Senegal’s credit rating: Economist Seydou Sow calls for a clearer distinction between real risks and market perceptions

Moody’s downgrade of Senegal’s rating from Caa1 to Caa2 highlights the liquidity and refinancing challenges facing the state, according to Seydou Sow, a financial economist and quantitative analyst. In his view, the economic factors cited should be taken seriously, without treating the rating as a definitive assessment of the country’s situation.

In his analysis, the issue is not limited to the level of public debt. It also concerns the state’s ability to refinance it under sustainable conditions. Intense refinancing pressures, the rising interest burden, the scale of financing needs and increased dependence on the regional market are all areas requiring close attention, he says.

The role of financing and the IMF

Seydou Sow notes that the prolonged absence of a new programme with the International Monetary Fund limits access to concessional financing. This situation increases dependence on the regional market, where borrowing conditions are described as relatively costly.

The cost of servicing debt then reduces the state’s fiscal room for manoeuvre and may complicate the financing of priority spending and public investment. The economist believes current pressures could be addressed through fiscal adjustment, improved revenue mobilisation and a return to more concessional financing, particularly with IMF support.

Putting the political factor into perspective

In his view, tensions between the executive and legislative branches should be distinguished from their concrete economic effects. Political or institutional tension does not automatically constitute a default risk, he says. It becomes an economic factor when its impact results in institutional paralysis, delays in fiscal reforms or obstacles to the public finance consolidation strategy.

A risk premium sometimes extended to Africa

Beyond the Senegalese case, Seydou Sow calls for a distinction between real economic risk and the way markets perceive it. African economies may have vulnerabilities, including shallower financial markets, limited tax mobilisation, exposure to external shocks and dependence on external financing.

These factors may justify a risk premium. But this premium may also be amplified by a general perception of African risk, the economist believes. Countries with comparable characteristics may therefore face different financing conditions. He is thus calling for a more contextualised and representative rating system that takes account of macroeconomic indicators, as well as institutional stability, governance, data availability and investor confidence.