Gambiaj.com – (DAKAR, Senegal) – Senegal’s Court of Auditors released a long-awaited financial review on Wednesday, confirming that the previous government misreported key economic data, including debt and budget deficit figures.

The revelations sent Senegal’s sovereign Eurobonds tumbling, with the 2033 dollar-denominated maturity leading losses. It dropped by more than 2 cents, trading at 79.95 cents on the dollar by 14:13 GMT.

“The work carried out by the Court shows that outstanding debt is higher than that shown in the reporting documents,” the report stated.

The audit, commissioned by President Bassirou Diomaye Faye upon taking office in April 2024, found that at the end of 2023, Senegal’s total outstanding debt stood at 99.67% of gross domestic product (GDP), compared to the previously reported figure of 74.41%.

Faye’s administration had already disclosed in an earlier audit that the country’s debt and budget deficit were significantly higher than what was reported under former President Macky Sall’s government. As a result, in June, the new government decided not to request further disbursements under Senegal’s three-year, $1.8 billion credit facility with the International Monetary Fund (IMF). The IMF had suspended the program pending the Court of Auditors’ review.

Following the report’s release, the IMF stated that it would analyze the findings and initiate consultations with Senegalese authorities to address the issues raised. “The IMF remains committed to supporting the authorities moving forward,” a spokesperson said via email.

The Court of Auditors’ report, covering public finances from 2019 to March 2024, also highlighted other financial irregularities, including discrepancies between reported and actual figures.

“The deficit calculated and reported to the IMF for the period under review is very far from its real value when the exact volume of project loan disbursements is taken into account,” the report stated. The reviewed budget deficit for 2023 was found to be 12.3% of GDP, significantly higher than the 4.9% reported by the previous administration.

Financial analysts warn that Senegal’s fiscal situation could further deteriorate. Leo Morawiecki, an associate investment specialist for emerging market debt at abrdn, projected that the debt-to-GDP ratio for 2024 could exceed 110%, given the widening deficit.

“In response, the IMF will almost certainly move Senegal from moderate to high risk of debt distress,” Morawiecki said in a note, adding that the government appeared committed to fiscal consolidation and an IMF-backed reform program.

In a message to investors following the report’s release, Senegal’s Ministry of Finance announced plans to centralize public debt management and enforce stricter controls over externally financed projects. The ministry also stated that it would soon organize a call with global investors to address concerns. A few observations based on the audit report include the following:

Irregularly Attached Revenues and Unprocessed Claims

A recent report has revealed that tax revenues have been irregularly allocated to previous fiscal years, distorting budgetary data. For instance, revenues collected in 2020 were recorded under 2019, artificially reducing the budget deficit for that year. These practices were identified at the Directorate General of Taxes and Domains (DGID) and the Directorate General of Customs (DGD), with a total of 131.04 billion CFA francs improperly assigned between 2020 and 2024.

Additionally, outstanding tax claims (RAR) have been significantly underestimated. While the government’s report cited 408.2 billion CFA francs, the Court of Auditors found that it did not account for customs claims amounting to 261.71 billion CFA francs, bringing the total RAR to 669.9 billion CFA francs as of March 31, 2024.

Incomplete Tax Expenditure and Unapproved Exemptions

The Court also highlighted that tax expenditures, particularly exemptions granted by the state, have not been properly assessed. The government’s report failed to provide data for 2022 and 2023, violating the standards set by the West African Economic and Monetary Union (UEMOA). According to the Court, these omissions obscure the real impact of tax exemptions on public finances.

Massive Transfers to Non-Personalized State Entities

The report uncovered substantial budget transfers to non-personalized state entities (SNPE), which lack legal personality, totaling 2,562.17 billion CFA francs between 2019 and 2024. These transfers, made via deposit accounts, bypassed standard regulatory oversight, putting public funds at risk of mismanagement.

Among the examined deposit accounts, the support unit for project and program implementation (CAP/Government) was used for unauthorized expenditures, including repayments of bank debts unrelated to the account’s initial purpose. In 2023, 305.94 billion CFA francs were disbursed for debt repayments without proper recording in state accounts.

Discrepancies in External Resource Data

The Court noted significant discrepancies between figures from the Directorate of Public Expenditure Programming (DODP) and those in the Table of State Financial Operations (TOFE). For instance, in 2023, project loan-financed expenditures reported by the DODP were 696.7 billion CFA francs higher than those recorded in the TOFE, artificially minimizing the budget deficit.

Off-Budget Bank Debt

The report exposed a significant amount of bank debt contracted outside standard budgetary procedures. As of March 31, 2024, the outstanding debt stood at 2,517.14 billion CFA francs, comprising 1,961.07 billion CFA francs in direct credits and 357.89 billion CFA francs in nominal obligation certificates (CNO). These debts, often backed by letters of comfort from finance ministers, were not authorized by Parliament and were excluded from finance laws.

Overfinancing Used for Unapproved Expenditures

In 2023, an excess financing of 604.7 billion CFA francs was released, but a portion (326.43 billion CFA francs) was diverted to budgetary expenditures, including bank debt repayments and transfers to public enterprises such as Senelec and Air Senegal. These expenditures, executed without budgetary coverage, were approved by the Minister of Finance, in violation of finance law regulations.

Undeclared Term Deposits in the Treasury

The Court also found that term deposits (DAT) amounting to 141.09 billion CFA francs, held by the public treasury, were not declared. These funds, locked in commercial banks, were used for unauthorized expenditures under instructions from finance ministers. This practice contravenes public fund management regulations, which mandate that only public accountants handle state finances.

Unaccounted Funds from Sukuk Sogepa

The report revealed that out of the 247.33 billion CFA francs raised through the Sukuk bond issuance by the National Built Heritage Management and Operating Company (SOGEPA) in 2022, only 132.9 billion CFA francs were transferred to the public treasury. The remaining 114.4 billion CFA francs were used outside official budgetary frameworks, without clear justification.

Underestimated Budget Deficits

By recalculating the budget deficit to include unrecorded expenditures, improperly allocated revenues, and off-book bank debts, the Court determined that actual deficits were far higher than the government’s official figures. In 2023, the recalculated deficit stood at 2,291 billion CFA francs (12.3% of GDP), compared to the government’s reported 911.7 billion CFA francs (4.9% of GDP).

Undisclosed Guaranteed Debt

The government reported a guaranteed debt of 535 billion CFA francs, but the Court found the actual figure to be 2,265.45 billion CFA francs, including guarantees issued for projects in the energy sector, particularly for Senelec. These undisclosed guarantees pose significant budgetary risks for the state.

Call for Transparency and Accountability

The Court of Auditors has issued several recommendations to improve public financial management, including the rationalization of transfers to SNPEs, the closure of bank accounts not managed by public accountants, and the timely publication of tax expenditure reports in accordance with UEMOA guidelines. The Court also called for improved coordination among Finance Ministry departments to ensure accuracy and completeness in budget reporting.

This report, which exposes major dysfunctions in public financial management, raises serious concerns about transparency and accountability. The response of the new authorities to these findings and the measures taken to prevent such irregularities in the future remain to be seen.