Africa is seeking to turn a decade of steady growth into lasting economic resilience. Across the continent, a new emphasis on transparency is taking hold, exemplified by Senegal’s decision to disclose more than $13 billion in previously unrecorded debt. This commitment to greater openness is helping rebuild investor confidence, strengthen institutions and create room for innovative financing strategies that can support the continent’s next phase of development.
The urgency of structural fiscal reform is best understood through the scale of Africa’s debt burden. The continent’s total external debt stock surpassed $1.1 trillion in 2023, while the cost of servicing that debt continues to consume a growing share of scarce public revenue. The United Nations Conference on Trade and Development (UNCTAD) reports that African governments now spend more on debt service than on health and education combined, with interest payments estimated at $163 billion in 2024 alone.
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Senegal’s debt-to-GDP ratio, which rose from 65% to 132% after an audit uncovered previously undisclosed liabilities, is not simply an isolated case. It points to a wider challenge around fiscal transparency. The IMF’s 2023 Fiscal Monitor notes that more than half of Africa’s low-income countries are either in debt distress or at high risk of it, up from 22% a decade ago. The trend points to a broader erosion of fiscal space and highlights the need for structural reform.
Senegal’s discovery of off-budget liabilities, which nearly doubled its officially reported debt burden, also highlights what the World Bank describes as the “hidden debt” phenomenon. This can involve state-owned enterprises (SOEs) borrowing with implicit government guarantees, natural-resource deals used as collateral and supplier credits that bypass parliamentary oversight.
The Mozambique “tuna bonds” scandal, in which $2 billion in hidden government-guaranteed loans contributed to a 2016 default and currency crisis, remains a cautionary example. Research from the Jubilee Debt Campaign found that between 2000 and 2020, more than 30% of new sovereign lending to Africa contained secrecy clauses or was contracted through opaque special-purpose vehicles.
Such practices can seriously undermine investor confidence. When a country’s true fiscal position emerges, as it did in Senegal, the resulting credibility shock can lead to credit-rating downgrades and make access to affordable international financing more difficult.
The structural weakness of African public finance is also reflected in tax-to-GDP ratios, which hover between 12% and 15% in Francophone West Africa, compared with the OECD average of 34.1%. The United Nations Economic Commission for Africa (UNECA) has identified a 15% tax-to-GDP ratio as an important threshold for countries seeking to finance the Sustainable Development Goals (SDGs).
Operating below this level, as Senegal and some of its neighbours do, limits the resources available for basic public services. The African Tax Administration Forum (ATAF) highlights that the gap is not simply a result of low incomes. Tax exemptions granted to attract investment also reduce potential revenue, with African countries losing an average of 2.5% of GDP annually through tax expenditures.
These incentives can place additional pressure on public finances, contributing to a cycle of low domestic revenue, increased borrowing and rising debt.
The strategy of introducing targeted levies on mobile money, digital services and gambling represents a shift towards taxing some of the fastest-growing parts of Africa’s economy rather than relying heavily on narrow and often informal tax bases. The GSM Association (GSMA) reports that Sub-Saharan Africa accounts for 70% of the world’s $1.26 trillion in mobile money transaction value.
Ghana’s introduction of a 1.5% Electronic Transfer Levy (E-Levy), although controversial, reflected an effort to tap into this growing financial activity. Similarly, UNCTAD forecasts that Africa’s digital economy could reach $712 billion by 2050, yet much of the revenue generated by digital platforms currently escapes domestic taxation.
The OECD’s Two-Pillar Solution on digital taxation provides a framework through which African countries can seek greater taxing rights over large digital companies. Senegal’s approach to taxing activities such as gambling and mobile money therefore forms part of a wider continental challenge: expanding the tax base towards sectors that are likely to drive future growth.
Senegal’s plan to close 19 inefficient agencies is another example of efforts to rationalise public spending. State-owned enterprises across Africa can place significant pressure on public finances. A 2022 IMF study found that contingent liabilities from SOEs average 5.8% of GDP in sub-Saharan African countries.
These entities can combine operational losses with significant debt that eventually becomes a burden on the sovereign balance sheet. The World Bank’s approach of “spending better” rather than simply “spending less” is therefore relevant. It advocates measures such as zero-based budgeting, in which spending is reassessed, alongside stronger public investment management to evaluate projects before funding is committed.
Senegal’s actions, together with wider efforts to rationalise subsidies, reflect a difficult but necessary reality: when fiscal space is limited, maintaining inefficient programmes and agencies can divert resources from health, education and infrastructure.
The impending $90 billion debt maturity wall across West Africa represents another significant near-term challenge. Large refinancing requirements can force governments into difficult choices between maintaining access to markets and reducing the cost of borrowing.
Senegal’s reliance on the regional bills market, with yields of 6.8% to 8%, is a calculated attempt to avoid formal restructuring. However, persistently high domestic borrowing costs can crowd out private-sector credit and contribute to a cycle in which banks become increasingly exposed to government debt.
Ghana, by contrast, entered the G20 Common Framework, triggering a difficult restructuring of its Eurobonds that involved losses for investors. The UNCTAD Trade and Development Report has warned that heavy reliance on short-term, high-yield domestic borrowing can leave countries vulnerable if investor appetite suddenly weakens.
The growing interest in debt-for-climate and debt-for-nature swaps reflects the intersection of two major African challenges: high debt and growing climate vulnerability. The African Development Bank (AfDB) estimates that Africa needs $2.8 trillion by 2030 to meet its climate commitments under the Paris Agreement, yet current financing falls far short of that requirement.
Deals such as Portugal’s $500 million debt-for-nature swap with Cabo Verde in 2023 and Ecuador’s $1 billion swap for Galapagos conservation provide examples of how such instruments can be used. UNECA’s Sustainable Debt Coalition is also developing technical templates for these mechanisms.
However, the volumes involved remain small compared with Africa’s overall debt stock. Critics, including the Centre for Global Development, argue that such swaps can remain limited transactions that distract from the need for comprehensive and rules-based debt relief, while potentially introducing external conservation priorities.
For West African countries such as Senegal and The Gambia, the opportunity lies in determining how these instruments can complement broader debt-management strategies and create additional fiscal space for climate adaptation.
The comparison between Senegal and Ghana provides a useful case study in sovereign debt management. Ghana’s path under the G20 Common Framework has been difficult, involving a 37% nominal haircut on its $13 billion Eurobond stock and a prolonged period of limited access to international capital markets. However, it has also helped reset the country’s debt trajectory, with the IMF projecting public debt to decline from 79% of GDP in 2023 towards 55% by 2028.
Senegal, following its debt audit, has instead chosen to engage the IMF through a precautionary programme while continuing to rely on WAMU regional market instruments. The risk is that high regional yields may not address the underlying debt stock but instead increase the amount of revenue required to service it.
Ghana’s approach carries the cost of rebuilding investor confidence, while Senegal’s strategy carries the risk that continued reliance on expensive market financing could eventually lead to a deeper restructuring if global interest rates remain elevated and regional borrowing costs do not fall.
Beneath the complex world of debt instruments and bond yields lies the more fundamental issue of institutional reform. The IMF’s diagnostic on Senegal found that a fragmented debt-management architecture, in which multiple agencies could borrow without central oversight, contributed to the hidden-debt problem.
One solution is a unified debt-management office with legal authority over sovereign borrowing, supported by a publicly accessible and regularly updated debt registry. The African Development Bank’s $35 million technical assistance grant is intended to strengthen this kind of fiscal-management infrastructure.
Without independent audit institutions, protected by law and adequately resourced to track government-guaranteed loans, the cycle of hidden liabilities, fiscal surprises and market uncertainty could continue across the continent, regardless of how innovative new financing instruments become.
Africa’s sovereign debt challenge is, at its core, also a challenge of state capacity and transparency. The path from fiscal fragility to resilience is not simply a choice between austerity and growth. It requires a combination of governance reform, stronger domestic resource mobilisation and strategic international engagement.
The World Bank’s “Debt Transparency in Developing Countries” report underscores the importance of publishing comprehensive and regular debt information, noting that transparent countries can enjoy lower borrowing costs than less transparent peers.
The long-term goal must therefore move beyond crisis management towards a stronger fiscal social contract: transparent borrowing for productive and independently audited investments, broader tax bases, higher domestic revenues and, ultimately, greater fiscal independence.
For Senegal, Ghana and the rest of Africa, transparency, taxation and expenditure reform are more than technical requirements for securing international financing. They are part of the difficult but necessary work of building genuine and lasting fiscal sovereignty.
