In the world we live in, numbers mean and represent a lot of things. In finance and economics, they are the foundation on which we understand value and the basis of trust. Investors rely on them to decide where to cast their nets, and policymakers to know what directions to take for achieving their objectives. When the numbers don’t add up, then the system falls into disrepute and can easily falter. This is the sobering lesson of the debt scandal coming out of Senegal.
Soon after taking power in Dakar in 2024, the government of President Bassirou Faye and Prime Minister Ousmane Sonko instituted an audit of the budget of the previous administration of Macky Sall. It uncovered undeclared national debt to the deafening tune of about US$11bn (in its recent downgrade of Senegal’s debt, S&P put it as high as US$13bn). The new government has been grappling since then with how to explain how so vast an amount of debt could be kept off the books.
It has triggered a credibility crisis and embarrassed Dakar no end. As well as a ratings downgrade to B-, consequences include the suspension of a previously approved IMF programme worth US$1.8bn and a steep fall in the value of Senegal’s bonds. According to Bloomberg, the country’s eurobonds have fallen 13% since the audit was announced in September 2024.
Senegal’s debt scandal brings home the consequences of misreporting
Hidden loans
For accountants, auditors and finance professionals across Africa, the Senegalese debt scandal offers a valuable study in the consequences of misreporting. And it is not the first of its kind in Africa.
Between 2012 and 2016, Credit Suisse and other banks arranged loans worth hundreds of millions of dollars to Mozambique for maritime security projects and a state tuna fishery. The borrowing was shrouded in secrecy, involving undisclosed and illegal sovereign guarantees. The subsequent discovery of what now amounted to US$2.2bn of these hidden loans – and the revelation that a significant portion had been looted through bribes and kickbacks to Mozambican officials and bank executives – triggered a sharp devaluation of the country’s currency and an economic crisis.
Meanwhile, from 2011 to 2016, Ghana signed a host of power purchase agreements that committed the country to use more power than it ultimately needed, resulting in excess capacity charges and obligations to pay for unused energy and fuel. The contractual details were not disclosed until a new government came to power in 2017, with the revelation proving so damaging that by 2024 debt from the crisis had reportedly reached US$3bn.
Painful consequences
These reporting scandals all display the same pattern of off-balance sheet borrowing, weak fiscal transparency systems and poor oversight. In Senegal’s case, debts were misclassified and disclosed in such a way as not to appear in official figures. Numbers coming out of Dakar will now come under greater scrutiny, credit risk models will be adjusted to assign greater risk weights to the country, and trust will be low.
Senegal is doing what it can to get over the crisis. It has announced a plan to rebase its economy and bring down its debt-to-GDP ratio, which presently stands at about 119%, one of the worst in sub-Saharan Africa. Rebasing means updating the reference year and remeasuring sectors in the calculation of national GDP. The initiative could significantly improve the country’s prospects with lenders, although its credibility will remain in question.
It makes painfully clear that credibility is a financial asset
Before it resumes financial support, the IMF has told Dakar that it requires clarity and transparency. That means full disclosure of debt stock, strengthening debt management offices, and aligning with the IPSAS international financial reporting standards. Other creditors may have similar demands.
True numbers
There are lessons here for us all. For accountants, the Senegal saga reinforces the imperative for transparent reporting, strong internal controls and the adoption of IPSAS. For auditors, it highlights the importance of detecting contingent liabilities and off-balance-sheet risks.
For investors and financial analysts, there are big take-aways on sovereign risk assessments, credit model adjustments and GDP rebase interpretations. Finally, for governments and policymakers, it makes painfully clear that credibility is an economic asset and that misreporting raises the cost of capital.
Although this scandal has dealt a blow to Senegal’s fiscal reputation, it also creates an opportunity for the country to clean house by instituting serious government reporting reforms. And if it conducts a credible GDP rebase backed by transparent disclosures, then confidence – and the good times – could return.
More information
Okey Umeano is a regular contributor to AB. See also his columns on Nigeria’s tax reforms and the M&A environment in Africa
