More on why Senegal refuses to restructure its foreign debt

I proposed yesterday (22 March 2026) four hypotheses about why Senegal is refusing to restructure its foreign debt. In light of today’s FT (‘ Senegal tapped €650mn of undisclosed borrowing in bid to avoid default—West African nation agreed total return swaps with AFC and FAB months after separate hidden debt scandal came to light’, 23 March 2026), I am reconsidering those reasons.

Senegal’s newest debt

What does the FT say ? The Senegal Total Return Swap (TRS), reported by the Financial Times on March 23, 2026, is a EUR 650 M arrangement in which Senegal entered into total return swap (TRS) contracts with two counterparties -- the Africa Finance Corporation (AFC, ~EUR 350 million at roughly 9.5% over ~1.5 years) and First Abu Dhabi Bank (FAB, EUR 300 million at ~9% over 3 years). The counterparties provide cash in exchange for the total return on underlying Senegalese sovereign assets, with Senegal posting CFA-denominated government bonds as collateral at a 1.3--1.5x overcollateralization ratio. The borrowing cost to Senegal is about 14% annualized once advisory fees (estimated EUR 28--46 million over three years) and coupon are considered, making this an expensive arrangement.

How does the new swap affect hypotheses about the government’s behavior ?

• The simplest reason was that President Faye and PM Sonko did not understand the benefits of restructuring compared to the costs of 10 years of adjustment. This remains unlikely.

• A second hypothesis was that the Faye-Sonko government was hiding its own complicity. I found that unlikely yesterday, but in light of the FT story, I am reconsidering—the newly-reported obligation of 650 M Euros is producing generous fees after all.

• A third reason was that private lenders and bilateral creditors were pushing Senegal to reject a restructuring because it would damage creditors’ interests. That hypothesis was valid yesterday and has been strengthened today by the appearance of the TRS.

• The fourth and strongest reason is that the Fund and the Bank are pressing the Senegalese authorities 1to reject a restructuring because that would harm the preferred creditor status of the Bank and the Fund, would devalue the assets of the chief bilateral lenders (France and China), and would create an expensive precedent for the other embarrassed members of the BCEAO.

The new swap is designed to make a restructuring more expensive

There are two particularly usurious aspects of this TRS. The swap has a margin call built-in; if the collateral bonds fall in price, Senegal has to put up more cash making an eventual restructuration more expensive. Anything that rattles Senegalese debt holders creates selling pressure, which leads to a margin call, which weakens the country’s equity position—a vicious circle. The other rotten part of this deal is the new creditors are senior, their commitments are not subject to CACs (as some of Senegal’s other loans perhaps are), and these facts reduce the money available for a general workout. “Il faut le faire”, as one might say in Dubai. A more expensive hypothetical workout, imposed by the structure of the TRS, has a certain pedagogic value—it is a not-so-subtle order to the Senegalese and BCEAO authorities to shut up about leaving the franc zone.

What are the Fund and the Bank doing about this swap ?

They are doing nothing. The FT reports:

“The [IMF] told the FT that details of Senegal’s swaps had not been shared with it. ‘The IMF team is aware that Senegal has agreed to a number of total return swaps with lenders. The terms of these swaps have not been shared’ … [the IMF] added that it would ‘normally expect the authorities to share financial terms for debt financing, especially in the context’ of the IMF’s analysis of a country’s debt sustainability.”

The FT writers did not even bother to discuss Senegal with Bank officials; they probably understood it was a waste of time.

What is to be done ?

Senegal’s foreign debt has to be restructured at a steep discount. The Bank and the Fund have to take a haircut on the principal of their outstanding loans to Senegal. Yes, this creates a precedent for the other BCEAO members, but there is really no other exit.

Ajay Banga understands what to do. But because he knows nothing of Africa, and is surely under the influence of Senegal’s foreign creditors2, he needs better advice on this situation (and others like it in Ethiopia and Zambia, etc) which he cannot possibly get from figureheads like Anna Bjerde or that new Irishman in the Bank or Ousmane Diagana, and which he seems not to have gotten from the many Senegalese in Bank senior management, for some odd reason.

Kristalina Georgieva knows what to do. Of course she will not do it. I imagine that is because she had to make promises about the French colonies when she was re-elected as MD of the Fund in late 2024.

A disgraceful situation overall.

Pauvre le Senegal !