On November 16, 2011, MIGA issued a guarantee of $99 million supporting a US dollar cross-currency swap arrangement between Standard Bank Plc (SB) and the government of Senegal. Senegal’s Ministry of Economy and Finance has entered into the swap with SB as a hedge against currency risk exposure related to the 10-year tenor, $500 million Senegal Eurobond issued in May 2011. The MIGA guarantee to SB provides coverage against non-honoring of sovereign financial obligations for a period of 10 years. Specifically, it insures against a failure by the government of Senegal to honor its obligation to make requisite payments under the swap.
The proceeds of the Eurobond will be used to finance new infrastructure projects as well as to redeem a $200 million bond issued in 2009. The Senegalese government expects to use these proceeds to finance a 19 kilometer extension of the Diamniadio Toll Road to the new Blaise Diagne International Airport project and critical energy sector investments under the government’s emergency energy sector strategy.
The projected development impacts of SB’s swap arrangement with the government are twofold. The direct benefits relate to the elimination of the currency mismatch risk the government of Senegal is exposed to under the Eurobond, which removes a potential source of instability to government finances; and improved terms on the swap, which contribute to a reduced cost of servicing the USD Eurobond.
Indirect benefits of the investment relate to the government of Senegal’s commitment to use the net proceeds from the Eurobond to finance the infrastructure projects noted above. The World Bank’s Country Assistance Strategy for Senegal emphasizes the need to consolidate public resources on infrastructure, road, and electricity networks.
The project is aligned with MIGA’s priorities of supporting investments in infrastructure and investments into countries eligible for concessional lending from the International Development Association.