Haircut or reprofiling, TRS trap, delays…: the crucial issues of Senegalese debt management analyzed by Mouhamadou Dia (expert)

The State of Senegal has initiated the debt restructuring process and held its first meeting with creditors on October 6th. It hopes to reach agreements by December. Is this timeline realistic given the diversity of creditors? Which liabilities might be included in the operation, and which might be excluded? Do Total Return Swaps (TRS) risk complicating the process? In this interview, financial expert Mouhamadou Dia analyzes the main challenges, risks, and conditions for the success of this operation.

Seneweb: The announced timetable anticipates agreements in principle as early as December. Do these deadlines seem realistic to you, given the diversity of the creditors?

Mouhamadou Dia: I believe this timeline is somewhat optimistic. An agreement with all creditors by December would represent unprecedented speed within the G20 collective process. Regarding bilateral creditors, approximately 8% of the external debt is held by China, placing it in first place, ahead of France, India, the United Kingdom, Kuwait, Germany, and Japan. The common framework involves the establishment of a committee of official creditors, followed by the drafting of a memorandum of understanding, the negotiation of which often proves protracted.

It is also important to consider non-Paris Club lenders, such as China, India, and Kuwait, whose decision-making processes differ significantly. Eurobond holders, on the other hand, are characterized by their dispersion and organization through ad hoc committees, each with its own advisory board. They demand equal treatment with official creditors. This requires aligning the two negotiations with each other, rather than conducting them simultaneously without any interconnection.

It seems to me that an agreement in principle could be reached in December, concerning a subset of creditors, particularly through the definition of parameters in collaboration with the official committee. It is unlikely that a simultaneous agreement in principle will be reached with both the official lenders and the bondholders. Past experiences in Zambia, Ghana, and Ethiopia have required a period ranging from one to over two years between the submission of the request for processing and its conclusion.

Total Return Swaps (TRS) could prolong negotiations. Why might these instruments complicate debt treatment?

Debt restructuring agreements (DSAs) complicate debt treatment by obscuring three key dividing lines for restructuring: the distinction between domestic and external debt, the classification of debt as collateral, and the equal treatment of creditors. DSAs complicate the situation and will likely prolong the process. Under DSAs, the government issues bonds as collateral with banking institutions and, in return, receives financing. The operation is quick and inexpensive; however, should the price of the securities fall, the banks may require additional collateral. Senegal has raised approximately $1.24 billion through this mechanism, primarily from Africa Finance Corp., Société Générale, and First Abu Dhabi Bank. The cost was reportedly around 7%, while it ranged from 11% to 12% on international markets.

3. What exactly makes TRS (Transferable Refinancing Services) unique in the case of Senegal, compared to a classic external debt?

The first aspect concerns the scope; the State wishes to exclude debt denominated in CFA francs from the restructuring process. However, TRSs would be associated with debt denominated in CFA francs, which could blur the distinction between domestic and external exposure. Equal treatment of individuals is another issue. If Eurobond holders agree to a haircut, while a foreign creditor, exposed through a Total Return Swap (TRS), benefits from full protection, the question of comparability will arise.

Holders of TRSs could claim a right to state assets. Other creditors could then suffer additional losses. The terms had not been communicated to the IMF at that time. Creditors therefore fear that these swaps will be omitted from the resolution process. Senegal could set a precedent for other nations, thus encouraging each party to engage in firm negotiations.

Could creditors who have exposure in Senegal through TRS claim special treatment or some form of priority in the operation?

Indeed, they will pursue this course of action, and their argument has real strengths. However, it clashes with the principle of comparable treatment, which the other creditors and the official committee will emphasize. There is also the legal classification of the operation. A bank in TRS will assert that it is not acting as a lender, but rather as the counterparty to a derivative instrument. It holds the bonds as collateral and benefits from liquidation rights as well as margin calls. It will therefore submit its claim as a secured exposure, which does not require restructuring as unsecured debt. TRS holders could claim a right to government assets, which would lead to increased losses for the other creditors. In the event of a decrease in the price of the securities, margin calls take de facto priority. The more the restructuring leads to a decrease in prices, the more collateral the bank requires, without waiting for the outcome of negotiations.

Conversely, could other creditors consider it unfair to bear more of the cost of treatment when some creditors benefit from preferential treatment via TRS?

This is undoubtedly their main objection, which rests on a fundamental principle of the G20 Common Framework: comparability of treatment. The IMF's sustainability assessment establishes an overall effort required. If a portion of the debt (the TRS, or the CFA franc that serves as its guarantee) were excluded, the required effort would be concentrated on a smaller scope. Bondholders and institutional lenders would likely face more significant write-downs. TRS holders could claim a right to state assets, leading to a greater distribution of losses among other stakeholders.

If a foreign creditor benefits from protection due to the presence of their CFA franc collateral, while Eurobond holders agree to a haircut, the issue of fairness inevitably arises. Furthermore, the terms were not disclosed to the IMF at the time, and creditors are expressing concerns that these swaps might be excluded from the review process.

Some external creditors have exposure to Senegal in local currency through TRS (Transferable Remittances). Will it be straightforward to consider these as part of the external debt to be addressed?

The classification of these creditors as "external" is undoubtedly one of the most controversial aspects, due to the contradiction between several criteria. Currency is not the sole criterion for defining external debt. A dividing line has been established: debt denominated in CFA francs is excluded from the restructuring process. However, the TRS (Tax-Related Special Transactions) are linked to debt denominated in CFA francs, which blurs the distinction between domestic and external exposure. There are two distinct legal links. The foreign bank does not hold the local obligations in the conventional sense. It acts as the counterparty to a swap, with collateral denominated in CFA francs. The government's claim against it relates to the financing obtained, and the currency of this claim may differ from that of the collateral. The International Monetary Fund has expressed concerns regarding these instruments, which could be considered debt. In the event that the government has received liquidity in exchange for a repayment obligation, the economic argument supports their inclusion.

Beyond TRS, are there other elements likely to complicate negotiations, particularly legal aspects, clauses, guarantees and others?

Beyond the TRS (Total Recoverable Service) clauses, some loans may include guarantees or earmarked cash flows, as well as negative pledge clauses. These provisions prohibit granting guarantees to other creditors without an equivalent allocation. If guarantees have been granted subsequently, creditors may claim a breach. This is a common risk during restructuring processes.

The reorganization of one category of debt can lead to cross-defaults on other loans, including those issued by commercial banks and regional institutions. For example, Senegal honored its September 13 coupon payment, thus avoiding a debt service suspension, unlike Zambia, Ghana, and Ethiopia.

This avoids an immediate default, but also raises a question of fairness: why pay some creditors while others remain waiting for an agreement?

An audit made public in February 2025 revealed undeclared debt amounting to between $7 billion and $13 billion, accumulated between 2019 and 2023. Until the exact stock is reconciled, creditor by creditor, reaching an agreement will be difficult.

Which types of creditors should be directly affected by the processing and which could be excluded from the scope?

Eurobond holders: Approximately $4.8 billion is included in the scope, spread across five series. They occupy a central position in the transaction, and the bonds declined following the announcement, indicating that the market anticipates losses.

Official bilateral creditors: China holds approximately 8% of the external debt, followed by France, India, the United Kingdom, Kuwait, Germany, and Japan. They constitute the second pillar within the common framework.

Foreign commercial banks: Unsecured bank loans logically fall into the category of external debt to be examined.

Regional debt in CFA francs: The State wishes to keep it outside the scope of the agreement. This would limit the spread of the crisis to banking institutions within the WAEMU and safeguard the main source of financing still available to the country.

International creditors would then bear the brunt of the effort, which fuels their demand for comparability.

For practical reasons, multilateral institutions (IMF, World Bank, etc.) do not take part in the restructurings, due to their status as preferred creditors.

Given the current situation in the country, should we expect a simple re-profiling, including an extension of deadlines, or a genuine reduction in the economic value of the debt, with losses for some creditors?

According to the International Monetary Fund, the debt stood at 132% of gross domestic product at the end of 2024. Ghana, whose initial ratio stood at 88%, benefited from a 37% discount.

According to Moody's analysis, even with a rigorous fiscal adjustment, the debt would only stabilize at around 100% of GDP by 2028, due to the considerable burden of interest payments. Financing requirements are currently around 25% of gross domestic product. A simple extension of the debt-to-GDP ratio will not address such a high interest burden.

The program aims to restore debt sustainability; the International Monetary Fund cannot provide financing to a country whose debt is considered unsustainable, and simple reprofiling is generally insufficient when the ratio is so high.

The scope of the analysis should not be underestimated. Given that regional debt in CFA francs is likely excluded, the focus is on Eurobonds, which amount to approximately $4.8 billion, as well as bilateral creditors. A sustainability effort focused on a limited scope necessitates more rigorous measures regarding these claims.

What types of landlords or creditors might emerge relatively unscathed from the treatment, without suffering any losses?

Creditors with the strongest protection are those whose status, currency, or guarantees exclude them from the scope of the agreement. The main players who will bear the brunt of the burden are holders of Eurobonds and official bilateral creditors.

Multilateral institutions, such as the International Monetary Fund, the World Bank and regional development banks, do not take part in the restructurings because of their status as preferred creditors.

Excluding this debt from the scope of the scheme will limit contagion to WAEMU banking institutions and thus preserve the country's last remaining source of financing. Regional banks and local investors are the main beneficiaries, as long as this limit remains in place.

As for the counterparties of the TRS, their fate remains uncertain. If they are considered receivables secured by FCFA collateral, they could benefit from protection. Creditors fear precisely that these swaps will not be subject to the appropriate treatment. This is the most controversial case, and the outcome will depend on the comparability of the treatments. Creditors benefit from guarantees or are linked to specific cash flows. When loans are backed by solid guarantees or insurance (such as those provided by export credit agencies or third-party guarantees), the resulting actual loss may prove minimal.

What concrete ways will we recognize that the treatment operation has been a success, what indicators will we need to look at?

Success will be assessed based on three criteria: the speed and fairness of the agreement, then the sustainability of the debt, and finally the return to normalcy in the markets.

The government aims to reach an agreement in principle in December with official creditors and bondholders. Reaching and implementing an agreement during the first half of 2027 would already represent a satisfactory outcome, given the track record of Zambia and Ghana.

Significant participation from bondholders, coupled with a limited number of dissenting parties and disputes, demonstrates the effective operation of the collective action provisions. The management of TRS (Transferable Return Schemes), FCFA (CFA Franc), and secured claims must be clearly and unambiguously defined. A credible comparability of treatment, as determined by both the official committee and the bondholders, is a crucial indicator.

The debt-to-GDP ratio stood at 132% at the end of 2024. Moody's forecasts it will stabilize at around 100% by 2028, despite sustained adjustments. Effective treatment must steer this ratio onto a clearly downward trajectory, which requires more than mere stabilization.

Regarding gross financing needs, these are approaching 25% of gross domestic product. However, it is necessary to bring them down to a manageable level. A frequently used indicator in sustainability assessments is to keep these needs below 15% of gross domestic product.

With respect to debt servicing, it is imperative that it decrease in proportion to public revenue, particularly during the early years of the program. Regarding interest payments, it is imperative that the treatment aims to reduce this burden, and not simply defer their due dates.

The reduction in net present value (NPV) and the distribution of the effort must be appropriate to achieve the objectives of the debt service agreement (DSA) and must be allocated equitably among creditors. Approval by the IMF Executive Board and disbursements, the first of which the government anticipates in November, are conditional upon compliance with reviews, including quantitative criteria, revenue reforms, and debt governance.

Debt management must also be considered: a mandatory disclosure framework for borrowing, including TRS-type instruments, is necessary to prevent the emergence of new hidden debt. The International Monetary Fund has already expressed concerns about these instruments.

S&P had downgraded the rating to CC before the operation, and a quick exit from selective default, followed by subsequent upgrades, would be a favorable indicator.

As for real growth, it was projected at 6.7% in 2025, while growth excluding hydrocarbons was 2.2%. It is imperative to re-examine this latter figure, as sustainability is excessively dependent on hydrocarbons. The ultimate goal is for Senegal to secure lasting market access under acceptable conditions, without requiring further treatment in the coming years.

Is there a risk that creditors will reject the agreement and initiate legal proceedings against the State of Senegal?

Indeed, the risk exists, however it remains relatively moderate and is concentrated primarily on certain categories of creditors. Approximately $4.8 billion, spread across five series, is included in the scope and is subject to amendment provisions.

With regard to the counterparties of the TRS, they could consider themselves aggrieved if their contracts are interpreted as restructured debt.

Bilateral bank loans frequently require unanimity to make changes to payments, thus giving each banking institution a de facto veto right.

The debt creditors identified in the audit are those whose legal status remains the least clear. These are debts that have not been disclosed to the National Assembly, the International Monetary Fund, or the World Bank. The State could challenge the validity of some loans; however, this argument is ambivalent: it undermines the nation's credibility and could lead to legal proceedings.

Which bilateral lenders hold the most Senegalese debt?

The People's Republic of China, represented by the Export-Import Bank of China (Eximbank), leads the way with 1,380 billion CFA francs, accounting for approximately 47% of the total. It is followed by France, through the French Development Agency (AFD), which contributes 808 billion CFA francs. Japan, via the Japan International Cooperation Agency (JICA), contributes 157 billion CFA francs, while India and Kuwait contribute 140 billion CFA francs and 124 billion CFA francs, respectively.

With a debt of 27,132 billion, what level of debt relief or treatment would be necessary to bring Senegal back onto a sustainable trajectory?

External debt management alone will likely not be sufficient. It must be accompanied by fiscal adjustment and sustained growth. Multilateral institutions hold approximately $10 billion, representing 40% of the external debt, while bilateral creditors, bondholders, and non-bond banks each hold about $5 billion. The total area involved is therefore approximately $15 billion, representing roughly 35% to 40% of gross domestic product, based on a $40 billion savings target.

For the treatment to effectively reduce financing needs and interest payments, a net present value (NPV) loss of between 20% and 35% for the creditors concerned seems to me to be the minimum desirable threshold, rather than mere reprofiling. This could generate an increase of approximately 8 to 13 percentage points in gross domestic product. This falls within the previous range of 15% to 30% for Ghana, Zambia, and the Moody's assessment.

The remaining path to reaching a ratio of 70 to 75% will be achieved through budgetary adjustments and gradual growth over several years. If the scope is limited, the creditors concerned will experience increased pressure, reinforcing the need for comparability.

Interview by Youssouf SANE