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Moody's assigns a first-time rating of B1 to Senegal; outlook stable

March 9, 2011 Moody's Investors Service
Moody's Investors Service has today assigned B1 foreign- and local-currency government bond ratings to the Republic of Senegal. The rating outlook is stable. This is the first time that Moody's has rated Senegal.


Additionally, Moody's has assigned an A2 foreign- and domestic-currency country ceiling to Senegal, which is explicitly the regional ceiling for the Western African Economic and Monetary Union (WAEMU), of which Senegal is a member. Moody's has also assigned A2 country ceilings for foreign- and domestic-currency deposits to Senegal.


RATINGS RATIONALE


Moody's rationale for Senegal's B1 rating is based on:


(i) Senegal's low economic resilience, reflecting a low income economy, is balanced against a long track record of robust growth, currently fostered by sizeable infrastructure investments.


(ii) Senegal's macroeconomic stability, enhanced by almost unlimited access to foreign currency, due to its participation in the WAEMU.


(iii) A moderate but rising debt burden, additional revenue potential, and strong support from the international official community.


(iv) Senegal's comparatively long track record of political stability.


With a GDP of approximately US$14 billion in 2010, Senegal has a long track record of steady growth. This explains in part why the World Bank decided to classify Senegal among the lower-middle income countries in 2010. Since it received debt forgiveness under the HIPC initiative in 2006, the government has invested heavily in strengthening the economy and the public institutions. The economy benefits from a steady inflow of private remittances, grants and loans. Remittance inflows have exceeded 10% of GDP since 2007, which has supported a high (nearly 80% of GDP) ratio of private consumption. In Moody's view, the continuation of economic modernisation, alongside the completion of important infrastructure projects, is credit positive.


Senegal has also displayed a relatively good degree of macroeconomic stability, compared with its peers. This stability is enhanced by Senegal's participation in the WAEMU. The latter involves a multilateral monetary arrangement, under which the French Treasury effectively guarantees the convertibility of the domestic currency into Euros at a fixed rate. Senegal is therefore not constrained in its access to foreign currency to repay its debt, which virtually eliminates the risk of a balance of payments crisis. Additionally, the Senegalese current account deficit is almost completely covered by FDI and multilateral financing.


According to Moody's, the government's financial strength (assessed at low) stems from its moderate debt burden and fiscal flexibility, at least on the revenue side. Looking ahead, however, it also reflects the deterioration of government debt metrics, which are expected to reach 40% of GDP in the next few years, and the associated risks for public finance management. However, Senegal benefits from strong and sustained support from the international official community, which translates into lower debt servicing costs for the approximately 76% of its debt that is external and provided on concessional terms.


In addition, the country's susceptibility to event risk, assessed at low by Moody's, reflects a stable political environment and a financial system that is sheltered from external shocks by WAEMU participation.


PREVIOUS RATING ACTION & METHODOLOGY USED


There is no Moody's last rating action on Senegal, as today's rating action is a first time rating.


The principal methodology used in rating of Senegal was "Moody's Sovereign Bond Methodology", which was published in September 2008 and can be found on www.moodys.com.
Company — Senegal
  • Full name
    The Republic of Senegal
  • Registration country
    Senegal