APPENDIX Benin: Performance on Structural Conditionality Under ESAF/PRGF Programs, 1992-2004 1/

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Source: IMF staff.

Benchmarks, unless otherwise indicated. These measures exclude quarterly quantitative benchmarks for health and education in each annual program during 1998–2002, and reclassified thereafter as indicative targets.

Performance criterion.

Prior action.

Prior action required for the completion of the second review under the second annual arrangement. The third review under second annual arrangement could not be concluded because of delays in the implementation of key structural reforms and the nonobservance of the prior action on petroleum prices before the expiration of the annual arrangement. A third year program could not be embarked due to the insufficiency of the remaining time before the expiration of the commitment period under the three-year arrangement.

Structural benchmark that was transformed into prior action.

1

The team comprised P. Ewenczyk (head), F. Nsengiyumva, M. Yulek (all AFR), N. Calcoen (FAD), and Z. Ebrahim-zadeh (PDR).

2

The reforms included the civil service reform, the reform of the cotton sector, and the implementation of a price mechanism for petroleum products.

3

Cumulative inflation in 1994-95, of 60 percent, was larger than in the other countries of the WAEMU (45 percent on average), reflecting sizable wage and salary increases in the public sector, as well as adjustments on account of past wage arrears, totaling over 50 percent.

4

The increase in bank credit was accompanied by a diversification in terms of sectoral allocation, driven by construction and trade sectors. The assessment of financial deepening is not based on broad money indicators because the measurement of currency in circulation has been subject to large uncertainties, arising from long delays in the sorting of the banknotes by the BCEAO. This has led to frequent, sometimes very large, changes in the measurement of currency in circulation and gross foreign assets of the BCEAO.

5

Tax administration was weakened following the lowering of the VAT threshold, as the effectiveness of taxpayer controls and audits deteriorated.

6

Weaknesses in public expenditure management and fiscal transparency were identified in the Report on the Observance of Standards and Codes and the Assessment of the Capacity to Track Poverty-Reducing Expenditure undertaken in 2001, including internal control, budget reporting, and accounting.

7

Inventories conducted in 1992, 1995, and 1999 identified domestic arrears amounting to about 7 percent of GDP. Quantitative benchmarks or performance criteria on reduction of domestic arrears were included in programs until these arrears were fully cleared in 2001.

8

The 2003 Assessment and Action Plan (AAP) of the Capacity to Track Poverty-Reducing Expenditure also identified deficiencies in the recording of commitments generated by public procurement contracts, which have subsequently been corrected.

9

By 1995, products subject to price controls were limited to petroleum products, cement and utility tariffs. Subsequently, an automatic price adjustment mechanism for petroleum products was introduced in 1999, and cement prices were liberalized in 2002. Government monopolies were abolished (in transport, port handling and insurance, and the cotton sector).

10

As a result, the number of enterprises in the government’s portfolio declined from 65— when the privatization program started in 1988—to 11 in 2003. Major privatization initiatives since 1993 included the petroleum products distribution company (SONACOP), the cement factory (SCO), the palm oil company (SONICOG), the sugar factory (SSS), and the insurance company (SONAR). In addition, state-owned palm oil plantations were transferred to farmers’ organizations.

11

These included the separation of the different entities within each utility company and the adoption of a decree for the establishment of a regulatory body for the telecommunications sector.

12

Per capita GDP increased from the equivalent of US$411 in 1993 to US$521 in 2003.

13

Benin—Poverty Reduction Strategy Paper—Joint Staff Assessment (Country Report 03/111).

14

The delay was mainly due to the postponement of the PRSP consultation process until after the presidential elections in March 2001, and difficulties in establishing the institutions in charge of the preparation of the PRSP.

15

Over 2000-03, the average annual disbursements of external budgetary assistance and debt relief amounted to 1.6 percent of GDP, compared with the 0.7 percent expected in the original PRGF arrangement.

16

External debt with a maturity of one year or more contracted by the government was to be concessional, but there was no quantitative limit to such borrowing.

17

The targets set in the original three-year PRGF arrangement were adjusted subsequently in the annual programs to accommodate higher than originally anticipated external budgetary assistance and debt relief under the HIPC Initiative.

18

As mentioned above, the delay was mainly due to the postponement of the consultation process until after the presidential elections in March 2001.

19

The PRSP aims at keeping the fiscal deficit, including grants, unchanged at about 2 percent of GDP over 2004-06, while substantially increasing priority expenditures in order to make progress toward reaching the MDGs. Additional priority expenditures are to be financed mostly by external grants in the short and medium term, as well as by additional revenue effort in the long run. Nonpriority expenditures are to be contained at their current ratio to GDP.

20

At end-2002, more than 80 percent of civil servants were 40 or older. The retirement age is 55.

21

Although the primary education enrollment rate was already 70 percent in 2001, its completion rate was still low (about 46 percent) and is unlikely to approach 100 percent by 2015. Moreover, gender inequality remains high.

22

Based on past trends, Benin could reach a maternal mortality rate of 375 per 100,000 by 2015, more than twice the MDG target rate (137 per 100,000). Benin has significantly reduced child mortality (from 170 per 1,000 live births in 1996 to 146 in 2002) but would still be far from the MDG target (60 per 1,000 births) by 2015.

23

Ousmane, Badiane, and others, 2002, “Cotton Sector Strategies in West and Central Africa,” IMF Working Paper 02/173 (Washington: International Monetary Fund).

24

An investment bank was recruited through a competitive bidding process in May 2003 to help the authorities carry out a fully transparent privatization.

25

Annual balance of payments gaps are estimated at about 2 percent of GDP in the coming years, reflecting the additional spending needed to meet the PRSP objectives. These needs are expected to be covered by external budgetary assistance in the form of grants and by highly concessional loans from bilateral donors and multilateral institutions.

Benin: Ex Post Assessment of Performance Under Fund-Supported Programs
Author: International Monetary Fund