Government plans 7.1% of GDP deficit in 2025 in draft budget
Metodi Tzanov
Helping finance professionals understand what is going on in Emerging and Frontier Markets
The Senegalese govt has planned a budget deficit of 7.1% of GDP in the draft 2025 budget, up from 11.6% of GDP deficit estimate in the revised 2024 budget, according to the draft budget law, published by the finance ministry late on Friday. Both figures are significantly higher than earlier projections by the IMF and rating agencies Moody's and S&P, which downgraded the country earlier this year, forecasting a deficit of 7.5% of GDP in 2024, and 5-6% in 2025. The draft budget attributed the double-digit deficit expected this year to revenue shortfalls, an upward adjustment of the financial charges on debt and higher expenditure on project loans, saying figures may undergo further upward revisions once the audit of public finances has been finalized. The budget assumes growth of 8.8%. We recall the draft was endorsed last week but no details had been released so far. It should be debated and endorsed by Parliament before end-December.
Revenues
Tax revenue is projected at XOF 4,795bn, up by 24% y/y from the revised 2024 budget, and 2.1% vs. the initial one. The optimistic projection is pegged to the expected rebound of the economy from the challenges of 2024, when it was affected by the socio-political tensions in the first quarter, with a broader slowdown then persisting throughout the year, excluding in the energy sector. Government's efforts to expand the tax base and strengthen collection should contribute as well.
Hydrocarbon revenues are projected at XOF 72bn in 2025, up from XOF 50bn in 2024, supported by a twofold y/y increase in crude oil production to 30mn barrels, and the start of LNG production early in the year for an overall yield 1.2mn tons. In the breakdown, XOF 51bn of these will go to the budget (in turn breaking down into XOF 3bn tax revenue and XOF 48bn other revenue), whereas XOF 22bn will be allocated to the special treasury accounts, including XOF 14bn to the stabilization fund and XOF 7bn to the inter-generation fund. Going forward, hydrocarbon revenues are expected to maintain an upward trajectory, reaching XOF 88bn in 2026 and XOF 155bn in 2027, with the government planning to capitalize on these to support structural investment.
Key revenue measures include broadening the tax base, securing revenue streams, enhancing collection processes, and intensifying efforts to combat tax evasion and fraud. Specific measures that were cited in the document include:
Expenditure
Budget expenditure will go up by 3% compared to the revised 2024 budget, and by 16% compared to the revised one. In the breakdown, this comes on the back of increase in recurrent spending whereas development spending is cut marginally compared to the revised 2024 budget. The budget prioritizes the rationalization of expenditures, including through public administration reforms, to focus on essential spending and to create fiscal space for urgent and strategic needs, the document reads. Plans are also in place for the enhanced performance monitoring and evaluation frameworks at both sectoral and national levels, embedding a results-based management culture and strengthening accountability mechanisms.
Social expenditures have been allocated a total envelope of XOF 1,885bn (compared to XOF 1,844bn in 2024), representing 34.5% of budget expenditure, excluding debt servicing. This envelope aims to contribute to strengthening universal health coverage, addressing territorial disparities, and continued subsidies, particularly for energy, agriculture, and public safety.
Recurrent expenditure
The increase in recurrent spending (+5% vs. the revised 2024 budget) comes on the back of sizably upped debt interest payments (+13% vs. the revised 2024 budget, and +61% vs. the initial one), 3% increase in payments on wages, and 3% increase in payments for goods and services and current transfers. The latter increase reflects 2% reduction in payments on goods and services (vs. the initial 2024 budget), and 21% increase in current transfers. Spending on subsidies to the energy sector is projected at XOF 450bn, unchanged from the estimate for 2024 (i.e. XOF 100bn more than the initial budget plan for that year). In addition, the primary sector will get an envelope of XOF 120bn in subsidies to stimulate agricultural production.
As to interest payments, the government noted that the integration of the results of the Court of Auditors' audit on public finances will lead to a further upward revision of the outstanding debt and debt service in 2024 and 2025, and said it plans to engage investors in negotiations on a more suitable repayment profile.
Development expenditure
Development expenditure has been carefully aligned with the government's strategic objectives, targeting initiatives with significant potential for gross fixed capital formation to bolster infrastructure and achieve the nation's developmental goals, the govt said. Efforts to streamline investment spending have already resulted in savings of over XOF 249bn by removing or adjusting projects not aligned with the national agenda. The development spending plans also includes XOF 90bn of precautionary reserve, i.e. projects that will be cut or downscaled in case of shocks that result in lower than projected revenue and/or pressures on recurrent spending.
External resource allocations now focus on projects funded through grants and concessional loans that support sectoral priorities, including education, healthcare, infrastructure, energy, and regional development. Special emphasis is placed on decentralization to harmonize territorial development, leveraging regional potential while addressing spatial disparities in access to essential services and infrastructure.
The Public Investment Program (PIP) for 2025-2027 includes nearly XOF 150bn for new projects, such as a territorial intervention fund for structural investments and a 400km gas pipeline to transport natural gas from offshore fields to power plants and industries. This initiative aims to advance the "Gas to Power" and "Gas to Industry" strategies, reduce carbon emissions, and lower electricity costs. Other flagship projects include the "Water Highways" initiative to ensure sufficient water supply across regions, healthcare infrastructure enhancements, improved security equipment, and resilience-building measures against flooding.
Deficit and financing
Given the projected revenues and expenditures, the deficit is seen declining sizably y/y to XOF 1,600bn from XOF 2,362bn in the revised 2024 budget. In terms of ratio to GDP, the deficit will shrink to 7.1% of GDP in 2025 from 11.6% in 2024. This is well above the plan announced within the 2025-2027 Medium Term Budget Framework (3.0%), which will also have to be revised going forward. It is also not clear whether and to what extent the figures have been aligned with the IMF.
The overall financing needs are estimated at XOF 4,574bn with debt amortization going up to XOF 2,972bn in 2025 from XOF 2,129bn in 2024. A significant part of these, XOF 3,011bn is to be covered by other loans, which may include both domestic and external loans. While the budget draft does not provide a further breakdown of these, according to the 2025-2027 debt strategy, issued alongside, the financing plan envisages XOF 940bn new Eurobond issuances as well as more commercial loans.