Senegal

Country Summary

Economic performance and outlook: Economic growth is projected to increase from an estimated 6.8% in 2017 to 7% in 2018, fueled by the secondary sector (projected to grow 7.4%) and the tertiary sector (projected to grow 7%). Demand is driven primarily by increased gross fixed capital formation (which grew 8.9% in 2017). The budget deficit is projected to drop from 3.7% in 2017 to 3% in 2018; the current account balance is projected to drop to 5.2% in 2018. This marked improvement from 2015–16 is due to robust exports, particularly of phosphate, peanuts, and zircon. 

Macroeconomic evolution: Fiscal policy in 2017 was bolstered by stronger revenue collection and control over current expenditures. The inflation rate remained low at 1.7% in mid-2017, well below the West African Economic and Monetary Union (WAEMU) ceiling of 3%. Exchange rate policy is based on a fixed rate for the CFA franc, which appreciated in 2016 against the naira (up 52.1%), the British pound (up 20.4%), and the Guinean franc (up 16.3%). Public debt reached 62% of GDP in 2017, up from 59.5% in 2016. Although public debt increased sharply, from 19% of GDP in 2006, the debt ratio remains below the WAEMU ceiling of 70%. The increase is attributable to large infrastructure programs with high long-term impacts that have been implemented in recent years in agriculture, transportation, and special economic zones. According to the International Monetary Fund (IMF) and the World Bank, the public debt is sustainable and presents no major risks. 

Tailwinds: Senegal has worked to improve services that support production, particularly energy and transportation. The country has taken advantage of lower oil prices in recent years. Energy output jumped sharply, with installed capacity rising from 898 MW in 2015 to 1,168 MW in 2016 as new power plants came online. The average cost of production dropped from CFAF 62 in 2015 to CFAF 45 in 2016. There are now fewer power outages, and the national electricity company, SENELEC, received no subsidies in 2016 and 2017. Thanks to resources mobilized by the government, infrastructure and transportation services were constructed or updated, with information technology–related reforms and policies facilitated substantial changes. The mining sector grew stronger; Grande Côte Opération increased zircon production, and Sabodala Gold Opération increased gold production. 

Headwinds: The main challenges to growth are delays in implementing reforms and the effects of climate shocks. Another headwind is security in the subregion. Subsidies for electricity may be needed again if oil prices rise substantially. Human capital objectives have yet to be realized, despite investment in education and training. The main challenges include improving the primary school completion rate, examination results, and work schedules of teachers. Preventative measures and actions need to be taken in risk and disaster management. In terms of local governance, initiatives are required to increase the endowment and capital development funds allotted to local communities and to continue reforming local taxation.

Source: African Economic Outlook 2018

Fixed Income

Issuance strategy 

The West African Economic and Monetary Union (WAEMU) comprises eight countries: Benin, Burkina Faso, Cote d’Ivoire, Guinea Bissau, Mali, Niger, Senegal and Togo.. Bond issuance strategies vary from one state to another but most use the MTDS tool to develop their issuance strategy. Generally, most programs are focused on short-term tenor and characterized by securities with repayments by amortization and deferred coupon. Recently, with the advent of the AUT, the zone has progressed towards lengthening and standardizing securities. 

Benchmark issues 

For the moment, there is no benchmark maturity in the WAEMU. The region is in the assessment phase of developing a yield curve. WAEMU countries understand that issuance policies need to evolve towards considering the need for a yield curve. 

Yield curve 

Yield curve calculation models 

There is no benchmark yields curve in the WAEMU Zone. 

Interpolation methods 

As there is no yield curve in the WAEMU, no method for interpolation is in use. 

Yield curve managed by

Agence UMOA-Titres is responsible for the yield curve. 

Display platform 

There is no yield curve in the WAEMU. 

Challenges in building an efficient yield curve 

  • Market fragmentation: fragmented securities market and non-standardized securities. 
  • Price discovery issue
  • Narrow investor base: comprising homogeneous investors such as banks. 
  • Limited and illiquid secondary market: nonexistent secondary market where the securities are acquired for "buy and hold”. 
  • Coexistence of two agencies for issuing bonds and bills: The “Conseil Régional de l’Epargne Publique et des Marchés Financiers” (CREMPF) is in charge of monitoring the syndication. The Agence UMOA-Titres is responsible for auctions.

Guide to Buying Bonds

Procedures for market participation

The frequency of auctions is determined by the states, together with the Central Bank. Each state cannot hold T-Bills and Government bonds auction more than once a week.For Treasury Bills, a calendar program specifying the instruments and their amounts and maturities, is published quarterly by the Minister of Finance in consultation with the Central Bank, and in consideration mainly the foreseeable revenue and government spending. Whereas Treasury bonds, an indicative issuance calendar specifying the instruments and their amounts and maturities, is set annually by the Minister of Finance in consultation with the Central Bank.

Each issuance should be advertised at least 7 days before the auction by describing the issuance characteristics. 

Bidders submit to the Central Bank, sealed in a ballot box reserved for this purpose, a submission form specifying the amounts and the interest rates or the price offered. Submissions may also be made electronically in the conditions defined by the Central Bank.

Later than one hour after the deadline for bids submission, the National Directions of the BCEAO transmit electronically, by fax or any other means of rapid communication accepted by the Central Bank, the main submissions to the principal agency of the BCEAO, which is organizing the auction.

Treasury bills are eligible for refinancing by the Central Bank. Investors and the Central Bank may buy or sell Treasury bonds on the secondary market, awarded by private treaty. In this context, they are required to post the purchase price and sale, which they are willing to transact.

Treasury bonds can be traded on the secondary market. As such, they can be exchanged at the Regional Stock Exchange (BRVM) or outside the BRVM.

Settlement cycle

The settlement date is T+1 for domestic operations and T+3 for operations between Members of the Union. This period can be modified by BCEAO. However, the contracting parties are free to agree on a minimum term above to unwind their operations. If the instructions given by the two parties are identical, the operation is definitely offset the value date agreed. In case of discrepancy between the evidences, the Central Bank suspends the transaction and notifies this decision to both parties for correction. Central Bank ensures the existence of adequate provisions before executing the compensation requested. Transmission to the Central Bank of notifications occurs in the selection of speakers, fax, telex, ordinary mail or any other means of rapid communication accepted by the BCEAO.

Taxation

Treasury bills and Treasury bonds incomes are tax-free throughout the territory of the Member States of the WAEMU.But for non-members, the tax rates are different from one country to another. In Senegal, the tax rate one securities income is equal to 6%.

Rating

Rating AgencyCurrent ratingOutlook
Moody’sB+Negative
FitchB1Stable
Standard and Poor’sNo ratingNo outlook

Primary Dealers

There is no appropriate Primary Dealers System in the WAEMU zone.

Subscription of Treasury bills is reserved to banks, financial institutions as well as regional financial institutions with an ordinary current account in the books of the Central Bank. Other investors, physical or legal persons, whatever their country of origin can also purchase Treasury bills in the primary market through banks located in the territory of the Union.

The primary subscription of Treasury bonds is restricted to banks, financial institutions, regional organizations and financial management company and intermediation (IMS). Other investors, physical or legal persons, whatever their country of origin may also purchase Treasury bonds on the primary market through banks and brokerage firms (SGI) located on the territory of the Union.

Market restrictions

Openness to international investors

The members of the zone are actively encouraging foreign investment. Foreign companies are free to invest and list on the regional stock exchange (BRVM), which is based in Abidjan and is dominated by Ivorian and Senegalese firms. 

Capital controls

There are no significant limits on foreign investment nor are there generally differences in treatment of foreign and national investors, either in terms of the level of foreign ownership or sector of investment.

Restriction on FX and profit repatriation

WAEMU has unified foreign exchange regulations. Under these regulations, there are no restrictions for transfers within the community, and designated commercial banks are able to approve routine foreign exchange transactions inside the community. The transfer abroad of the proceeds of liquidation of foreign direct investments no longer requires prior governments approval.