Senegal’s worsening debt crisis has once again highlighted one of the fundamental vulnerabilities in African infrastructure finance: governments frequently borrow in foreign currencies to build roads, railways, airports and power plants whose revenues and wider economic returns are generated largely in local currencies.
Discussing Senegal’s debt crisis on Business Africa on Arise TV, Rolake Akinkugbe-Filani drew attention to this structural mismatch.
Senegal, she noted, borrowed in euros and dollars to finance projects such as the Regional Express Train linking Dakar with the country’s new international airport. But the railway does not earn dollars, while the airport and the wider economy primarily generate revenues in CFA francs.
“The hidden debt is just the tree that hides the forest,” Akinkugbe-Filani quoted one analyst as saying. The larger problem, she argued, is the mismatch between the currencies in which African governments borrow and those in which the infrastructure they finance generates revenue.
It is an important argument. But Senegal’s membership of the CFA franc zone introduces a significant qualification.
The CFA Franc Provides Senegal With a Currency Buffer
Senegal is not exposed to foreign-currency borrowing risks in quite the same way as countries such as Ghana, Zambia or Nigeria.
The West African CFA franc is pegged to the euro at a fixed exchange rate of €1 to CFAF 655.957. This provides Senegal with substantial protection against one of the most dangerous features of foreign-currency borrowing: a sudden increase in debt-servicing costs caused by the collapse of the domestic currency.
The contrast with Nigeria over the past decade is striking.
In 2015, the naira’s official exchange rate averaged roughly ₦192 to the dollar. By 2025, the average official rate had risen above ₦1,500 to the dollar. In other words, the naira lost close to 90 per cent of its value against the US currency over the period.
The CFA franc, by contrast, remained fixed at CFAF 655.957 to the euro throughout the same decade.
The CFA franc has, of course, moved against the dollar as the euro-dollar exchange rate has fluctuated. But these movements have been dramatically smaller than the depreciation experienced by currencies such as the naira.
The implication for infrastructure borrowing is significant.
Consider a country that borrows $1 billion to build infrastructure.
If its currency subsequently loses half its value against the dollar, the government must generate roughly twice as much local currency to service exactly the same dollar debt.
Nigeria provides a particularly stark illustration. A $1 billion debt represented approximately ₦192 billion at the average official exchange rate in 2015. At an exchange rate above ₦1,500 to the dollar a decade later, the same $1 billion represents more than ₦1.5 trillion.
That is an increase of more than sevenfold in the naira value of the debt, even before accounting for interest payments.
This dynamic has repeatedly worsened debt problems across emerging and frontier markets. Currency depreciation increases the domestic cost of servicing foreign debt, deteriorating fiscal conditions can then weaken the currency further, and governments can become trapped in a vicious circle of depreciation and rising debt-servicing costs.
Senegal is substantially protected from this mechanism when it borrows in euros.
Because the CFA franc is fixed to the euro, a loss of investor confidence in Senegal cannot independently cause the CFA franc to depreciate by 50 or 100 per cent against the euro and suddenly double the local-currency cost of servicing euro-denominated debt.
That is a significant advantage.
Indeed, the CFA franc may be one reason why the revelation of Senegal’s hidden debts has not produced an even more severe macroeconomic crisis.
A country with its own freely floating currency facing revelations of billions of dollars in previously undisclosed borrowing, the suspension of an IMF programme, repeated sovereign credit downgrades and loss of access to international bond markets could also have experienced a severe currency crisis.
That, in turn, could have driven inflation sharply higher and dramatically increased the domestic cost of servicing foreign debt.
The CFA system has substantially weakened one of the principal channels through which sovereign debt crises can become full-scale currency and inflation crises.
Currency Stability Has Also Delivered Lower Inflation
The contrast between the CFA franc zone and Nigeria is visible not only in exchange rates but also in inflation.
Countries in the West African Economic and Monetary Union, or WAEMU, have generally experienced substantially lower inflation than Nigeria.
The difference became particularly pronounced following Nigeria’s currency and fuel subsidy reforms.
Nigeria’s inflation rate rose above 30 per cent in 2024 before declining after the rebasing of the Consumer Price Index and subsequent improvements in exchange-rate stability. The country’s average inflation rate in 2025 remained above 20 per cent.
Inflation across the WAEMU region, by contrast, remained in the low single digits.
The difference cannot be attributed entirely to the CFA franc. Food production, government spending, energy prices, monetary policy and domestic supply conditions also affect inflation.
But exchange-rate stability is an important part of the explanation.
When the naira depreciates sharply, the cost of imported fuel, machinery, pharmaceuticals, industrial inputs and consumer goods rises. These higher costs are subsequently transmitted throughout the economy.
A stable CFA franc reduces this exchange-rate pass-through.
This means the benefits of the CFA system extend beyond government debt servicing. Exchange-rate stability can also protect households and businesses against some of the inflationary consequences of severe currency depreciation.
But the Protection Is Only Partial
The CFA franc does not eliminate Senegal’s foreign-currency risk.
The most obvious limitation is that the CFA franc is pegged to the euro, not the dollar.
Senegal therefore remains exposed to exchange-rate movements on its dollar-denominated debt. If the euro — and consequently the CFA franc — weakens significantly against the dollar, Senegal needs more CFA francs to meet its dollar obligations.
The precise scale of Senegal’s protection therefore depends partly on the currency composition of its external debt.
A country whose foreign borrowing is overwhelmingly denominated in euros would receive much greater protection from CFA membership than one with substantial dollar-denominated liabilities.
But there is a much more fundamental limitation.
Currency Stability Cannot Make Bad Debt Sustainable
The CFA franc can protect Senegal against exchange-rate depreciation. It cannot protect the country against excessive borrowing.
Nor can it transform poorly selected infrastructure projects into productive investments.
A government that borrows heavily to build a railway must ultimately generate sufficient additional economic activity, tax revenue or direct project income to justify the investment and contribute to servicing the debt.
The fixed exchange rate does not change this basic arithmetic.
If Senegal borrowed too much, concealed liabilities, paid excessive financing costs or invested borrowed funds in projects that generated inadequate economic returns, the CFA franc cannot solve the resulting debt sustainability problem.
This is the crucial distinction in understanding the Senegalese crisis.
Senegal is not primarily experiencing a conventional currency crisis. It is facing a crisis of debt sustainability, fiscal transparency and the economic returns generated by years of public borrowing.
The revelations following the change of government in 2024 fundamentally altered investors’ understanding of the country’s finances.
Billions of dollars of previously undisclosed borrowing emerged. Senegal’s reported public debt burden increased dramatically. The IMF suspended its $1.8 billion programme, credit rating agencies downgraded the country deeper into speculative territory, and Senegal effectively lost access to the Eurobond market on favourable terms.
The CFA franc could prevent these developments from triggering an independent collapse of Senegal’s currency against the euro.
It could not restore the country’s credibility with creditors or generate the fiscal resources required to meet its debt obligations.
The CFA Franc’s Protection Also Comes With Constraints
Membership of the CFA zone creates another complication.
Senegal cannot independently devalue its currency, determine its own monetary policy or freely use central bank financing to respond to a fiscal crisis.
Monetary policy is conducted through the Central Bank of West African States, BCEAO, while the currency arrangement imposes disciplines that countries with sovereign currencies do not face.
These constraints have benefits.
They provide monetary credibility, reduce exchange-rate volatility and limit governments’ ability to finance persistent fiscal deficits through money creation.
But they also remove some of the adjustment mechanisms available to countries with independent currencies.
Senegal cannot attempt to inflate away its domestic debts through aggressive monetary expansion. Nor can it independently devalue its currency to try to restore external competitiveness.
The same monetary architecture that protects Senegal against a sudden collapse of the CFA franc therefore also limits the government’s room for manoeuvre when a fiscal crisis occurs.
The Bigger African Infrastructure Problem Remains
Akinkugbe-Filani’s broader argument about African infrastructure finance nevertheless remains valid.
Across the continent, governments face enormous infrastructure deficits but have limited access to long-term financing in their domestic currencies.
They therefore turn to Eurobonds, bilateral creditors, development finance institutions and international commercial lenders.
The resulting loans are frequently denominated in dollars, euros or other foreign currencies.
The roads, railways and power plants financed with this money, however, generate their economic returns primarily in local currency.
For countries with freely floating currencies, the risks are particularly severe.
A project may initially appear financially viable. But if the domestic currency depreciates substantially, the local-currency cost of servicing the foreign loan can rise far more quickly than the revenues generated by the project.
The Nigerian experience demonstrates the scale of this risk. Between 2015 and 2025, the naira moved from an average official rate of roughly ₦192 to the dollar to more than ₦1,500. Any long-term infrastructure debt contracted in dollars at the beginning of that period would therefore have experienced a more than sevenfold increase in its naira value.
Senegal demonstrates both the benefits and the limits of an alternative monetary arrangement.
The CFA franc provides the country with a meaningful buffer against the currency mismatch problem, particularly for euro-denominated debt.
The decade-long contrast is striking: while the naira lost close to 90 per cent of its value against the dollar and Nigeria experienced periods of inflation above 30 per cent, Senegal retained a fixed exchange rate against the euro and the wider WAEMU region generally maintained inflation in the low single digits.
But monetary stability cannot compensate for inadequate transparency, excessive borrowing or investments that fail to generate sufficient economic returns.
This makes the central question raised by Senegal’s crisis even more significant.
The question is not simply why African countries borrow in foreign currencies to build infrastructure that earns local currencies.
It is how Senegal — a country possessing one of Africa’s strongest external monetary anchors — accumulated a debt burden severe enough to lose access to international capital markets and require renewed negotiations with the IMF.
The answer suggests an important lesson for African governments.
The CFA franc can shield Senegal from some of the consequences of excessive foreign borrowing. It cannot shield Senegal from insolvency.
