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Like Ghana, Senegal receives a $1.8 billion loan from the IMF to improve its economy

The International Monetary Fund is on a debt-issuance spree in Africa. The IMF Executive Board recently lent Ghana $3 billion to attenuate its economic crisis. But Ghana is not the only country that receives a loan from the IMF. Senegal, one of the most politically stable French-speaking African countries, received a $1.8 billion loan from the IMF to address its most important economic challenges. Most African economies have been experiencing very high debt and economic issues. Ghana’s economic conundrums are among the worst in the continent. Senegal, on the other hand, is doing relatively fine compared to Ghana but this doesn’t mean it has no economic issue on its own. It does, but its economic issues are less pressing than Ghana’s.

The IMF recently announced an agreement with Senegal, for an aid program, of $1.8 billion in exchange for policies to reduce debt, the fight against money laundering and terrorism, and the country’s adaptation to climate change. Like Ghana’s loan, this loan is also based on a 36-month agreement. The Senegalese economy experienced a sharper-than-anticipated slowdown last year, while inflation soared to a multi-decade high on the back of food inflation. Senegal’s debt is close to 70% of the national GDP. While this is not bad overall, compared to Ghana’s debt which is more than 90% of its national GDP. Reducing the debt remains a priority to maintain the country’s financial health. One of the primary goals of the loan is to help Senegal reduce its government deficit to 3% of economic output by 2025. The goal will also require further revenue mobilization, including streamlining tax exemptions and phasing the regressive and elevated energy subsidies.

Senegal's Real GDP & Inflation Forecast to 2025

Source: International Monetary Fund

Will Senegal be able to pay back the loan? Unlike Ghana’s situation, which seems highly unlikely, the Senegalese situation, however, seems rather promising. We do not expect Senegal to pay the loan in its entirety, but we could expect the Senegalese government to try to pay back a great portion of it. Based on the IMF’s projections, the Senegal economy is expected to grow by 8.3% by 2025 while inflation is expected to decline by 5% by that same year. Senegal remains, nevertheless, in trade deficit. Senegal will be compelled to increase taxes to generate revenue to pay back the loan.

If GDP per capita is expected to increase to more than $2,000 by 2028, this means that between now and 2028, its debt-to-GDP ratio is supposed to decrease to at least 65%. A debt-to-GDP ratio below 77% indicates that a country is financially sustainable since what it owes compared to what it produces is not entirely covered by the public debt. This will mean that Senegal will not only be financially healthy, but it could even generate fiscal surpluses if this loan is correctly managed and the funds are allocated where they are supposed to be. In 2025, we will see if these expectations will be fruitful.


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