By Duncan Miriri
NAIROBI (Reuters) - Senegal's sovereign dollar bonds experienced a significant decline on Friday following the release of a government audit that uncovered larger debt and deficit figures than previously reported by the administration, according to Tradeweb data.
President Bassirou Diomaye Faye, who initiated the audit, attributed the discrepancies to the previous government's dissemination of false information, highlighting the challenging economic situation facing the West African nation.
"The announcement does sound like a credit-negative event," remarked Evghenia Sleptsova, senior emerging markets economist at consultancy Oxford Economics.
Initially dropping by more than 2 cents, the dollar bonds later recouped some losses to trade approximately 1.3 cents lower between 73.01-85.52 cents on the dollar by 1200 GMT.
The International Monetary Fund, which has a $1.9 billion bailout program with Senegal, acknowledged the preliminary audit findings shared by the government and pledged to collaborate on determining the appropriate course of action.
Revealing a deficit exceeding 10% at the end of 2023, as opposed to the approximately 5% previously reported, economy minister Abdourahmane Sarr underscored the alarming figures outlined in the audit.
Public debt, as revealed by the audit, averaged 76.3% of GDP, surpassing the previously reported 65.9%, attributable to higher-than-disclosed public deficits.
Sarr cited concerns over these figures and the risk of violating IMF regulations as reasons for the government's decision not to request cash disbursement from the IMF in July.
Abdoulaye Ndiaye, professor of macroeconomics and public finance at New York University's Stern School of Business, emphasized the necessity for "courageous choices" in light of the unprecedented audit in Senegal.
"The results are troubling, and there needs to be a thorough legal investigation," Ndiaye stated.
The IMF had already revised Senegal's growth forecast for the year downwards and cautioned about a widening fiscal deficit due to sluggish revenue growth.
In efforts to address the budget impasse and government expenditure reduction, President Faye called for a snap legislative election scheduled for Nov. 17.
Despite the challenges, the anticipated increase in oil production since June and upcoming gas output by year-end could offer a financial boost to the government.
Analysis: The audit findings in Senegal have revealed a concerning picture of larger deficits and debt than previously reported, impacting the country's economic stability and relationship with the IMF. Investors in Senegal's sovereign dollar bonds may experience volatility in the market, potentially affecting their investment returns. It is crucial for individuals and institutions involved in financial markets to closely monitor the situation in Senegal and make informed decisions based on the evolving economic landscape in the country.
