Senegal’s finance minister has defended the government’s use of derivative-linked financing, saying the transactions helped the country secure cheaper funding at a time when access to international markets had become prohibitively expensive.
Finance Minister Cheikh Diba said Thursday that Senegal used Total Return Swaps (TRS) in a series of operations last year to raise funds at an average yield of about seven percent, well below the 11 to 12 percent rates the country would likely have faced in the Eurobond market.
According to Diba, the lower borrowing cost translated into savings of roughly 36 billion CFA francs – about $64 million – for the treasury.
The minister’s remarks come as Senegal faces renewed scrutiny over the structure and disclosure of its public debt after the transactions drew attention this week and reignited concerns over transparency in the country’s financing practices.
The finance ministry said earlier this week that Senegal used TRS across seven separate operations between April and November 2025.
The deals have become a sensitive issue because they emerge against the backdrop of a wider debt reporting controversy that has strained Dakar’s ties with the International Monetary Fund (IMF) and complicated efforts to restore investor confidence.
Senegal has been under pressure since the discovery in September 2024 of debt reporting irregularities that led to the freezing of support under a US$1.8 billion IMF programme.
That episode also shut Senegal out of international bond markets, leaving the government increasingly reliant on regional borrowing and alternative financing instruments to meet its budget needs.
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Diba insisted that the swap arrangements were not hidden from the IMF and said the Fund had been informed last year during what he described as routine discussions.
“The IMF was informed of the existence of these swaps during our regular exchanges,” he said, rejecting suggestions that the government had failed to disclose the operations.
The transactions were first reported in detail earlier this week by the Financial Times, which said the structures could potentially grant fresh creditors advantages over existing bondholders and noted concerns within the IMF about the amount of information available on the deals.
Diba pushed back against those claims, saying the TRS arrangements did not include any embedded preferential treatment for participating lenders and were not backed by collateral.
He argued that the financing should be seen as a practical response to Senegal’s difficult market conditions rather than as an attempt to circumvent normal debt channels.
Still, he acknowledged that the contracts include a risk-management feature linked to fluctuations in the value of the underlying bonds.
He said rising interest rates could reduce the value of the bonds held by TRS investors, potentially triggering what he described as an “independent amount” of around 30 percent to cover the exposure.
He did not elaborate on the precise conditions that would activate such a call, leaving questions over the mechanics and possible contingent liabilities attached to the deals.
In a statement, an IMF spokesperson confirmed that Senegalese authorities had informed Fund staff about “a number of total return swap transactions with lenders.”
But the spokesperson added that the specific terms of those transactions had not yet been shared with the Fund.
The IMF said that, in general, such swap arrangements would be treated as external debt for the purposes of its debt sustainability analysis.
That classification is important because Senegal is seeking to rebuild credibility with lenders and revive negotiations over a possible new IMF-backed programme.
Analysts say the issue goes beyond the technical details of the swaps and touches on a broader question of whether Senegal can convince investors and multilateral lenders that it has regained full control over the transparency and management of its public finances.
For now, the government is arguing that the transactions were a cost-saving tool in a difficult financing environment.
But the controversy underlines how, for Senegal, the challenge is no longer only how to raise money – but also how to reassure the market about the way it does so.
