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Joint IMF/World Bank Debt Sustainability Analysis 20091

Author(s):
International Monetary Fund
Published Date:
August 2009
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This update of the joint Bank-Fund debt sustainability analysis (DSA) confirms that Benin’s risk of debt distress remains moderate. Under baseline projections, all external debt indicators remain below their indicative thresholds over the long run. However, debt ratios move rapidly toward the thresholds or breach them under less favorable scenarios. In particular, debt vulnerabilities would increase if the negative impact of the global crisis (on growth, exports, and fiscal revenue) turned out to be stronger than projected, or in the absence of structural reforms aimed at enhancing competitiveness. The prompt implementation of these reforms is therefore critical. Benin should continue to finance its fiscal deficit primarily through external grants and highly concessional loans.

I. Introduction

1. This analysis updates the DSA performed In November 2008 (IMF Country Report No. 08/374; IDA/SecM 2008-0707), to take account of the negative impact of the global economic crisis on Benin. The crisis is expected to reduce growth in 2009 and 2010, weaken demand for exports and trade with Nigeria, and reduce inflows of remittances and foreign direct investments. The associated revenue shortfall and the use of automatic fiscal stabilizers to mitigate the impact of the crisis are expected to result in a financing gap of about CFAF 100 billion over two years, which is expected to be covered with highly concessional external financing.

II. Methodology

2. This DSA uses the debt sustainability framework for low-income countries.2 Debt sustainability is assessed in relation to policy-dependent thresholds for debt stock and debt service burden indicators. The policy-dependent thresholds depend on the average of the rating of the Country Policy and Institutional Assessment (CPIA) index for 2005–07. According to this rating, Benin is classified as a medium performer in terms of the quality of policies and institutions.3

3. Except for the estimated impact of the crisis in 2009–10, this DSA maintains the main macroeconomic and policy assumptions used in the previous DSA (Box 1). In particular, the baseline projections are anchored on the assumptions that: (i) key structural reforms aimed at enhancing competitiveness and growth (most notably through the restructuring of the energy and telecommunication sector) would be adopted over the medium term; (ii) the authorities would proceed with their plans to improve public infrastructure; and (iii) fiscal policy would aim at maintaining macroeconomic stability. Under these conditions, real GDP growth is expected to recover after the crisis period 2009–10 to a sustainable annual rate of 6 percent from 2012 onwards, consistent with the assumptions of the World Bank 2008 Country Economic Memorandum (CEM).

4. The global economic crisis is projected to slow down growth and put pressure on fiscal accounts in 2009 and 2010. Real GDP growth is projected to drop to 3.8 and 3.0 percent in 2009 and 2010, respectively, as global demand for Benin’s exports declines, trade relations with Nigeria weaken, and inflows of workers’ remittances and foreign direct investment fall; as a result, the external current account deficit is projected to widen to 10.3 percent of GDP in 2009 and to 9.7 percent of GDP in 2010. Lower food and commodity prices will reduce customs revenue, while the slowdown in economic activity will reduce direct and indirect taxation.

Box 1.Macroeconomic Assumptions

Medium term (2009–14): The projections are consistent with the macroeconomic framework of the sixth PRGF review and reflect: (i) the impact of the crisis, and (ii) fiscal policies aimed at maintaining macroeconomic stability, protecting vulnerable groups, and enhancing investment in public infrastructure. It also assumes the implementation of structural reforms aimed at increasing efficiency and competitiveness and improving the business climate. Consequently, after slowing down to 3–4 percent in 2009-10, real GDP growth is projected to go back to its long-term sustainable level of 6 percent, while fiscal prudence and the anchor of the fixed exchange rate peg gradually are expected to reduce inflation to 3 percent. After the initial fiscal expansion to mitigate the impact of the crisis, the primary deficit would be reduced to about 1 percent of GDP by 2014, reflecting improvements in public fiscal management and efforts to contain recurrent expenditures. The current account deficit is expected to narrow to 7 percent of GDP by 2014, as export receipts recover.

Long term (2015–29): long-term projections reflect the impact of the structural reforms implemented in previous periods and the continuation of policies aimed at maintaining macroeconomic stability. Under these assumptions:

  • Real GDP growth would average 6 percent;

  • Inflation would remain at or below 3 percent;

  • The primary fiscal deficit would stabilize at about 1 percent of GDP, following improvements in revenue collection (to above 20 percent of GDP, excluding grants) and continued efforts to contain nonpriority recurrent expenditures;

  • The current account deficit would remain at about 5 percent of GDP, reflecting growing imports associated with economic expansion and foreign direct investment (FDI), as well as continuing inflows of remittances;

  • Improved infrastructure and a more favorable business climate would attract net foreign direct investment averaging about 1 percent of GDP annually.

  • Reflecting donors’ support for Benin’s infrastructural development and reform efforts, about one half of total gross financing needs are assumed to be covered by external grants.

5. The impact of the crisis is however expected to be temporary. With the expected recovery in the global economy in the second half of 2010, and prompted by continued structural reforms to improve competitiveness, investments in infrastructure, and a more efficient public administration, real GDP growth could recover to its full potential of 6 percent by 2012. Inflation would remain below 3 percent, and the current account deficit (excluding grants) would narrow to 7.1 percent of GDP by 2014, reflecting increasing exports and remittances. Ongoing inflows of public and private capital would help keep reserves above 5 months of imports of goods and services. Long-term downside risks associated with weaker reform efforts or a slower global recovery are captured in an alternative “no reform” scenario.

6. A key assumption is that, in support of the implementation of the above-mentioned reforms, concessional financing from external donors would continue to be available throughout the projection period. In particular, sufficient concessional funds would be available to fill the financing gaps in 2009 and 2010, permitting the use of automatic fiscal stabilizers to contain the impact of the crisis without compromising debt sustainability. Moreover, the average grant element on new external financing is assumed to remain at about 35 percent in the long term.

III. Background

7. Following debt relief under the HIPC and MDRI initiative, Benin’s external debt remains at comfortable levels. Benin reached the completion point under the Enhanced HIPC initiative in 2003, and benefited from further debt relief under the MDRI initiative in 2006. As a result, Benin’s external debt stock declined from 47.7 percent of GDP at end-2002 to 14.6 percent of GDP at end-2008. In line with this reduction, external debt service was reduced from 2.2 percent of GDP to less than 0.6 percent over the same period.

8. Government borrowing from the regional market increased significantly since 2006. Outstanding regional government debt at end-2008 amounted to 4.3 percent of GDP. Net government borrowing in the regional market averaged 3.5 percent of GDP in 2007–08 and is expected to increase somewhat in the future, reflecting the authorities’ interest in promoting the expansion of this market. Nevertheless, as borrowing conditions on this market are nonconcessional and the authorities are committed to a prudent borrowing strategy, it is assumed that—as has been the case in the past—borrowing from the regional market will continue to cover only a small fraction of overall financing needs, that will be primarily met with highly concessional external financing.

IV. Assessment of External Debt Sustainability

9. Under baseline assumptions, all external debt and debt service ratios remain below the policy-dependent thresholds throughout the projection period (Figure 1). The NPV of external debt is projected to stabilize at 15 percent of GDP in the long run, and debt service payments would remain below 8 percent of exports; the NPV of debt-to-exports ratio would remain well below the threshold of 150 percent and decline after 2014.

Figure 1.Benin: Indicators of Public and Publicly Guaranteed External Debt under Alternatives Scenarios, 2009–2029 1/

a. Debt Accumulation

Citation: 2009, 252; 10.5089/9781451803600.002.A002

b. PV of debt-to GDP ratio

c. PV of debt-to-exports ratio

d. PV of debt-to-revenue ratio

e. Debt service-to-exports ratio

f. Debt service-to-revenue ratio

Source: Staff projections and simulations.

1/ The most extreme stress test is the test that yields the highest ratio in 2019. In figure b. it corresponds to a One-time depreciation shock; in c. to a Exports shock; in d. to a One-time depreciation shock; in e. to a Exports shock and in picture f. to a One-time depreciation shock

10. Alternative scenarios and stress test indicates that Benin’s external debt situation would worsen substantially in the event of shocks. If exports in 2010–11 were to grow at one standard deviation below the historical average, the NPV of debt-to-exports ratio would rise well above the sustainability threshold in the medium term, peaking at 200 percent in 2014, before declining in the long run. If new public sector borrowing were obtained on less favorable terms, the NPV of debt-to-exports ratio would constantly increase over time and cross the sustainability threshold, but only after 2026.

11. The risk of debt distress would increase markedly in the absence of structural reforms, particularly in the long run. Under a “no reform scenario” characterized by real GDP growth rates, export growth rates, and primary fiscal deficits close to historical averages,4 the NPV of debt-to-exports ratio would cross the sustainability threshold in 2018 and continue to increase thereafter. This scenario could also materialize if the global economic crisis were to have a permanent impact on Benin.

V. Assessment of Public Debt Sustainability

12. Public debt indicators are projected to worsen markedly over time but would stabilize in the long run (Figure 2). While no explicit thresholds are defined for these indicators, the NPV of government debt would double in proportion to GDP (from 12 percent in 2008 to 24 percent in 2029) and to revenue and grants (from 54 percent in 2008 to 104 percent by 2029), while public debt service would increase from 7 percent of revenue and grants in 2008 to about 16 percent in 2029.

Figure 2.Benin: Indicators of Public Debt Under Alternative Scenarios, 2009–2029 1/

Sources: Country authorities; and Fund staff estimates and projections.

1/ The most extreme stress test is the test that yields the highest ratio in 2019.

2/ Revenues are defined inclusive of grants.

13. Stress tests highlight increased vulnerabilities under less favorable conditions. If the primary fiscal balance were maintained at the level projected for 2009, the NPV of public debt would rise to 38 percent of GDP and 166 percent of revenue by 2029, raising concerns about the sustainability of public debt. Under a no-reform scenario (with key variables at their historical average), the NPV of public debt would rise to 28 percent of GDP and 121 percent of revenue and grants by 2029.

14. Public debt indicators would worsen under an alternative financing scenario. If the share of government financing needs covered by borrowing in the regional market were 20 percentage points larger than in the baseline (under unchanged fiscal deficit projections),5 government debt would rise to 32 percent of GDP by 2029, the NPV of government debt would rise to 113 percent of revenue and grants; most notably, public debt service would rise to 22 percent of GDP. These results reconfirm the ones in the previous DSA about the need for a prudent borrowing policy to limit the net issuance of nonconcessional domestic debt in the regional market to less than 0.5 percent of GDP annually.

VI. Conclusions

15. Altogether, this DSA confirms that Benin faces a moderate risk of debt distress and underlines the importance of proceeding with the structural reform agenda. In particular, the impact of the global economic crisis is not expected to significantly worsen the outlook for debt sustainability, provided the authorities stick to highly concessional financing to close the financing gaps. The prompt implementation of structural reforms will be critical to enhance growth, expand exports, attract foreign direct investments and contain the fiscal deficit, thus improving long-term debt dynamics. The authorities should also continue to cover their financing needs primarily with highly concessional external assistance. In the absence of such assistance, the government should consider reducing nonpriority public spending.

Table 1a.:External Debt Sustainability Framework, Baseline Scenario, 2006–2029 1/(In percent of GDP, unless otherwise indicated)
ActualHistoricalStandardProjections
200620072008AverageDeviation2009201020112012201320142009-2014 Average201920292015-2029 Average
External debt (nominal) 1/12.213.214.617.820.421.522.322.923.421.823.4
o/w public and publicly guaranteed (PPG)11.512.614.117.420.221.422.222.923.421.823.4
Change in external debt-26.61.01.43.22.61.10.70.60.5-0.20.3
Identified net debt-creating flows1.83.43.37.67.25.54.43.93.73.13.7
Non-interest current account deficit5.39.78.07.01.49.48.97.97.26.76.45.15.15.1
Deficit in balance of goods and services11.315.313.614.013.112.411.911.411.011.914.0
Exports 2/11.416.216.213.613.613.913.813.813.814.717.0
Imports22.731.629.827.626.826.225.625.224.826.631.0
Net current transfers (negative = inflow)-6.3-5.6-5.6-5.80.5-4.7-4.5-4.7-4.9-5.0-5.0-6.2-6.2-6.2
o/w official-3.1-2.8-3.1-2.7-2.6-2.7-2.7-2.8-2.8-3.1-3.7
Other current account flows (negative = net inflow)0.2-0.10.00.10.20.20.20.20.3-0.6-2.7
Net FDI (negative = inflow)-1.2-4.7-2.6-0.81.6-1.6-1.4-1.6-1.9-1.9-1.7-1.2-0.6-1.0
Endogenous debt dynamics 3/-2.4-1.6-2.1-0.3-0.3-0.8-0.9-0.9-1.0-0.8-0.9-0.9
Contribution from nominal interest rate0.40.20.20.30.20.30.30.30.30.40.4
Contribution from real GDP growth-1.4-0.5-0.5-0.6-0.5-1.1-1.2-1.2-1.3-1.2-1.3
Contribution from price and exchange rate changes-1.5-1.3-1.7
Residual (3-4) 4/-28.4-2.4-2.0-4.4-4.6-4.4-3.7-3.2-3.2-3.3-3.3-3.3
o/w exceptional financing0.00.00.00.00.00.00.00.00.00.00.0
PV of external debt 5/7.19.811.712.713.414.114.714.515.0
In percent of exports 2/43.772.085.691.597.3101.8106.798.488.5
PV of PPG external debt6.69.411.412.513.314.114.714.515.0
In percent of exports 2/41.069.383.790.396.8101.8106.798.488.5
In percent of government revenues34.248.558.661.463.365.167.671.474.1
Debt service-to-exports ratio (in percent) 2/198.71.43.44.64.34.74.94.84.87.76.1
PPG debt service-to-exports ratio (in percent) 2/198.71.22.73.73.54.04.34.34.77.76.1
PPG debt service-to-revenue ratio (in percent)133.90.92.32.62.42.72.82.73.05.65.1
Total gross financing need (Billions of U.S. dollars)1.30.30.40.50.50.50.50.50.50.71.9
Non-interest current account deficit that stabilizes debt ratio31.98.76.76.26.36.86.56.05.85.44.8
Key macroeconomic assumptions
Real GDP growth (in percent)3.84.65.04.41.03.83.05.76.06.06.05.16.06.06.0
GDP deflator in US dollar terms (change in percent)3.912.015.16.29.3-8.22.72.92.92.92.61.02.52.42.5
Effective interest rate (percent) 6/1.22.21.71.40.41.81.21.41.41.41.51.41.81.71.7
Growth of exports of G&S (US dollar terms, in percent) 2/-5.367.520.712.323.2-20.16.310.58.49.68.33.810.210.210.2
Growth of imports of G&S (US dollar terms, in percent)9.562.914.313.420.2-11.72.56.56.67.37.03.010.310.310.3
Grant element of new public sector borrowing (in percent)36.136.535.835.635.435.235.738.730.835.8
Government revenues (excluding grants, in percent of GDP)16.820.619.419.419.520.421.121.621.720.320.320.3
Aid flows (in Billions of US dollars) 7/0.20.30.30.40.40.40.50.50.50.40.9
o/w Grants0.10.20.10.20.20.20.20.30.30.40.9
o/w Concessional loans0.10.20.20.20.20.20.20.20.20.00.0
Grant-equivalent financing (in percent of GDP) 8/4.64.64.34.14.04.03.54.03.7
Grant-equivalent financing (in percent of external financing) 8/64.664.367.768.768.869.275.060.369.5
Memorandum items:
Nominal GDP (Billions of US dollars)4.75.66.76.46.87.48.08.89.514.533.1
Nominal dollar GDP growth7.817.220.8-4.65.88.89.19.18.86.18.78.68.7
PV of PPG external debt (in Billions of US dollars)0.40.60.80.91.11.21.42.15.0
(PVt-PVt-1)/GDPt-1 (in percent)2.32.72.22.02.01.92.21.21.41.3
Source: Staff simulations.
Table 1b.Benin: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2009–2029(In percent)
Projections
20092010201120122013201420192029
PV of debt-to GDP ratio
Baseline911131314151415
A. Alternative Scenarios
A1. Key variables at their historical averages in 2009-2029 1/910111214152125
A2. New public sector loans on less favorable terms in 2009-2029 2912141617181928
A3. No-reform scenario910111314162432
A4. Larger financing on the regional market910111112121111
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2010-2011911131414151515
B2. Export value growth at historical average minus one standard deviation in 2010-2011 3/913171818191716
B3. US dollar GDP deflator at historical average minus one standard deviation in 2010-2011912141516171617
B4. Net non-debt creating flows at historical average minus one standard deviation in 2010-2011 4/912151516171615
B5. Combination of B1-B4 using one-half standard deviation shocks912161617181716
B6. One-time 30 percent nominal depreciation relative to the baseline in 2010 5/916181920212021
PV of debt-to-exports ratio
Baseline698490971021079889
A. Alternative Scenarios
A1. Key variables at their historical averages in 2009-2029 1/6973788899111144147
A2. New public sector loans on less favorable terms in 2009-2029 26991104115125134130164
A3. No-reform scenario69748092104117162185
A4. Larger financing on the regional market6575798385877764
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2010-2011698490971021079889
B2. Export value growth at historical average minus one standard deviation in 2010-2011 3/69114183191196202173139
B3. US dollar GDP deflator at historical average minus one standard deviation in 2010-2011698490971021079889
B4. Net non-debt creating flows at historical average minus one standard deviation in 2010-2011 4/699110611211612010791
B5. Combination of B1-B4 using one-half standard deviation shocks6994126133138143126106
B6. One-time 30 percent nominal depreciation relative to the baseline in 2010 5/698490971021079889
PV of debt-to-revenue ratio
Baseline4959616365687174
A. Alternative Scenarios
A1. Key variables at their historical averages in 2009-2029 1/495153586470105123
A2. New public sector loans on less favorable terms in 2009-2029 249647175808594138
A3. No-reform scenario495255606774118155
A4. Larger financing on the regional market4552545455555654
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2010-20114958636466697375
B2. Export value growth at historical average minus one standard deviation in 2010-2011 3/4967848485868579
B3. US dollar GDP deflator at historical average minus one standard deviation in 2010-20114962697173768084
B4. Net non-debt creating flows at historical average minus one standard deviation in 2010-2011 4/4963727374767876
B5. Combination of B1-B4 using one-half standard deviation shocks4962777879818279
B6. One-time 30 percent nominal depreciation relative to the baseline in 2010 5/498387899295101105
Debt service-to-exports ratio
Baseline43444586
A. Alternative Scenarios
A1. Key variables at their historical averages in 2009-2029 1/43444489
A2. New public sector loans on less favorable terms in 2009-2029 2434445810
A3. No-reform scenario434445911
A4. Larger financing on the regional market43444465
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2010-201143444586
B2. Export value growth at historical average minus one standard deviation in 2010-2011 3/4468881410
B3. US dollar GDP deflator at historical average minus one standard deviation in 2010-201143444586
B4. Net non-debt creating flows at historical average minus one standard deviation in 2010-2011 4/43455586
B5. Combination of B1-B4 using one-half standard deviation shocks445666107
B6. One-time 30 percent nominal depreciation relative to the baseline in 2010 5/43444586
Debt service-to-revenue ratio
Baseline32333365
A. Alternative Scenarios
A1. Key variables at their historical averages in 2009-2029 1/32222367
A2. New public sector loans on less favorable terms in 2009-2029 232333368
A3. No-reform scenario32233379
A4. Larger financing on the regional market22322354
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2010-201132333365
B2. Export value growth at historical average minus one standard deviation in 2010-2011 3/32333476
B3. US dollar GDP deflator at historical average minus one standard deviation in 2010-201133333366
B4. Net non-debt creating flows at historical average minus one standard deviation in 2010-2011 4/32333365
B5. Combination of B1-B4 using one-half standard deviation shocks32333366
B6. One-time 30 percent nominal depreciation relative to the baseline in 2010 5/33444487
Memorandum item:
Grant element assumed on residual financing (i.e., financing required above baseline) 6/2929292929292929
Source: Staff projections and simulations.
Table 2a.Benin: Public Sector Debt Sustainability Framework, Baseline Scenario, 2006–2029(In percent of GDP, unless otherwise indicated)
ActualEstimateProjections
200620072008AverageStandard Deviation2009201020112012201320142009-14 Average201920292015-29 Average
Public sector debt 1/12.415.518.422.425.426.928.029.029.831.232.4
o/w foreign-currency denominated11.512.614.117.420.221.422.222.923.421.823.4
Change in public sector debt-27.93.13.03.93.01.51.11.00.80.20.1
Identified debt-creating flows-5.9-3.40.82.11.70.3-0.4-0.8-0.9-1.0-1.1
Primary deficit0.0-1.81.40.41.52.42.72.01.51.11.11.80.70.70.8
Revenue and grants19.123.621.222.622.623.524.124.624.723.123.123.1
of which: grants2.23.01.73.23.13.13.13.03.02.82.82.8
Primary (noninterest) expenditure19.121.822.524.925.325.525.725.825.923.823.823.9
Automatic debt dynamics-6.0-1.7-0.6-0.3-1.0-1.7-1.9-2.0-2.0-1.7-1.8
Contribution from interest rate/growth differential-2.2-0.7-0.8-0.6-0.5-1.3-1.6-1.8-1.9-1.6-1.7
of which: contribution from average real interest rate-0.8-0.1-0.10.10.10.1-0.1-0.2-0.20.20.1
of which: contribution from real GDP growth-1.5-0.6-0.7-0.7-0.7-1.4-1.5-1.6-1.6-1.8-1.8
Contribution from real exchange rate depreciation-3.7-1.00.20.3-0.4-0.5-0.3-0.2-0.1
Other identified debt-creating flows0.00.00.00.00.00.00.00.00.00.00.0
Privatization receipts (negative)0.00.00.00.00.00.00.00.00.00.00.0
Recognition of implicit or contingent liabilities0.00.00.00.00.00.00.00.00.00.00.0
Debt relief (HIPC and other)0.00.00.00.00.00.00.00.00.00.00.0
Other (specify, e.g. bank recapitalization)0.00.00.00.00.00.00.00.00.00.00.0
Residual, including asset changes 2/-22.06.52.21.81.31.21.41.81.71.21.21.2
Other Sustainability Indicators
PV of public sector debt0.92.911.514.416.718.019.120.221.123.924.0
o/w foreign-currency denominated0.00.07.29.411.412.513.314.114.714.515.1
o/w external7.29.411.412.513.314.114.714.515.1
PV of contingent liabilities (not included in public sector debt)
Gross financing need 3/22.6-1.62.84.14.53.93.53.13.24.44.3
PV of public sector debt-to-revenue and grants ratio (in percent)4.912.454.263.773.776.779.281.985.2103.4104.1
PV of public sector debt-to-revenue ratio (in percent)5.514.259.074.185.588.590.893.496.9117.7118.4
o/w external 4/36.948.658.661.463.265.167.671.474.1
Debt service-to-revenue and grants ratio (in percent) 5/118.20.86.87.67.98.08.08.08.515.715.6
Debt service-to-revenue ratio (in percent) 5/134.00.97.48.89.19.29.29.29.717.917.7
Primary deficit that stabilizes the debt-to-GDP ratio28.0-4.8-1.6-1.6-0.40.50.40.10.30.50.6
Key macroeconomic and fiscal assumptions
Real GDP growth (in percent)3.84.65.04.41.03.83.05.76.06.06.05.16.06.06.0
Average nominal interest rate on forex debt (in percent)1.21.91.51.30.31.61.11.31.41.41.41.41.81.71.7
Average real interest rate on domestic debt (in percent)-2.5-2.5-1.41.43.41.10.0-0.6-1.1-1.6-1.8-0.72.32.12.2
Real exchange rate depreciation (in percent, + indicates depreciation)-10.1-9.32.0-5.29.11.9
Inflation rate (GDP deflator, in percent)3.12.67.23.02.13.23.02.82.72.72.72.83.03.03.0
Growth of real primary spending (deflated by GDP deflator, in percent)0.00.20.10.10.10.10.00.10.10.10.10.10.10.10.1
Grant element of new external borrowing (in percent)36.136.535.835.635.435.235.738.730.8
Sources: Country authorities; and Fund staff estimates and projections.
Table 2b.Benin: Sensitivity Analysis for Key Indicators of Public Debt 2009–2029
Projections
20092010201120122013201420192029
PV of Debt-to-GDP Ratio
Baseline1417181920212424
A. Alternative scenarios
A1. Real GDP growth and primary balance are at historical averages1415151617182225
A2. Primary balance is unchanged from 20091416182022233138
A3. Permanently lower GDP growth 1/1417181921222630
A4. Alternative Scenario: more financing on the regional market1517192021222526
B. Bound tests
B1. Real GDP growth is at historical average minus one standard deviations in 2010-20111417192021222628
B2. Primary balance is at historical average minus one standard deviations in 2010-20111416171920212424
B3. Combination of B1-B2 using one half standard deviation shocks1415171819202425
B4. One-time 30 percent real depreciation in 20101420212122232523
B5. 10 percent of GDP increase in other debt-creating flows in 20101424252627272927
PV of Debt-to-Revenue Ratio 2/
Baseline647477798285103104
A. Alternative scenarios
A1. Real GDP growth and primary balance are at historical averages64666566687192103
A2. Primary balance is unchanged from 2009647377828895134166
A3. Permanently lower GDP growth 1/647477808488112130
A4. Alternative Scenario: more financing on the regional market657680848789109113
B. Bound tests
B1. Real GDP growth is at historical average minus one standard deviations in 2010-2011647379838691114121
B2. Primary balance is at historical average minus one standard deviations in 2010-2011647174778083102103
B3. Combination of B1-B2 using one half standard deviation shocks646870747782103109
B4. One-time 30 percent real depreciation in 2010648989899091107101
B5. 10 percent of GDP increase in other debt-creating flows in 201064106107107108110124116
Debt Service-to-Revenue Ratio 2/
Baseline8888881616
A. Alternative scenarios
A1. Real GDP growth and primary balance are at historical averages8887781617
A2. Primary balance is unchanged from 20098888891720
A3. Permanently lower GDP growth 1/8888891618
A4. Alternative Scenario: more financing on the regional market89101010112022
B. Bound tests
B1. Real GDP growth is at historical average minus one standard deviations in 2010-20118888891617
B2. Primary balance is at historical average minus one standard deviations in 2010-20118888881615
B3. Combination of B1-B2 using one half standard deviation shocks8888881616
B4. One-time 30 percent real depreciation in 201088999101819
B5. 10 percent of GDP increase in other debt-creating flows in 20108891010101717
Sources: Country authorities; and Fund staff estimates and projections.

Prepared by IMF and IDA staff in collaboration with the Beninese authorities and in consultation with the staff of the African Development Bank. The analysis updates the 2008 DSA (IMF Country Report for Benin 08/374, available at http://www.imf.org/external/country/BEN/index.htm). This DSA is conducted on a gross basis as no data on Benin’s claims on nonresidents is available.

This DSA follows the IMF and World Bank Staff Guidance Note on the Application of the Joint Fund-Bank Debt Sustainability Framework for Low-Income Countries, October 9, 2008 (available at http://www.imf.org/external/np/exr/facts/jdsf.htm and http://go.worldbank.org/JBKAT4BH40).

Benin’s CPIA average index for the period 2005-07 was 3.6. A rating between 3.25 and 3.75 reflects medium performance; a rating above 3.75 corresponds to strong performance, and a rating below 3.25 corresponds to weak policy performance. Medium performance implies the following external debt sustainability thresholds: a net present value (NPV)-to-GDP ratio of 40 percent, and NPV of debt-to-exports ratio of 150 percent, an NPV of debt-to-revenue ratio of 250 percent; a debt service-to-exports ratio of 20 percent and a debt service-to-revenue ratio of 30 percent.

This scenario is described in more detail in IMF Country Report No. 08/374; IDA/SecM2008-0707.

This scenario is described in more detail in IMF Country Report No. 08/374; IDA/SecM2008-0707.

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