Senegal has a mystery Togolese bond bid

Senegal is teetering on the brink of default, but someone in its fellow West African Economic and Monetary Union member nation of Togo really likes buying up its treasury bills.

Locked out of international bond markets by a ‘hidden debt’ scandal and with an IMF bailout still up in the air, Senegal is borrowing a lot more this year in the West African CFA franc, the euro-pegged common currency of Africa’s biggest monetary union. The equivalent of a fifth of last year’s supply has already been sold in 2026.

This has become quite important to investors in Senegal’s beleaguered international bonds. Because of Senegal’s access to pooled reserves of the union’s central bank, BCEAO, many hope that the local issuance will help Dakar meet a €330mn payment due next month on €1bn of debt to avoid becoming the WAEMU equivalent of what Greece once was to the eurozone. This debt is trading at about 80 cents on the euro:

On Tuesday, Bloomberg reported ‘funding secured’ for this upcoming payment, and others, largely on the basis of the regional debt sales.

But there is something curious about where a large part of the money is coming from.

Out of CFAF 510bn (more than $900mn) in bonds and bills that Dakar has already sold on the union’s debt market so far this year, one-third has gone to Togo — the second smallest economy of the West African Economic and Monetary Union, and a country that barely featured in Senegal’s local debt sales last year. The big buyers are more usually banks from Senegal and Côte d’Ivoire, although the latter in particular have often been agents for international investors.

Whoever is buying from Togo, they are doing so at a critical moment for Senegal’s finances.

Senegal’s debt has been pushed well past 100 per cent of its GDP by the discovery last year of at least $7bn in ‘hidden’ borrowing by the previous government, a strange saga where loans were signed and even publicly announced but disbursements were not tracked.

Senegal is determined not to default. The government instead has a plan to increase taxes, on everything from gambling to mobile money, and win back the IMF. Perhaps not coincidentally, President Bassirou Diomaye Faye and Prime Minister Ousmane Sonko are former tax officials, although they are under political pressure to avoid a crisis in any case.

The problem, as Abdoulaye Ndiaye and Martin Kessler recently argued in a Finance for Development Lab note, is that “Senegal would need to keep a primary surplus of 2 per cent of GDP for close to a decade” for the plan to work. This is extremely hard to do for developing nations that have big investment needs (Jamaica is a rare exception).

But not every developing nation has access to a euro-convertible currency union with a thriving regional bond market.

Senegal has tapped the WAEMU market, overseen by UMOA-Titres, a regional debt agency, in an interesting pattern lately. In Senegal’s first domestic auction of the year, on January 16, Togolese accounts barely featured among buyers of CFAF 154bn of bills and bonds:

On the same day, however, Senegal held another sale. This time, a Togolese whale appeared. A single buyer from the country bought close to CFAF 51bn of one-year debt, a full allocation of their bid:

In the next auction, on January 30th, out of CFAF 125bn sold by Senegal, Togo made up CFAF 60bn — again, another full allocation, all in one-year debt:

It’s unknown if that was a single buyer. But in a following sale of CFAF 143bn of debt on February sixth, Togo again accounted for CFAF 60bn of bids, again with the investor(s) receiving a full allocation, but this time on six-month paper:

Senegal’s finance ministry didn’t respond to a request for comment.

Before we start speculating about identities, note something else about these auctions. Senegal’s three-year CFA franc bonds are starting to pile up rejected bids, as the borrowing cost creeps up towards 8 per cent. Even if the regional market is cushioning Senegal’s refinancing needs for now, there is clearly a longer term limit.

There aren’t many Togolese banks with the wherewithal to drop the equivalent of $300mn on Senegal’s bonds over a few weeks.

Togo’s Oragroup is one regional debt market player. The bank is also in the aftermath of an abortive takeover bid and was classified by Fitch last year as having carried out a distressed debt exchange. (Fitch then stopped issuing ratings.) Oragroup didn’t respond to a request for comment.

Two larger African banking institutions are based in Togo.

Ecobank, the huge pan-African lender (total assets of $32bn at the end of September), is headquartered in Lomé, Togo’s capital. The bank is in every WAEMU country and is a leading dealer in the region’s debt market. Ecobank Senegal has in particular been a leading participant in Senegal’s debt market for many years — a point it isn’t shy about posting on the gramme (good for them!). But that is the Senegalese subsidiary, not Togo.

“While we maintain the highest confidence in the regional debt market, our subsidiary, Ecobank Togo, did not participate in the acquisition of this specific issuance,” Ecobank said (emphasis theirs).

The bank added that “we remain committed to our long-standing partnership with the Senegalese government and continue to support the economic development of the region through our established local operations.”

The West African Development Bank (Banque Ouest Africaine de Développement, or BOAD) is also headquartered in Lomé.

The bank’s mandate includes both national development and deepening of the union’s capital markets. Like other regional development banks in Africa, such as Afreximbank, it claims preferred creditor status on sovereign loans.

BOAD has just over $6bn in assets and is able to pledge regional bonds at BCEAO for financing. It also issued €1bn in international debt at the end of last year, which would have left it with some cash.

In theory, BOAD would have the firepower to buy up Senegal’s paper at scale, even if CFAF 170bn would still be a large increase on recent trends. Senegalese bonds and bills made up just over CFAF 86bn of BOAD’s debt securities portfolio of CFAF 854bn at the end of June last year.

BOAD is working with Senegal on an ‘public asset development’ fund. Serge Ekué, the bank’s president, also visited the country and met the president and prime minister last month amid the mysterious Togolese transactions.

So . . . could it be BOAD?

BOAD said:

Our relationship with member states, including Senegal and Togo, is focused on providing long-term strategic support. This involves financing structural investments and providing technical assistance to help governments achieve their national development plans. While we maintain a constant dialogue with state authorities to support their economic stability, our intervention remains within the framework of development financing.

Concerning the specific details of sovereign debt auctions, including the identity or volume of subscriptions by specific investors, the UMOA-Titres agency is the competent regional authority. UMOA-Titres is specifically mandated to manage the issuance of public debt securities and is the only entity authorised to provide detailed commentary on the results of these auctions or the profile of the subscribers.

Consequently, BOAD does not comment on specific market transactions or the investment activities of third parties on the regional financial market.

UMOA-Titres didn’t respond to a request for comment.

For now, the Togolese truth is still out there.

In the meantime, the mystery sheds light on a much bigger shift in the background of Africa’s capital markets.

Since 2010, Africa’s domestic bond markets have tripled in size to around half a trillion dollars, and are now the biggest source of borrowing for governments even when excluding South Africa and Egypt as big, industrial economies that already issue lots of local debt, according to the African Debt Database. In WAEMU’s case, more than a third of the union’s domestic credit went to governments as of 2024, according to the IMF.

Domestic bonds have mostly been kept out of sovereign debt restructuring, because the consequences of losses for local banks, insurers, and pension funds would usually go far beyond the money saved. Zambia didn’t restructure its domestic debt in its recent default because of this, despite significant non-resident holdings. Ghana did, but even then this had to be very carefully choreographed alongside regulatory relief for banks.

As Ndiaye and Kessler also wrote in their recent note, any domestic debt restructuring in Senegal would be even more difficult, because these financial stability risks could also affect the rest of the currency union. On the other hand, they warned about the consequences of relying too much on this borrowing to avoid a default:

However, as time passes and domestic debt replaces external debt, there is a risk that arguments against restructuring CFA debt will weaken: in particular, if fiscal sustainability cannot be restored by treating foreign currency debt alone . . . The Senegal episode is not only a national issue: it tests the resilience of WAEMU’s integrated bank– sovereign system and the regional government securities market.

Senegal’s next domestic debt auction is scheduled for February 20th.

Will the Togolese buyer(s) again grace the market? Let’s see.