The International Monetary Fund stopped its £1.8 billion loan to Senegal in October 2024 when auditors discovered fudged budget numbers under previous administrations.
Public debt stood at 83% of GDP, not 73%, while the 2019-2023 budget gap reached 10.4%, not 5.5%.
The discovery forced a pause in dealings between Senegal and the IMF, leaving the West African country scrambling to fix its books. The West African nation must now rebuild trust with lenders while managing mounting debt payments. Local businesses worry about knock-on effects as government spending slows and projects stall.
Oil Drives Growth
The economy grew 8.9% in Q3 2024 as the Sangomar oil field began pumping 100,000 barrels daily from June. Non-oil sectors added 2.1% growth, showing life beyond petroleum.
This oil boom brings both promise and peril. The money could help build roads, schools, and hospitals. Yet past examples show how oil wealth often brings more harm than good to developing economies. The government wants to avoid the fate of other African oil producers who saw their manufacturing and farming wither as capital derived from the export of oil flowed in.
Oil Wealth Brings New Risks
As oil money flows in, economists watch for signs that rising exports might crowd out other industries. When oil generates capital, government policy tends to neglect non-oil industries such as agriculture and the tertiary sector. Exchange rate appreciation crowds out domestic industries as exports cost relatively more abroad. This “Dutch disease” has hobbled many oil-rich nations before.
Prime Minister Sonko wants to shrink the budget gap from 11% to 3% of GDP by 2027 through better fiscal policy and new income streams. Sonko’s team drew up plans to keep non-oil businesses healthy while oil flows. Plans include special loans for farmers, tax breaks for manufacturers, and help for small businesses to sell goods abroad.
Old Patterns with IMF
African countries now spend over half their money on debt payments instead of schools, health care, and social help. This echoes 1980s IMF rules that kept many countries borrowing more to pay old loans.
Many African leaders say these lending rules need change. They point to how debt payments eat up money needed for growth. Yet breaking free from IMF lending proves hard when markets charge high rates to African borrowers. Some countries have tried turning to China or selling bonds, but these options often bring their own tough terms.
Breaking Free: IMF Conditionality
Senegal has drawn up bold plans to stand on its own feet. The government will raise more taxes, aiming for 19.3% of GDP by 2025. It plans to sell “Patriot Bonds” worth 1.5 trillion CFA francs to its people and Senegalese living abroad. These bonds would let everyday citizens profit from national growth while giving the government money to spend at home.
Oil and gas will help, but ministers know they must keep other sectors growing too. They have started talks with Gulf states and private lenders about new loans with fewer strings attached. The government also wants to build up mining, fishing, and farming to avoid overdependence on oil-revenue.
Next Steps
The IMF thinks Senegal will grow 9.3% in 2025 from oil sales. Much depends on how well the country manages its debt while keeping spending in check.
By 2029, Senegal hopes to leave the poorest nations’ club. This requires prudent fiscal policy to manage oil revenues responsibly, with the implementation of steady reforms, to avoid traps that caught other resource-rich nations.
Only with reform will the IMF reconsider it’s pause on debt assistance with the West African nation.
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