When the Numbers Don’t Add Up: What Senegal’s Downgrade Reveals About Hidden Debt and Credit Ratings
Senegal’s dramatic two-notch downgrade to B3 in February 2025 by Moody’s has been followed by S&P downgrading to B- earlier this week, sending shockwaves through African bond markets, but a comprehensive new analysis from Moody’s suggests this kind of debt revision is rarely an isolated incident. The rating agency’s July 17, 2025 report on ‘Large, unaccounted for, debt increases‘ provides crucial context for understanding how fiscal transparency failures systematically undermine sovereign creditworthiness - not just in Africa, but globally.
What Moody’s Found: Stock-Flow Adjustments as Early Warning Signals
Moody’s latest research centres on stock-flow adjustments (SFAs) - discrepancies between annual changes in debt stocks and what budget deficits alone would predict. These adjustments capture debt increases that cannot be explained by identifiable components such as economic growth, fiscal deficits, or exchange rate fluctuations. When persistent and large, they often signal underlying transparency weaknesses or incomplete fiscal reporting.
The agency finds that large and persistent stock-flow adjustments often signal weak fiscal transparency and that, over time, they reflect incomplete reporting and weak expenditure controls. Critically, Moody’s notes that ‘frontier markets in Sub-Saharan Africa and Latin America have experienced the biggest stock flow adjustments over the past decade’. The technical drivers behind SFAs are diverse and often legitimate, including debt management operations, asset acquisitions, arrears clearance, and statistical revisions. However, Moody’s research indicates that ‘around half of non-FX driven changes in stock-flow accumulations in low-income countries originated from arrears, revision in debt statistics, bank and SOE recapitalisations, off-budget transactions and undisclosed debt that was later uncovered’. The other half remained unexplained - an indicator Moody’s treats as a serious red flag for fiscal credibility.
Senegal’s Fiscal Picture: A Case Study in Transparency Failure
Senegal’s situation exemplifies how transparency gaps can rapidly destabilise sovereign credit profiles. Following the March 2024 election, audit findings by the Inspectorate of Public Finances and subsequent Court of Auditors report revealed ‘substantially weaker fiscal metrics’ with ‘central government debt at close to 100% of GDP in 2023, around 25 percentage points higher than previously published’.
The scale of the revisions was unprecedented: debt-to-GDP ratios jumped from a reported 74.4% to 99.7% for end-2023, while the fiscal deficit was revised upward from 4.9% to 12.3% of GDP. Moody’s assessment was unambiguous: ‘The scale and nature of the discrepancies portray a much more limited fiscal space and higher funding needs than previously thought, while also indicating material past governance deficiencies’. The rating impact was swift and severe. Moody’s downgraded Senegal’s rating to B3 from B1 in February 2025, changing the outlook to negative, following an earlier downgrade from Ba3 in October 2024. This marked a three-notch deterioration in four months - one of the fastest downward rating trajectories for a sovereign outside of default events.
Current debt metrics reflect the severity of the fiscal challenge. The IMF estimates Senegal’s debt reached 105.7% of GDP by end-2024, with gross financing requirements of approximately 20% of GDP projected for 2025. The IMF suspended its $1.8 billion Extended Credit Facility in June 2024 following the misreporting discovery, while Senegal’s Eurobonds declined significantly, with 2033 bonds falling to around 80 cents on the dollar.
A Global Pattern, Not an African Exception
While African cases dominate recent headlines, Moody’s emphasises that stock-flow adjustments occur across all regions and income levels. The agency notes that ‘stock-flow adjustments have many underlying causes, and are common across advanced economies and emerging and frontier markets alike’. For context, Eurostat monitoring shows that several EU countries recorded SFAs in the 1-4% of GDP range in 2024, underlining that this phenomenon is present even in advanced economies.
However, the persistence and magnitude differ significantly by region. Recent African cases demonstrate particularly troubling patterns:
Mozambique’s 2016 revelation involved undisclosed debt amounting to 10% of GDP through state-owned enterprises, leading to sovereign default and an estimated economic impact approaching the country’s entire 2016 GDP. The so-called ‘tuna bonds’ scandal involved $2.2 billion in secret government guarantees arranged through Credit Suisse and VTB Capital.
Zambia’s complex debt structure contributed to its 2020 default, with opacity stemming from state-owned enterprise borrowing not fully consolidated in sovereign statistics. The total debt involved 44 different lending entities across multiple jurisdictions, complicating both transparency and eventual restructuring efforts.
Republic of Congo’s 2017 discovery revealed substantial oil-backed debt structured through offshore entities, with total obligations reaching levels significantly above initially reported figures.
Gabon’s post-2023 transition disclosed debt burdens approximately 14 percentage points higher than Moody’s previous projections, with domestic arrears of close to 12% of GDP largely unreported in official statistics.
Why Stock-Flow Adjustments Matter for Sovereign Ratings
Moody’s research demonstrates a clear correlation between large stock-flow adjustments and weaker governance scores. The agency found that ‘large stock-flow adjustments over time are correlated to weaker scores under our Transparency and Disclosure assessment, as well as in our evaluation of institutions and governance’. This matters because transparency and governance increasingly influence sovereign credit assessments. Rating agencies have significantly enhanced their methodologies to capture these risks, with governance factors now representing approximately 25% of sovereign ratings across major agency frameworks.
The economic logic is straightforward: persistent positive stock-flow adjustments indicate that fiscal deficits may not accurately represent government financing needs. As Moody’s explains, ‘when stock-flow adjustments are positive, a higher primary balance is required to stabilise debt over the long term’. This creates both fiscal and credibility challenges that rating agencies must incorporate into their assessments. For countries with histories of significant adjustments, Moody’s notes it ‘may incorporate debt increasing stock-flow adjustments in our forecasts for sovereigns with a history of significant stock-flow adjustments. Such a track record would also typically lead us to make a more negative assessment of fiscal policy effectiveness’.
Technical Challenges in Debt Restructuring
Transparency issues have complicated recent debt restructuring efforts under the G20 Common Framework. Moody’s highlights that ‘incomplete quantification and classification of claims and the subsequent need for lengthy data reconciliation has contributed to delays in finalising recent debt restructuring cases under the Common Framework process, as in Zambia’. Zambia’s restructuring process took 3.5 years (2021-2024), partly due to transparency complications including debt data verification delays and hidden debt discoveries requiring renegotiation. Ethiopia’s ongoing restructuring (since 2021) demonstrates similar challenges, while Ghana’s relatively faster process benefited from greater initial debt transparency. The framework relies on transparent debt reporting to determine restructuring perimeters and facilitate informed decisions on appropriate relief levels. Recent initiatives include the Joint External Debt Hub (JEDH) for enhanced data collection and various transparency incentives, but progress remains uneven across borrowing countries.
The Path Forward: Transparency as Strategic Financial Tool
The convergence of rating methodology enhancements and transparency requirements creates both challenges and opportunities for sovereign borrowers. Improving fiscal data systems is no longer merely a technical accounting exercise - it has become a strategic imperative for maintaining market access and creditworthiness. Technical recommendations from international financial institutions emphasise comprehensive debt-deficit reconciliation systems, enhanced state-owned enterprise monitoring, and systematic contingent liability tracking. Implementation of Government Finance Statistics Manual 2014 (GFSM 2014) accounting standards provides a framework for more comprehensive reporting.
The rating agency response suggests this trend will intensify rather than moderate. Enhanced governance assessment methodologies, improved off-balance sheet liability analysis, and deeper integration of transparency metrics into credit opinions indicate that data quality will increasingly influence sovereign borrowing costs. For emerging and frontier market sovereigns, this creates clear incentives for transparency improvements. Research shows governance improvements typically result in 1-2 notch rating upgrades over 3-5 years, while poor governance adds 50-200 basis points to sovereign spreads. Conversely, strong transparency frameworks can reduce spreads by 30-100 basis points - representing substantial savings on sovereign borrowing costs.
Conclusion: From Warning to Opportunity
Senegal’s case illustrates how transparency failures can trigger rapid and severe credit deterioration, but it also demonstrates the rating agencies’ increasing sophistication in detecting and penalising such weaknesses. Moody’s comprehensive analysis of stock-flow adjustments provides governments with both a diagnostic tool and an early warning system for potential transparency issues. The message for sovereign debt managers is clear: in an era of enhanced transparency requirements and sophisticated rating methodologies, fiscal data quality has become inseparable from creditworthiness. As Moody’s research demonstrates, addressing these gaps proactively can prevent the kind of sudden, severe rating actions that have characterised recent African debt crises.
Rather than viewing enhanced transparency requirements as burdensome oversight, sovereign borrowers should recognise them as opportunities to strengthen their credit profiles and reduce borrowing costs. The technical capacity building required to implement these improvements represents an investment in long-term fiscal credibility and, ultimately, in more sustainable debt management frameworks.
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