This report does not constitute a rating action.
Key Takeaways
- Rising global geopolitical tensions and tariffs, uncertainties regarding U.S. policies on the African Growth Opportunity Act (AGOA) and USAID, challenges related to security, climate-related events, as well as volatile commodity prices, imply increasing financial and economic risks to countries on the African continent.
- However, sovereigns in the West African Economic and Monetary Union (WAEMU) seem to be less directly exposed to these risks than peers. Moreover, their foreign currency reserves, low inflation, as well as relatively diversified economies and benefits of WAEMU membership, represent an adequate buffer in our view.
- Therefore, we still expect that, on average, WAEMU sovereigns will outperform their peers through 2027, with Senegal the only one in the monetary union for which our rating outlook is negative, due to idiosyncratic reasons.
Global geopolitical tensions and rising tariffs could hamper economic activity in WAEMU’s main trading partners. Moreover, the suspension of financing for USAID (the U.S. Agency for International Development) could go beyond the 90 days announced in February and AGOA may not be renewed.
Why it matters: A slowdown in trade could hurt economic growth in WAEMU. This comes at a time when USAID funding for infrastructure, health care, and humanitarian programs could be lacking, amid the region's political fragmentation and security threats from armed conflicts in the Sahel. The U.S. administration's current stance also creates uncertainty regarding bilateral agreements under AGOA that expire in September this year.
What we think and why: S&P Global Ratings believes WAEMU as a whole will continue to post strong economic performance in 2025-2027, after growth of 6.5% in 2024 versus 5.3% in 2023, with inflation down to 2.9% from 7.4% in 2022. What's more, the union's foreign currency reserves have grown substantially in recent months, supporting 4.7 months of imports at year-end 2024.
WAEMU Sovereigns Outperform The Sub-Saharan African Average
We currently expect strong macroeconomic performance to continue in most of WAEMU’s member states. In 2024, economic activity in WAEMU expanded by 6.2% against 5.3% in 2023. This growth outpaced the 3.6% average for Sub-Saharan Africa, and we forecast this will continue for sovereigns we rate in the union over 2025-2027 (see chart 1).
We believe economic growth will stem from higher hydrocarbon and mining output, ongoing industrialization, progress in improving the business environment, and continued productive infrastructure investments. In our view, this will be supported by relatively low inflation, which we forecast will stay well below the average in Sub-Saharan Africa (see chart 1). Solid economic performance will, in tandem with budgetary consolidation measures, lead to a gradual reduction in budget deficits from an average of 7% of GDP in 2023 to 3.8% in 2027 (see chart 2).
Chart 1
Chart 2
Strong Foreign Currency Reserves Buffer Potential External Headwinds
As of year-end 2024, WAEMU's average coverage of imports by reserves had increased to 4.7 months from 3.3 months in 2023. This trend was supported by the ramp-up of hydrocarbon exports from Cote d’Ivoire, Niger, and Senegal; declining import prices; and the ongoing push to boost industrialization and the production of higher-value-added products locally. Disbursement by international partners and stricter application of the foreign currency repatriation regulation also supported the improvement. Donor support is strong in most countries, and we believe this will continue, at favorable conditions, albeit likely lower than in the past.
In addition, we expect further strengthening of the union's foreign currency reserves. The region's central bank forecasts that WAEMU's reserves will cover 5.5 months of imports by the end of this year. For the sovereigns we rate, we currently expect a 43% increase in reserves in 2027 compared to the 2024 level (see chart 3). The improvements in macroeconomic performance that we currently forecast, alongside a corresponding reduction of vulnerabilities, would likely support further gradual increase in sovereigns' creditworthiness.
Chart 3
Impacts Of Global Geopolitical Developments Appear Manageable
Our macroeconomic forecasts for rated members of WAEMU, as is the case for all sovereigns, are subject to substantial uncertainty. This emanates largely from ongoing global geopolitical developments that pose several risks, which if they materialize, could weigh on WAEMU sovereigns' economic and budgetary outcomes.
Rising tariffs could put a brake on trade and weigh on economic activity in the EU, China, and WAEMU’s other trading partners. This will likely have negative second round implications for the monetary union’s economy. A prolonged suspension of USAID financing or the non-renewal or non-replacement of bilateral agreements under the AGOA--which expires in September 2025--could also hurt economic growth and budgetary performance. In addition, WAEMU is still grappling with internal political fragmentation, its vulnerability to climate events and potential commodity price shocks, while managing threats to security from the situation in the Sahel region.
However, direct exposure to these risks seems limited, overall. Most of the sovereigns we rate in WAEMU are relatively diversified in terms of their economic structure, export basket, or trade partners. Exports to the U.S. are generally low and only Cote d’Ivoire has a positive bilateral trade balance. Under AGOA, the largest exporter to the U.S. is Cote d’Ivoire at about $180 million in 2024, which accounts for less than 1% of the country’s exports and about 20% of its exports to the U.S. This is followed by Togo ($70 million), Senegal ($55 million), and Benin ($32 million). By comparison, non-WAEMU members Ghana, Kenya, and Madagascar export to the U.S. each year goods and services valued at $425 million, $575 million, and $350 million, respectively. Nevertheless, if AGOA were to be discontinued and not replaced, it would likely curb the future growth of certain rapidly emerging sectors, such as textiles (for example, in Benin).
Commodities exports are important but benefit from relatively diversified types and destinations. We see no reliance on one type of commodity, as is the case for most oil and mineral exporting countries in Sub-Saharan Africa. In our view, this somewhat mitigates the related risks. For instance, the Democratic Republic of Congo exports almost exclusively copper and cobalt, mainly to China. At the same time, oil makes up at least two-thirds of exports in Angola, Congo-Brazzaville, Chad, and Nigeria. In WAEMU, the hydrocarbons sector is ramping up production and mining output (gold, uranium, and other rare metals) is increasing, but their share of total exports remains modest overall. Agricultural products (coffee, cocoa, and cotton) are notably important for Cote d’Ivoire, Benin, and Burkina Faso.
WAEMU membership provides additional external buffers via a monetary arrangement. In October 2024, we revised upward our assessment of WAEMU's monetary framework, mainly to reflect progress in the governance of the region's central bank, very low inflation, France’s guarantee of the currency's convertibility, and stability of the currency peg with the euro (see “Monetary Assessment For Rated WAEMU Members Revised Upward,” published Oct. 18, 2024). We also considered WAEMU sovereigns' pooled reserves at the central bank, which are available to each member state and provide an additional cushion against idiosyncratic shocks. In our view, the currency peg has supported proactive debt management in several countries by limiting the impact of volatile foreign exchange markets, since most of the external commercial debt is exposed to the euro. The peg contains much of the risk from a large surge in the ratio of interest to revenue caused by depreciating currency.
Of our five sovereign ratings in WAEMU, only the one on Senegal carries a negative outlook. This is due to the substantial revision of Senegal's budgetary position. As a result, its budget deficit in 2019-2023 is now estimated to have averaged about 12% of GDP, double the previous estimates, and we estimate that its debt totaled 106% of GDP in 2024. The current administration of Senegal, WAEMU's second largest economy, has stated its intention of implementing a significant budgetary adjustment in the coming years. We expect budget deficits will gradually decline, but still average 6.5% of GDP in 2025-2028 and that debt will remain at about 100% of GDP, constraining fiscal flexibility. The next 12 months will be key for the country's debt sustainability and liquidity position given the expected spike in debt repayments over that period (see “Senegal Rating Lowered To 'B' On Large Fiscal And Debt Revisions; Outlook Negative,” published Feb. 28, 2025).
| Rated WAEMU sovereigns | |
|---|---|
| Sovereign | Long-term rating/Outlook/Short-term rating |
| Benin | BB-/Positive/B |
| Burkina Faso | CCC+/Stable/C |
| Cote d'Ivoire | BB/Stable/B |
| Senegal | B/Negative/B |
| Togo | B/Positive/B |
Related Research
- Research Update: Senegal Rating Lowered To 'B' On Large Fiscal And Debt Revisions; Outlook Negative, Feb. 28, 2025
- Cote d'Ivoire, Nov. 18, 2024
- Burkina Faso, Nov. 11, 2024
- Monetary Assessment For Rated WAEMU Members Revised Upward, Oct. 18, 2024
- Research Update: Benin Outlook Revised To Positive From Stable On Strong Budgetary Prospects; 'BB-/B' Ratings Affirmed, Oct. 18, 2024
- Research Update: Togo 'B/B' Ratings Affirmed; Outlook Positive, Oct. 18, 2024
| Primary Contact: | Sebastien Boreux, Paris 33-14-075-2598; sebastien.boreux@spglobal.com |
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| Benjamin J Young, Dubai 971-4-372-7191; benjamin.young@spglobal.com | |
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| Hugo Soubrier, Paris 33-1-40-75-25-79; hugo.soubrier@spglobal.com | |
| Marko Mrsnik, Madrid 34-91-389-6953; marko.mrsnik@spglobal.com |
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