DAKAR, Mar 27 – Senegal raised 721 billion CFA francs ($1.3 billion) through derivative transactions last year, as it sought alternative financing amid limited access to international debt markets.
The government executed seven total return swap deals between April and November with lenders including Africa Finance Corporation, Société Générale SA and First Abu Dhabi Bank PJSC, according to Finance Minister Cheikh Diba.
The transactions allowed Senegal to borrow at around 7%, significantly lower than the 11% to 12% rates available on international markets at the time.
The strategy comes as concerns over the country’s debt profile have effectively shut it out of global capital markets. Both the International Monetary Fund and Bank of America have flagged risks around Senegal’s borrowing trajectory, with some analysts warning of potential debt restructuring if external financing remains constrained.
Despite these concerns, officials maintain that the country is not at risk of default. Authorities say the shift toward regional and structured financing has helped maintain liquidity and reassure investors.
The move follows the discovery in 2024 of approximately $7 billion in previously undisclosed debt, which led the IMF to suspend a $1.8 billion support programme and triggered a selloff in Senegal’s bonds.
Investor sentiment remains cautious, with Senegal’s bond spreads exceeding 1,000 basis points over US Treasuries, a level often associated with financial distress. However, the government met its recent Eurobond repayment obligations ahead of a March deadline, supporting a temporary recovery in its dollar-denominated securities.
To manage risks associated with the derivative structures, Senegal used local-currency reserves of around 30% as a buffer against potential losses, supported by central bank-backed foreign exchange mechanisms.
Officials say the approach has also helped deepen the domestic financial market by channeling external capital through local institutions such as Ecobank Senegal and Stanbic Bank.
The use of derivatives as a financing tool reflects a broader trend among African sovereigns, with Angola having previously adopted similar structures to raise capital in challenging market conditions.
