This paper analyzes expenditure composition and economic development in Benin. It addresses some specific issues on the basis of a stylized model of the Beninese economy that highlights the tradeoff between expenditure on wages and investment. The model takes into account specific characteristics of the Beninese economy, including the large share of agriculture in employment and GDP, the large number of urban unemployed engaged in precarious informal sector activities, and the strong influence of labor unions in the formal labor market concentrated in the urban areas.
resources become available, further increases in the wage bill could only be achieved by compressing public investment.
Figure 1 . Benin: Key Fiscal Indicators, 2005-15
(Percent of GDP)
Sources: Beninese authorities; and Fund staff estimates and projections.
This study addresses these issues on the basis of a stylized model of the Benineseeconomy that highlights the tradeoff between expenditure on wages and investment. The model takes into account specific characteristics of the Benineseeconomy, including the large share of agriculture in employment and
official reserves was the highest among the WAEMU member countries in 2008.
My authorities are well aware of the challenges ahead, in particular the need to design an appropriate policy response to the shocks stemming from global economic downturn. They are fully convinced that this global economic downswing impact could weaken the macroeconomic outlook over the medium-term. This is why; my authorities have put in place four-pronged strategies aiming at increasing the resilience of Benineseeconomy to exogenous shocks while putting it on the path of broad-based growth
uncertainties about the regional outlook and unfavorable external and financial conditions.
Macroeconomic Policies and Structural Reforms Going Forward
9. Against the backdrop of risks, and with a view to strengthening the resilience of the Benineseeconomy, the authorities’ policies will focus over the medium-term on boosting domestic revenue mobilization, safeguarding debt sustainability, promoting financial stability, fostering economic diversification and improving the business environment for a private sector-led growth.
10. The authorities will continue to
featuring two areas—rural and urban—and four sectors—domestic agricultural, exporting agricultural, manufacturing, and informal service. Value added taxes (VAT) are imposed on consumption of domestic agricultural and manufacturing goods ( Box 1 ). The model is calibrated to match salient macro and distributional features of the Benineseeconomy, including share of different sectors in consumption and production, tax structure, and rural and urban income Gini indicators.
3. The framework generates an endogenous distribution of households that respond to changes in
mechanism to any temporary disequilibrium. The estimated output elasticity with respect to physical capital (0.5) is higher than in most studies on low-income countries, which generally ranges from 0.3 to 0.4. This may be due to particular features of the Benineseeconomy, but also to the low quality of the data used in our estimation.
Sources of growth
10. Using the value of the two elasticities derived from the estimated long run production function, we conducted a growth accounting exercise over four distinct subperiods: (i) 1970-79, the initial period of
Karim Barhoumi, Mr. Larry Q Cui, Ms. Christine Dieterich, Mr. Nicolas End, Matteo Ghilardi, Alexander Raabe, and Mr. Sergio Sola
This paper conducts a systematic growth and fiscal analysis to determine: (1) the growth potential of Benin’s ambitious scaling-up of investment, and (2) how the government can generate the necessary fiscal space needed to increase investment without jeopardizing Benin’s solid macroeconomic performance.
Basel II/III and Revised Chart of Accounts (Interim Data)
2 Identified sectors represent at least 80 percent of credit
3 Excluding taxes on banking operations.
4 Including savings accounts.
Outlook and Risks
9. The Benineseeconomy is expected to grow rapidly in 2019, notwithstanding the closure of the border with Nigeria . Cotton production and port activity continue to support growth this year. The border closure should affect the economy negatively through several channels, including a contraction of re-export activities and higher
January 2015, may adversely affect informal trade between Nigeria and Benin and, consequently, Benin’s fiscal revenues, as transition arrangements are gradually phased out. However, enhanced access to the bigger ECOWAS market should help Benin boost trade and diversify the economy. The growth potential is also strong in the agricultural sector, which accounts for 80 percent of employment. 1
Box 1. Spillovers from Nigeria
The Benineseeconomy is deeply interconnected with Nigeria. Staff estimates that a 1 percentage point reduction in Nigerian growth is