• S&P cuts Senegal’s local currency rating to CCC+/C and assigns a negative outlook.

• The country faces financing needs estimated at 26% of GDP in 2026.

• Authorities increase reliance on regional markets and Total Return Swaps (TRS) to secure funding.

S&P Global Ratings downgraded Senegal’s long- and short-term local currency ratings from B-/B to CCC+/C on March 27. The agency also revised the long-term outlook to negative.

The downgrade reflects increased reliance on short-term domestic debt and elevated financing needs. Senegal faces funding requirements estimated at 26% of gross domestic product in 2026.

Moreover, S&P stated that the absence of progress toward a program with the International Monetary Fund heightens refinancing risks. The agency noted that regional market issuances carry shorter maturities, which increase rollover pressure.

This move extends a series of downgrades initiated since 2024 by Moody’s and S&P on Senegal’s foreign currency debt. Moody’s downgraded the rating from Ba3 to B1 in October 2024, then to B3 in February 2025, and further to Caa1 in October 2025.

Similarly, S&P lowered its rating from B+ to B in February 2025, then to B- in July 2025, and to CCC+ in November 2025.

As a result, borrowing costs on international markets have risen, particularly for eurobond issuances. Consequently, Senegal has reduced its access to external liquidity and shifted toward regional funding sources.

Increased reliance on regional markets

In response, Senegal has intensified its use of the regional public securities market of the West African Monetary Union. In 2025, the country raised CFA4,004 billion ($7.01 billion) through four public offerings and auctions.

On March 29, authorities announced the closing of the first public offering of 2026. The government raised CFA304.15 billion against an initial target of 200 billion, indicating strong investor demand.

At the same time, Senegal has used Total Return Swaps (TRS) since 2025 to secure foreign currency liquidity without tapping international capital markets. According to the Ministry of Finance, the government raised CFA721 billion between April and November 2025 through TRS operations at a 7% rate.

The mechanism involves issuing local currency securities on the regional market and transferring them as collateral to financial institutions such as Africa Finance Corporation and First Abu Dhabi Bank in exchange for foreign currency funding.

Therefore, this approach reflects a strategy to diversify funding sources under constrained market access conditions.

How TRS instruments operate

TRS instruments allow governments to mobilize foreign currency resources backed by local currency securities. Investors with foreign currency resources participate in financing the Treasury through these structures.

Financial flows pass through regional financial institutions and convert into CFA with central bank support. The system then channels these funds into government securities issued on the regional market.

Moreover, the structure incorporates hedging mechanisms to mitigate exchange rate risks and asset value fluctuations. These safeguards include guarantees and dedicated buffers to secure transactions.

According to Abou Kane, Senegal uses TRS instruments to address financing constraints. He stated that access to international markets remains limited, while the regional market lacks sufficient capacity to absorb total funding needs.

In this context, TRS instruments serve as an adjustment tool that sustains financing flows. However, they introduce additional complexity and financial commitments.

This article was initially published in French by Chamberline Moko

Adapted in English by Ange J.A de Berry Quenum