Monday 06, November 2017 by Matthew Amlôt

Moody's: Senegal's credit profile balances economic and political stability against high gov debt

Moody's Investors Service 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.

"Senegal's economic growth accelerated to about 6 per cent 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 per cent 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 per cent of GDP in 2013 to 3.7 per cent in 2017.

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

Moody's projects that debt will stabilise at around 60 per cent of GDP in 2018 and then very gradually trend down to reach about 53 per cent 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 per cent 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.