Moody’s: Senegal’s credit profile balances economic and political stability

DAKAR (Capital Markets in Africa) –  Moody’s Investors Service (“Moody’s”) said in a report today, the Government of Senegal’s (Ba3 stable) credit profile is supported by its record of macroeconomic and political stability and policy aimed at improving economic governance and infrastructure. High government debt represents the country’s main source of credit challenges.

The annual update, “Government of Senegal — Ba3 Stable, Annual credit analysis”, is now available on www.moodys.com. Moody’s subscribers can access this report via the link at the end of this press release. The research is an update to the markets and does not constitute a rating action.

“Senegal’s economic growth accelerated to about 6% annually in 2014-16 and we expect it to remain at that level as authorities continue to implement their economic development policy roadmap,” said Lucie Villa, a Moody’s Vice President — Senior Analyst and co-author of the report. “Its credit challenges stem primarily from the high level of government debt of around 60% of GDP.

“High debt levels constrain the authorities’ fiscal shock absorption capacity and makes private investment, as a future driver of economic growth, all the more important.”

Senegal’s middle ranking in the World Bank’s Worldwide Governance Indicators has improved in recent years and support’s Moody’s view that the country has moderate institutional strength. Senegal ranks particularly well with regard to control of corruption and voice and accountability.

Senegal’s low fiscal strength reflects the country’s high government debt levels arising from capital spending-led fiscal deficits.

The government has pledged to maintain fiscal discipline during its economic development programme to create fiscal space to finance key infrastructure projects. It has reduced its fiscal deficit at a slow but steady pace from 5.5% of GDP in 2013 to 3.7% in 2017.

Moody’s expects a further reduction to 3.5% in 2018, in line with the budget proposal that was approved by the council of ministers in October, and to 3.0% by 2019, which is the West African Economic and Monetary Union’s common target.

Moody’s projects that debt will stabilise at around 60% of GDP in 2018 and then very gradually trend down to reach about 53% of GDP by 2021 supported by the maintenance of a high nominal growth rate.

The rating’s stable outlook indicates that risks to Senegal’s credit profile are balanced, reflecting, in particular, Moody’s expectation that annual growth of around 6.5% will be maintained over the next three to four years and that government debt has stabilised and will gradually trend downward.

The rating could be upgraded should the government significantly reduce its debt, improving its capacity to absorb shocks. Another positive step would be an increase in foreign and domestic private investment that boosts the country’s growth potential, increasing wealth levels and limiting external vulnerabilities.

The rating could be downgraded if the government’s debt-to-GDP ratio were to rise materially over the next three years, external imbalances were to markedly widen, or external or domestic shocks were to affect economic growth.