economic growth.
"The announcement does sound like a credit-negative event," remarked Evghenia Sleptsova, senior emerging markets economist at consultancy Oxford Economics.
The dollar bonds initially dropped by over 2 cents in early trading but later recovered slightly to trade approximately 1.3 cents lower between 73.01-85.52 cents on the dollar by 1200 GMT.
The International Monetary Fund, in partnership with Senegal on a $1.9 billion bailout program, stated that the government had shared initial audit findings and was collaborating to determine the next steps.
The audit revealed a deficit of more than 10% at the end of 2023, contrasting with the approximately 5% reported by the previous government, as disclosed by economy minister Abdourahmane Sarr on Thursday.
Public debt, as per the audit, averaged 76.3% of GDP, compared to the previously reported 65.9%, attributed to higher-than-published public deficits.
Sarr mentioned that the alarming figures and concerns about breaching IMF regulations prevented the government from seeking IMF funds that could have been disbursed in July.
Abdoulaye Ndiaye, professor of macroeconomics and public finance at New York University's Stern School of Business, emphasized the need for "courageous choices" in light of the unprecedented audit in Senegal.
"The results are troubling, and there needs to be a thorough legal investigation," he added.
The IMF had already revised down Senegal's growth forecast for this year and cautioned about a wider fiscal deficit due to sluggish revenue growth.
Earlier this month, Faye announced a snap legislative election scheduled for Nov. 17 to address the deadlock over a new budget and government waste reduction efforts.
Despite the challenges, nascent oil production that commenced in June and anticipated gas output by year-end could potentially bolster government finances.
Analysis: The revelation of larger debt and deficit figures in Senegal has led to a decline in sovereign dollar bonds, indicating a credit-negative event that could impact the country's economic stability. The government's delay in seeking IMF funds and the need for courageous choices underscore the challenges ahead. Investors should monitor Senegal's economic developments closely to assess potential risks and opportunities in the financial markets.