Benin: Staff Report for the 2002 Article IV Consultation, Third Review Under the Poverty Reduction and Growth Facility, and Requests for an Extension of the Poverty Reduction and Growth Facility Arrangement and for an Additional Interim Assistance Under the Enhanced Initiative for Heavily Indebted Poor Countries

This paper assesses Benin’s 2002 Article IV Consultation, Third Review Under the Poverty Reduction and Growth Facility (PRGF), and Requests for an Extension of the PRGF Arrangement and for an Additional Interim Assistance Under the Enhanced Initiative for Heavily Indebted Poor Countries (HIPC). Macroeconomic performance remained broadly in line with the objectives of the PRGF-supported program in 2001. All performance criteria and structural benchmarks for end-December 2001 were met, except the benchmark on the adoption of an action plan for the privatization of the state-controlled bank.

Abstract

This paper assesses Benin’s 2002 Article IV Consultation, Third Review Under the Poverty Reduction and Growth Facility (PRGF), and Requests for an Extension of the PRGF Arrangement and for an Additional Interim Assistance Under the Enhanced Initiative for Heavily Indebted Poor Countries (HIPC). Macroeconomic performance remained broadly in line with the objectives of the PRGF-supported program in 2001. All performance criteria and structural benchmarks for end-December 2001 were met, except the benchmark on the adoption of an action plan for the privatization of the state-controlled bank.

I. Introduction

1. The Executive Board concluded the 2000 Article IV consultation and the first review under the Poverty Reduction and Growth Facility (PRGF) arrangement on January 8, 2001 (EBS/00/288; 12/27/00). The second review under the PRGF arrangement was concluded and the second-year program presented to the Board on November 2, 2001 (EBS/01/176;10/18/01)1. At that time, Directors considered that the economic and financial performance had been satisfactory. They noted, however, that implementation of structural reforms had been uneven and urged their faster implementation to strengthen economic growth. They welcomed progress in the preparation of the full poverty reduction strategy paper (PRSP) and stressed that much work remained to be done, including the setting of sectoral objectives and policies and the identification and costing of priorities.

2. In the attached memorandum on economic and financial policies (MEFP) (Appendix I, Annex I), the authorities review the performance under the program and describe the policies that will be implemented in the period ahead. The performance criteria and benchmarks for the remainder of 2002 are set out in the technical memorandum of understanding (Appendix I, Annex II).

3. The Fund and World Bank staffs have continued to cooperate closely on Benin. A World Bank mission was in Cotonou at the same time as the Fund mission to follow up on implementation of the public expenditure reform adjustment credit (PERAC) approved in March 2001. The World Bank staff was also preparing a supplement to the PERAC to support cotton farmers’ income and protect priority spending in the context of the sharp decrease in the world price for cotton. A cotton sector project, to support the ongoing reform in the cotton sector, was approved by the World Bank Board in January 2002. Finally, the World Bank will prepare a Poverty Reduction Support Credit (PRSC), following the finalization of a PRSP, that makes the case for additional expenditure to reduce poverty and satisfactory implementation of key structural reforms. Benin’s relations with the Fund and the World Bank Group are summarized in Appendices II and III, respectively.

4. Benin’s economic database is comprehensive but remains weak, particularly regarding national accounts, government expenditure, and the balance of payments (Appendix IV).

5. On the political front, President Kérékou was reelected for a second mandate in March 2001, and a new coalition government was formed in May 2001. The absence of a government majority in the National Assembly has resulted in delays in the adoption of economic reforms. Local elections initially scheduled for 2000 are to take place in December 2002. The recent social situation was marked by a protracted civil service strike, which ended in early March 2002 when the government granted an unplanned wage increase.

II. Recent Economic Performance

6. Benin’s economic performance continued to be satisfactory in 2001 (Table 3; and Figure 1 and 2). The macroeconomic and financial situation remained broadly in line with the program objectives. Real GDP is estimated to have increased by 5 percent, driven by strong growth in the construction, public works, services, and industrial sectors, but was somewhat lower than the expected rate of 5.8 percent, because of a smaller-than-projected increase in foodstuff production. Consumer price inflation decelerated (from an end-of-period rate of 8 percent in 2000 to 2.3 percent in 2001). The external current account deficit, excluding current official transfers, declined from 8 percent in 2000 to 6.7 percent of GDP in 2001, owing to more favorable terms of trade. Benin continued to contribute positively to the international reserves position of the regional central bank (BCEAO), aided by the dishoarding of French franc balances held by residents ahead of the adoption of the euro at the beginning of 2002. The global economic slowdown in the second half of 2001 and the resulting sharp decrease in the world price of cotton had only a limited effect on Benin’s economy in 2001 because exports in the major cotton sector had already been realized beforehand.

Table 1.

Benin: Proposed Schedule of Disbursements Under the Remainder of the PRGF Arrangement, 2002-03

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Source: International Monetary Fund.

Other than the generally applicable conditions under the Poverty Reduction and Growth Facility (PRGF) arrangement, including the continuous performance criterion on nonaccumulation of arrears, and the performance clauses on the exchange and trade system.

Table 2.

Benin: Fund Position During the Remainder of the PRGF Arrangement, January 2002-December 2003

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Source: IMF, Treasurer’s Department.
Table 3.

Benin: Main Economic Indicators, 1999-2004

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Sources: Beninese authorities; and staff estimates and projections.

As indicated in EBS/01/176 (10/18/01).

In percent of broad money at the beginning of the period.

Including current official grants but excluding project grants

Total revenue minus all expenditure, excluding interest.

Before all official grants.

Scheduled debt service in percent of fiscal revenue, including debt service to the Fund and excluding debt service to be paid by HIPC Initiative assistance.

Net present value of total debt beyond HIPC Initiative assistance, in percent of current-year exports or goods and nonfactor services.

Ratio of gross reserves of the DCEAO in months of the following-year imports of goods and nonfactor services

Figure 1.
Figure 1.

Benin: Selected Economic and Financial Indicators. 1993-20041/

(In percent of GDP, unless indicated otherwise)

Citation: IMF Staff Country Reports 2002, 158; 10.5089/9781451803358.002.A001

Sources: Beninese authorities; and staff estimates and projections.1/ 2002-04 data are projections.
Figure 2.
Figure 2.

Benin: Selected External and Monetary Indicators

(In percent of GDP, unless indicated otherwise)

Citation: IMF Staff Country Reports 2002, 158; 10.5089/9781451803358.002.A001

Sources: Beninese authorities; and staff estimates and projections.1/ 2002-04 data are projections.

7. Regarding financial performance under the program (Table 14), all the quantitative performance criteria for end-December 2001 were met. Three of the four structural benchmarks were met; the fourth one, the adoption of an action plan to privatize the remaining state-owned bank, is expected to be met by end-July 2002. Also, spending on health was slightly below the indicative targets stipulated in the program.

Table 4.

Benin: Macroeconomic Indicators, 1999-2004

(In percent of GDP, unless otherwise indicated)

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Sources: Beninese authorities (Institute National de la Statistique et de I Administration Economique (INSAE)); and staff estimates and projections.

As indicated in EBS/01/176 (10/18/01).

Table 5

Benin: Consolidated Government Operations, 1999-2004

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Sources: Beninese authorities: and staff estimates and projections.

As indicated in EBS/01/176 (10/18/01).

Including value-added taxes on imports.

Total revenue minus total expenditure, excluding investment financed from abroad, interest payments, and net lending.

Total revenue minus total expenditure, excluding interest payments and net lending.

Includes confirmed interim HIPC Initiative assistance from Paris Club, African Development Bank/Fund, West African Development Bank, Organization of Petroleum Exporting Countries, World Bank, and IMF.

In billions of CFA francs.

Table 6.

Benin: Monetary Survey, 1999-2002

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Sources: BCEAO; and staff estimates and projections.

CCP = Comptes Cheques Postaux.

Table 7.

Benin: Balance of Payments, 1999-2004

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Sources: Beninese authorities; and staff estimates and projections.

As indicated in EBS/0I/176 (10/18/01).

Includes confirmed interim HIPC Initiative assistance from Paris Club, African Development Bank/Fund, West African Development Bank, Organization of Petroleum Exporting Countries.

HIPC Initiative assistance after completion point.