This 2006 Article IV Consultation highlights that economic performance of Benin has been relatively subdued since 2003 after a decade of high growth. Slow economic growth has reflected limited progress in addressing core economic vulnerabilities and delays in implementing crucial growth-supporting structural reforms, against a backdrop of an appreciating real effective exchange rate and, more recently, a sizable deterioration in the terms of trade. Notwithstanding further delays in structural reforms, a turnaround in cotton production is helping to revive growth in 2006.
The Executive Board of the International Monetary Fund (IMF) today completed the first review of Benin’s economic performance under an SDR 6.19 million (about US$9.3 million) Poverty Reduction and Growth Facility (PRGF)1 arrangement (see
Conclusion of the first review had been delayed due to a lack of progress on cotton and public utility sectors reform in the run-up to the recent presidential election. The Board waived Benin’s non-observance of the performance criteria concerning the accumulation of new domestic payment arrears and the non- contracting or guaranteeing of nonconcessional external debt with maturities of one year or more.
Benin reached the completion point under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative in March 2003, receiving total debt relief of about US$265 million. In January 2006, Benin received debt relief under the Multilateral Debt Relief Initiative from the IMF in the amount of SDR 36.1 million (about US$54 million).
Following the Executive Board’s discussion of Benin, Mr. John Lipsky, First Deputy Managing Director and Acting Chair, stated:
“The authorities have adopted a growth-enhancing strategy that is supported by the Poverty Reduction and Growth Facility (PRGF). The authorities’ strategy seeks to achieve strong and sustained growth and addressing vulnerabilities to exogenous shocks, and will be crucial to reducing poverty and facilitating progress toward achieving Benin’s Millennium Development Goals.
“Fiscal consolidation is a key pillar of the authorities’ growth strategy. The authorities will enhance fiscal revenue through improved tax and customs administration, while strengthening expenditure management and carefully limiting the public sector wage bill. The savings generated through these efforts, combined with the fiscal space from the debt relief will bolster pro-growth and pro-poor spending. Further strengthening public expenditure management to enhance transparency and improve governance in public finances will also be essential. To preserve fiscal and debt sustainability over time the authorities will need to seek external assistance on highly concessional terms for the ambitious infrastructure rehabilitation program.
“On the structural front, the authorities’ will advance the privatization agenda to support private sector development and foster production and export diversification. In this respect, the authorities intend to withdraw from industrial and commercial activities in the cotton and electricity sectors, expedite plans for privatizing Benin Telecom, and intensify ongoing efforts to improve the competitiveness of the port of Cotonou. Other key areas of structural reform include the judicial and land tenure systems, not least to support efforts to facilitate access to credit for small- and medium-sized businesses,” Mr. Lipsky said.
The PRGF is the IMF’s concessional facility for low-income countries. PRGF loans carry an annual interest rate of 0.5 percent, and are payable over 10 years with a 5½-year grace period on principal payments.