[Interview] The truths of Mouhamadou Dia (Financial Expert): "If we reject the restructuring of our debt..."

 

Senegal is at a crossroads. Faced with its colossal debt, estimated at 130% of GDP, the International Monetary Fund (IMF) is proposing a restructuring. This option is strongly opposed by the head of government, Ousmane Sonko. What path would be less painful for the country today? What would be the advantages and disadvantages of debt restructuring for Senegal? Financial expert Mouhamadou Dia sheds light on this in this interview.

 

First, in simpler terms, what is debt restructuring?

Debt restructuring is considered an agreement between a debtor state and its creditors, aimed at extending the duration of its debt to reach a sustainable level. This process can take the form of debt cancellation, rescheduling, or refinancing. With debt reaching 130% of GDP and a deficit of 14%, fiscal maneuvering is virtually impossible without restructuring. There is no shame in a country considered one of the poorest restructuring its debt. More developed nations than ours have had to restructure their debt in the past, and this approach has been well received by financial markets. For example, in Ghana, a debt restructuring agreement amounting to $2.8 billion was finalized between the Ghanaian government and its creditors. This restructuring aimed to reduce the debt burden and enable the country to achieve sustainable growth.

Does it necessarily have harmful consequences, like those described by Prime Minister Ousmane Sonko?

While it may have consequences, it's better than trying to tackle public finance reform alone. Generally, after debt restructuring, financial markets react favorably, and rating agencies upgrade the country's rating, given the country's commitment to restoring macroeconomic stability. This will inevitably be felt by the population, as it will allow the state to regain a degree of stability and revitalize the economy by undertaking projects to boost growth, achieve sufficient job creation, and reduce poverty. This will enable the state to restore public and investor confidence and, most importantly, implement social measures to support the most vulnerable segments of the population.

Should the government stubbornly refuse a restructuring of the country's public debt?

On the contrary, Senegal should consider this restructuring, as it will be the least disruptive way to return to non-hydrocarbon growth and attract foreign direct investment. Senegal is a geostrategic country, with an active youth population and abundant natural resources. This restructuring will allow the government to implement its vision. Perception is paramount in the financial market, and the government must do everything possible to restore the confidence of international partners. If this restructuring is combined with reforms, the country could return to redistributive growth in the near future.

Is Senegal at risk of being seen as a bankrupt country if it undertakes a debt restructuring?

The opposite approach could lead to debt repayment difficulties, and we risk falling into the trap Thomas Sankara described: “Debt cannot be repaid. If we don't pay, our creditors won't die. On the other hand, if we pay, we will die.” If we reject debt restructuring, a right granted to us as a sovereign nation, we will not have access to Eurobonds, a borrowing instrument that has been of great help to us in the past. Regional markets are unable to meet our financing needs, and imposing taxes during this difficult period could lead to social unrest.

What are the advantages of debt restructuring for Senegal?

Debt restructuring offers several advantages: Repayment periods can be extended: some deadlines are postponed for a longer period, giving the country better cash flow management. Interest rates can be reduced: lenders agree to lower prevailing rates, thus reducing the cost of debt. Additional guarantees are provided: to reassure investors, the government commits to implementing structural reforms, particularly in public finance management. Institutional support is available: the IMF, the World Bank, and other financial institutions support the country in implementing its reform program.

 

What would be the downside?

The downside is that we are sending crisis signals to the financial markets, which could classify us as a high-risk country, hence the rating, and could hinder our ability to obtain international financing. However, we have the option of restructuring our debt to demonstrate to the markets that we have accepted that we are in a difficult situation, but that we are determined to overcome this financial challenge.

Ultimately, you believe Senegal should accept the restructuring…

We will soon be in a situation where we have no other option, since the global financial system is closely interconnected and once we expose one institution to risk, it triggers a domino effect on all other financial institutions. It is important to note that in the context of a global health crisis and numerous geopolitical upheavals, we have had to resort to massive borrowing to prevent a recession. Bearing this in mind, there is no harm in restructuring our debt to provide breathing room and establish a development strategy and social initiatives to support the most vulnerable segments of the population.

Interview by Youssouf SANE

Senegal is at a crossroads. Faced with its colossal debt, estimated at 130% of GDP, the International Monetary Fund (IMF) is proposing a restructuring. This option is strongly opposed by the head of government, Ousmane Sonko. What path would be less painful for the country today? What would be the advantages and disadvantages of debt restructuring for Senegal? Financial expert Mouhamadou Dia sheds light on this in this interview.

 

First, in simpler terms, what is debt restructuring?

Debt restructuring is considered an agreement between a debtor state and its creditors, aimed at extending the duration of its debt to reach a sustainable level. This process can take the form of debt cancellation, rescheduling, or refinancing. With debt reaching 130% of GDP and a deficit of 14%, fiscal maneuvering is virtually impossible without restructuring. There is no shame in a country considered one of the poorest restructuring its debt. More developed nations than ours have had to restructure their debt in the past, and this approach has been well received by financial markets. For example, in Ghana, a debt restructuring agreement amounting to $2.8 billion was finalized between the Ghanaian government and its creditors. This restructuring aimed to reduce the debt burden and enable the country to achieve sustainable growth.

Does it necessarily have harmful consequences, like those described by Prime Minister Ousmane Sonko?

While it may have consequences, it's better than trying to tackle public finance reform alone. Generally, after debt restructuring, financial markets react favorably, and rating agencies upgrade the country's rating, given the country's commitment to restoring macroeconomic stability. This will inevitably be felt by the population, as it will allow the state to regain a degree of stability and revitalize the economy by undertaking projects to boost growth, achieve sufficient job creation, and reduce poverty. This will enable the state to restore public and investor confidence and, most importantly, implement social measures to support the most vulnerable segments of the population.

Should the government stubbornly refuse a restructuring of the country's public debt?

On the contrary, Senegal should consider this restructuring, as it will be the least disruptive way to return to non-hydrocarbon growth and attract foreign direct investment. Senegal is a geostrategic country, with an active youth population and abundant natural resources. This restructuring will allow the government to implement its vision. Perception is paramount in the financial market, and the government must do everything possible to restore the confidence of international partners. If this restructuring is combined with reforms, the country could return to redistributive growth in the near future.

Is Senegal at risk of being seen as a bankrupt country if it undertakes a debt restructuring?

The opposite approach could lead to debt repayment difficulties, and we risk falling into the trap Thomas Sankara described: “Debt cannot be repaid. If we don't pay, our creditors won't die. On the other hand, if we pay, we will die.” If we reject debt restructuring, a right granted to us as a sovereign nation, we will not have access to Eurobonds, a borrowing instrument that has been of great help to us in the past. Regional markets are unable to meet our financing needs, and imposing taxes during this difficult period could lead to social unrest.

What are the advantages of debt restructuring for Senegal?

Debt restructuring offers several advantages: Repayment periods can be extended: some deadlines are postponed for a longer period, giving the country better cash flow management. Interest rates can be reduced: lenders agree to lower prevailing rates, thus reducing the cost of debt. Additional guarantees are provided: to reassure investors, the government commits to implementing structural reforms, particularly in public finance management. Institutional support is available: the IMF, the World Bank, and other financial institutions support the country in implementing its reform program.

 

What would be the downside?

The downside is that we are sending crisis signals to the financial markets, which could classify us as a high-risk country, hence the rating, and could hinder our ability to obtain international financing. However, we have the option of restructuring our debt to demonstrate to the markets that we have accepted that we are in a difficult situation, but that we are determined to overcome this financial challenge.

Ultimately, you believe Senegal should accept the restructuring…

We will soon be in a situation where we have no other option, since the global financial system is closely interconnected and once we expose one institution to risk, it triggers a domino effect on all other financial institutions. It is important to note that in the context of a global health crisis and numerous geopolitical upheavals, we have had to resort to massive borrowing to prevent a recession. Bearing this in mind, there is no harm in restructuring our debt to provide breathing room and establish a development strategy and social initiatives to support the most vulnerable segments of the population.

Interview by Youssouf SANE