Moody’s Cuts Senegal Deeper Into Junk and Blames the Sonko Power Struggle

Moody's Ratings Agency has downgraded Senegal's credit rating, moving it one step deeper into the speculative category, or "junk," with a downgrade from Caa1 to Caa2. The agency cited several factors contributing to the downgrade, including rising refinancing pressures, weakening debt affordability, and limited prospects for debt reduction.

The downgrade specifically highlighted the political power struggle between the executive and legislative branches, as the recently dismissed Prime Minister Ousmane Sonko was elected as President of the National Assembly. This situation has increased the risk of delays in crucial budgetary measures needed to stabilize Senegal's finances.

The agency noted that high poverty, youth unemployment, and rising regional security threats further limit the government's ability to implement additional spending cuts. Senegal has been heavily reliant on the regional debt market, issuing around 8% of its GDP in debt since the beginning of the year at elevated yields. The downgrade reflects the agency's concern that a prolonged standoff between the executive and legislative branches could potentially lead to a debt restructuring, resulting in substantial losses for private-sector creditors.

Senegal's credit rating now places it eight steps below the investment-grade threshold, entering the deep speculative band described by Moody's as "of poor standing" with "very high credit risk."