Senegal's debt sold off after Sonko said he would try to stop the updated 2026 budget and the government's plan for 2027 from advancing. That pushback knocked eurobonds across several maturities under 50 cents per dollar for the first time since Sept. 1.
The 2033 and 2048 notes dropped by up to 2 cents, while the 2031 bonds slid 2.10 cents to 49.99 cents per dollar by midafternoon in London. Emerging market credit was softer on Tuesday, but Senegal lagged even more, which Standard Chartered Plc's head of Africa strategy, Samir Gadio, tied to "increased uncertainty on whether budget plans could be passed."
Sonko's tactic could throw Senegal's debt overhaul off track and push back the timing for a new IMF arrangement. The government is seeking to finalize a $2.2 billion IMF facility while reworking external obligations after uncovering billions in previously unreported borrowing by the former administration.
To secure IMF board approval, authorities need tighter spending. Last month, they struck a preliminary agreement to substitute the program that the IMF put on hold in 2024 after the undisclosed debts came to light. In the 2027 draft, the government targets a 4.7% of GDP deficit - reduced from a revised 7.6% this year - and cuts total spending by 2.9% to 7.4 trillion CFA francs (about $12.6 billion), largely via reduced investment and tweaks to subsidies.
If the impasse drags on, IMF sign-off could be delayed and revamping external borrowings through the Group of 20's Common Framework could become more difficult.
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Speaking in Dakar on Monday, Sonko attacked a proposal to pare fuel subsidies and limit them to 1% of GDP by 2028. He labeled the plan austerity aimed at settling debts that were not previously disclosed and said, "For now, we're rejecting nothing, but we will approve nothing either." He added, "If solutions are found, all the better, we will vote for it."
Sonko became speaker of parliament in May after President Bassirou Diomaye Faye removed him as prime minister. He leads Pastef, the party that commands a majority in the National Assembly, providing enough votes to block bills.
Budget Minister Bassirou Sarr justified the policy course, referencing rising energy costs associated with turmoil in the Middle East, alongside the need to safeguard public-sector salaries and ongoing social programs.
Some managers sat out Senegal's bonds given the uncertain path to a complex restructuring. As Carlos de Sousa of Vontobel Asset Management put it, "Fiscal adjustments of the magnitude Senegal requires are never easy and require political consensus, which Senegal doesn't seem to have at the moment."
The bottom line: watch whether the Assembly advances the measures underpinning the $2.2 billion IMF facility and whether price action stabilizes as budget talks play out.
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