By Peter Doyle, American Economist, former senior executive at the IMF.
In the fall of 2024, when Ndongo Samba Sylla and I highlighted the absurdity, given the historical link of the CFA franc to the euro, of the IMF’s forecasts for 12-month inflation in Senegal, namely -13% by the end of 2025 and +42% by the end of 2026, we noted that the IMF was clearly not paying attention to the numbers, not even its own. What could still happen, we wondered?
We were far from imagining what would come next.
After a change of government in April 2024, audits have recently confirmed that the loans contracted by the government from 2019 under several IMF programs exceeded by more than 40% of GDP the levels announced by the IMF, including to the Senegalese public (see graphs). This will weigh on Senegal for generations.
This long credit storm – mainly of local origin, undetected by IMF staff, and accompanied by significant hydrocarbon discoveries – followed a similar episode in the middle of the IMF program in Mozambique in 2016 and a first written warning in 2018 from the opposition (current Prime Minister) regarding data falsification. But in vain.
At the request of the IMF, which wanted to quickly secure market access, the Senegalese Parliament recently committed to recognizing these debts, as part of a supplementary finance law without specific debate. Furthermore, none of the officials involved, most of whom still hold their positions and cover their tracks, have been sanctioned. Former President Sall, who orchestrated the disaster, remains welcome in the highest international diplomatic circles. And no one at the IMF has been sanctioned; they simply raised their medium-term primary balance target by two percentage points of GDP, and that was it.
This situation gives rise to the worst form of moral hazard. Lenders, IMF officials, politicians, and technocrats in Senegal and beyond will conclude that if they were to do it again, they would get away with it again. And the IMF’s praise for the transparency of this government, presented as a bulwark against this kind of situation, reflects the same sincere naivety that facilitated the disaster in the first place.
The precedent thus created leaves Senegalese fiscal institutions both exorbitantly indebted and highly vulnerable to new assaults of this kind, all to the detriment of some of the poorest populations on the planet.
This cannot continue.
The key is to put an end to the rush, the source of all this debacle: to satisfy their superiors, IMF employees evidently neglected essential data consistency checks, due diligence, and basic common sense.
Instead, while continuing to fully honor all its other public debts, Senegal should “isolate” the stock of undeclared debts and stop repaying them pending a full review. In particular, creditors who have violated the law should see their claims canceled, and officials who have acted illegally should be prosecuted.
A rigorous study of the destination of funds (public/private consumption, investments, and/or capital outflows) should be conducted, as this could radically transform historical data, including GDP levels, and thus the understanding of Senegal’s macroeconomy. Without this, no coherent strategy for addressing public debt can be developed at this time.
The only precaution to be taken now regarding the settlement of undeclared debts is that if some are canceled, the impact on local creditors will be calibrated to keep them above their regulatory capital requirements. This will support national financial stability in the meantime.
This device will deter potential creditors. But far from being a disadvantage, it is an advantage: thus stung, they will cease to treat financial reporting weaknesses with indifference.
Externally, global “ex ante transparency” is also necessary to prevent the recurrence of debt surprises: this notably involves amending sovereign insolvency laws, mainly in the United States and the United Kingdom, so that the courts of these countries do not recognize any new loan falling under their jurisdiction, except for autonomous confirmation agreements from the IMF, unless all documents are submitted to local parliaments at least 30 days before signing.
Far from hindering an early IMF program for Senegal, all this serves to make a maintenance program coherent, while correcting macroeconomic data, foreshadowing a medium-term debt strategy, including foreign currency debt.
Who should take the blame?
The absurdity of seeing former President Sall strutting on the international stage as a gray eminence after presiding over this disaster must end; he should be considered a pariah.
Likewise, IMF staff are officially required to ensure the accuracy of program data, not to hide behind others’ assurances. The fact that the IMF qualifies all this as “false reporting” is therefore a cover-up. On the contrary, the directors of the Africa department and fiscal affairs, responsible for the quality of their staff’s work, have apparently never seen a mistake in multiple programs, despite absurd inflation projections and a colossal budget deficit, now topped by a plan that exacerbates all errors, designed based on uncorrected and evidently untenable macroeconomic data.
As a result, and to emphasize that, in any case, losing sight of 40% of GDP is unacceptable, the Managing Director should dismiss the two directors.
Otherwise, she should be removed from her position for tolerating, even encouraging, such a catastrophic failure in IMF staff work.
Therefore, putting an end to the rush: a temporary IMF program for Senegal, coupled with measures to freeze undeclared debts, full accountability, and ex ante transparency, is now essential to save this country’s fiscal institutions and, by example, those of the world.
