Senegal credit stress intensifies as bonds tumble

The sharp plunge in the price of Senegal’s international bonds signals a material deterioration in market confidence, reflecting both structural fiscal stress and a policy inertia that threatens the country’s sovereign access to capital markets. With bonds due in 2028 and 2031 now yielding above 16%, following the government’s public refusal to restructure its debt, the kingdom’s external debt burden—estimated at more than 130% of GDP—has moved from a latent risk into full market pricing.

The real GDP growth forecast remains relatively robust at ~8% for 2025, supported by new oil and gas production , yet this alone cannot offset the immense weight of debt servicing and the rapidly rising cost of capital.

The mechanism driving this stress is clear: the government’s unequivocal statement that restructuring would be "a disgrace" has effectively removed the conditionality floor for creditors.

This stance has driven risk premia sharply higher, significantly increased rollover risk for upcoming maturities, and will likely lead to a shortening of the maturity profile of outstanding obligations as investors demand earlier redemption or higher coupon payments to compensate for the perceived policy inflexibility.

From a macro perspective, the high yield is unsustainable. When annual external amortizations exceed US$4.6 billion in the next year and import cover is already under stress, a 16% yield implies a debt-service ratio on external liabilities nearing 10% of GDP—a level well above sustainable thresholds for a lower-middle-income country.

For markets, this means Senegal’s interest cost is effectively doubling relative to some peer sub-Saharan issuers, which maintain yields around 8–9%. The immediate reaction is swift capital flight, a surge in yields, a marked weakening of any future debt issuance prospects, and a palpable contagion effect into the Francophone West African region via the UEMOA zone.

Forward risks are pronounced, centered on the high possibility that the government must accede to restructuring after all, but under much worse circumstances. This forced restructuring would risk triggering cross-default clauses, inviting legal challenges from existing creditors, and causing a further spike in yields.

Furthermore, fiscal adjustment may be forced upon the government under highly disadvantageous terms. Institutional investors will be closely monitoring the quarterly bond yield spread against US Treasuries (10-year UST ~4.3%); a Senegal yield of ~20% would imply a crippling spread of ~1,770 bps.

The key indicator of solvency remains the public debt ratio change: if the debt/GDP ratio remains above 130% or continues to rise, a further rating downgrade or outright default risk becomes severely pronounced.

Over the next 12 to 18 months, if Senegal cannot narrow the general government deficit below, say, 4% of GDP and reduce external amortizations by at least US$1 billion, we expect to see sovereign spreads widen further by 300–500 bps, and new issuance will likely freeze for a prolonged period, forcing the country into a painful domestic deleveraging cycle.