Benin
2010 Article IV Consultation and Request for a Three-Year Arrangement Under the Extended Credit Facility: Staff Report; Staff Supplements and Staff Statement; Public Information Notice and Press Release on the Executive Board Discussion; and Statement by the Executive Director for Benin.

The goal of the last ECF arrangement (2005–09) was to support Benin’s strategy to achieve higher sustainable growth and reduce poverty while preserving macroeconomic stability and reducing vulnerabilities to external shocks. The program achieved most of its objectives. The main macroeconomic challenge ahead is to mitigate the impact of the crisis in the short term, while reaching higher sustainable growth over the medium term. The government’s economic program is geared properly to pursue these objectives. The structural reform agenda is appropriately ambitious.

Abstract

The goal of the last ECF arrangement (2005–09) was to support Benin’s strategy to achieve higher sustainable growth and reduce poverty while preserving macroeconomic stability and reducing vulnerabilities to external shocks. The program achieved most of its objectives. The main macroeconomic challenge ahead is to mitigate the impact of the crisis in the short term, while reaching higher sustainable growth over the medium term. The government’s economic program is geared properly to pursue these objectives. The structural reform agenda is appropriately ambitious.

I. Background

1. The goal of the last ECF arrangement (2005–09) was to support the authorities’ strategy to achieve higher sustainable growth and reduce poverty while preserving macroeconomic stability and reducing vulnerabilities to external shocks. In pursuit of these objectives, the authorities’ program worked to expand the fiscal space for public investment, improve the quality of poverty-reducing spending, and deepen structural reforms to foster an environment conducive to private sector-led growth.

2. The program achieved most of its objectives (Figure 1).1 Aided by debt relief under the enhanced Heavily Indebted Poor Country (HIPC) and the Multilateral Debt Relief Initiative (MDRI), Benin achieved significant improvements in macroeconomic stability. Inflation was gradually reduced below 3 percent, except for the temporary surge associated with the food and fuel crisis in 2008. The stock of external debt was cut by 58 percent to 11.5 percent of GDP in 2006 and has since been kept relatively low with a moderate risk of debt distress. The basic primary balance was kept in surplus throughout the arrangement period (except in 2009) by strengthening revenue mobilization, while preserving the fiscal space for enhanced public investment (6.8 percent of GDP on average throughout the period). The wage bill, however, increased by 67 percent in nominal terms between 2006 and 2009, partly as a result of large increases in wages and other bonuses to civil servants. The overall fiscal deficit was contained below 4.5 percent of GDP (except in 2009), largely financed with external concessional resources. The external current account deficits were large, in part because of the large import component of investment projects. The expected acceleration of economic growth fell short of program objectives, partly because of exogenous shocks. Real GDP growth increased steadily from 2.9 percent in 2005 to 5.0 percent in 2008, notwithstanding the food and fuel crisis. The global economic crisis reversed the growth trend in 2009, when growth was halved to 2.7 percent. Accordingly, the poverty headcount fell only marginally over the arrangement period, from 37.4 percent in 2006 to 34.4 percent in 2009.

Figure 1.
Figure 1.

Benin: Macroeconomic Performance Under the Program, 2005–09

Citation: IMF Staff Country Reports 2010, 195; 10.5089/9781455203239.002.A001

Source: Beninese authorities and Fund staff estimates.

3. The implementation of the structural reform agenda was mixed. While there was substantial progress in reforming the cotton sector, the reform of the civil service lagged behind. A strategy to improve public financial management was adopted in 2008, and key reforms were implemented in tax and customs administration. Two unmet structural benchmarks from the last ECF arrangement will be completed by the end of 2010.

4. At the time of the 2008 Article IV Consultation, Executive Directors called on the Beninese authorities to invigorate the reform process, particularly in the cotton and public utility sectors. They also urged the authorities to limit the scope and duration of the fiscal measures taken to address the food and fuel crisis, and to improve public expenditure management further. Directors recommended maintaining a prudent borrowing policy and expressed concerns about excessive borrowing in the regional market.

5. Most of these recommendations have been implemented:

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    The privatization of the cotton and the public utility sectors has moved forward. The cotton ginning company was privatized in 2008, a new agency was established for the centralized purchase of fertilizers in March 2009, and a new global strategy to reform the cotton sector was adopted. The concession for the operation of the container terminal of the Port of Cotonou and the majority stake in the cement company were awarded to a strategic private investor in September 2009 and March 2010, respectively. The privatization of Benin Telecom has been launched and completion is expected in the third quarter of 2010. The government intervened to strengthen the financial situation of the state-owned energy company (SBEE) by increasing electricity tariffs twice (in July 2009 and in April 2010) and restructuring SBEE’s debt in March 2010.

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    The authorities phased out the temporary fiscal measures adopted in response to the food and fuel crisis. In July 2008, the government allowed the full pass-through of international food and fuel prices and introduced more targeted measures to protect low-income households.

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    The reform of public financial management (PFM) is proceeding with some delays. A new law on public procurement contracts was adopted in 2009, and recourse to exceptional spending procedures has been reduced. The authorities completed an audit of the PFM information system and adopted a medium-term PFM reform strategy in 2008. The completion of improvements in the information systems of the tax and customs administration has, however, been delayed to the end of 2010, and a one-stop window at the customs department and the Port of Cotonou will not be completed until 2011.

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    Other recommended reforms are moving forward. The private sector is increasingly involved in the provision of public services, following outsourcing of the operation of the container terminal at the port and the privatization of the wood and cement companies. Second-generation reforms are being introduced to strengthen the judicial and land tenure systems and to expand credit to small and medium enterprises.

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    The authorities have maintained a prudent borrowing policy, relying primarily on external concessional sources. Borrowing on the regional market surged, however, in 2009, reflecting the need to finance the large fiscal deficit associated with the global economic crisis.

II. Impact of the Crisis and Policy Response

6. The global economic crisis reduced growth by half in 2009, more than in the other WAEMU countries (Figure 2). Lower cotton prices, weaker demand for exports—notably from Nigeria—and lower inflows of foreign direct investment reduced real GDP growth from 5.0 percent in 2008 to 2.7 percent in 2009. The deceleration of activity was aggravated by the decline in cotton production and floods in the south of the country, while noncotton agricultural production and transportation continued to grow, supported by the fiscal stimulus.

Figure 2.
Figure 2.

Real GDP Growth, 2005–09

(Percent)

Citation: IMF Staff Country Reports 2010, 195; 10.5089/9781455203239.002.A001

Sources: Beninese authorities and Fund staff estimates.

7. The decline in international food and fuel prices contributed to easing inflationary pressures in Benin and the rest of the WAEMU region (Figure 3). Despite a 13 percent increase in electricity tariffs in July 2009, average CPI inflation declined from 8.0 percent in 2008 to 2.2 percent in 2009, reflecting lower food, transportation, and gasoline prices.

Figure 3.
Figure 3.

CPI Inflation, Year-on-Year, 2005–09

(Percent)

Citation: IMF Staff Country Reports 2010, 195; 10.5089/9781455203239.002.A001

Sources: Beninese authorities and Fund staff estimates.

8. A sharp decline in transit trade and weaker cotton exports widened the current account deficit (Figures 4 and 5). The terms of trade were unchanged, because a decline in international food and energy prices offset the fall in international cotton prices. These developments, accompanied by a decline in foreign direct investment and other flows turned the overall balance of payments into a deficit of 1.6 percent of GDP in 2009. The real effective exchange rate in December 2009 appreciated by 1.1 percent year-on-year.

Figure 4.
Figure 4.

Current Account Deficit, excl. Grants, 2005–09

(Percent of GDP)

Citation: IMF Staff Country Reports 2010, 195; 10.5089/9781455203239.002.A001

Sources: Beninese authorities and Fund staff estimates.
Figure 5.
Figure 5.

Benin: Macroeconomic Performance, 2005–09

Citation: IMF Staff Country Reports 2010, 195; 10.5089/9781455203239.002.A001

Source: Beninese authorities and Fund staff estimates.

9. Driven by higher liquidity, broad money expanded in the second half of 2009. Following the reduction in reserve requirements from 15 to 9 percent in June 2009, banks increased credit to the economy by 11 percent at the end of 2009.

10. The authorities responded to the crisis by enforcing a strong fiscal stimulus in the first half of 2009, which needed to be reversed in the second half owing to lack of financing. The stimulus resulted in a large increase in public expenditure, even as revenue declined under weak economic conditions. Despite a partial reversal in the second half of the year, fiscal policy was looser in 2009 compared to 2008; and the fiscal deficit widened.

11. Total revenue declined by 1 percent of GDP in 2009, as the deceleration in import growth and the increase in exemptions led to a 7 percent nominal decline in customs receipts. Domestic taxes were in line with program projections.

12. After an unsustainable increase in public spending, a strong adjustment was needed in the second half of 2009 to avoid expenditure arrears. Large bonuses to civil servants expanded the wage bill by 24 percent in nominal terms. Domestic capital spending doubled in nominal terms from 2008 to 2009 as a result of a surge in investment in the first half of the year, including the carryover of CFAF 113 billion (3.8 percent of GDP) of unfunded expenditure commitments from 2008. This fiscal stimulus produced strains on the Treasury, which were addressed in the second half of the year by strengthening tax collections, freezing expenditure commitments and new bonuses to civil servants, and enforcing more rigorous controls on expenditure execution.

13. The overall fiscal deficit more than doubled to 7.3 percent in 2009. About two-thirds of the deficit was financed from external grants and concessional loans, including the counterpart of the SDR allocation. Additional financing was mobilized on the regional market and through one-off measures, and about CFAF 50 billion (1.4 percent of GDP) of expenditure commitments were carried over into 2010.

III. Article IV Consultation Discussions

14. The Article IV Consultation discussions focused on policies to enhance growth prospects. The authorities’ main challenge is to contain the impact of the crisis in the short run and achieve higher sustainable growth in the medium term to progress toward the MDGs. The authorities agreed the economy could reach its potential growth rate of 6 percent by 2013, provided appropriate policy measures are adopted.2

15. To achieve this growth, it will be critical to increase investment while maintaining stable macroeconomic conditions. The mission argued that, if adequate concessional financing can be secured, an annual level of public investment of about 9 percent of GDP over the medium term would be consistent with the country’s development needs and absorption capacity constraints. To enhance fiscal and debt sustainability, public investment should be financed primarily with external concessional funds, while the basic primary fiscal balance should gradually be brought to a surplus by mobilizing tax revenue and containing the increase in nonpriority current expenditure. Measures to improve external competitiveness will support the growth objective. PFM reforms to increase the effectiveness of public spending, improve the provision of utilities, and enhance the business climate will increase productivity.

16. In support of these objectives, the mission discussed with the authorities the results of the updated debt sustainability analysis (DSA) and of the two background papers for the Article IV Consultation. The updated DSA confirmed earlier results of a moderate risk of debt distress. The two background papers analyze the effect of the wage bill on sustainability of public and external debt and the impact of the composition of expenditure on economic development.

17. The authorities agreed with the thrust of the mission’s analysis and noted its consistency with their Growth and Poverty Reduction Strategy (GPRS). The GPRS, which is currently being updated for 2010–14, will achieve a higher sustainable growth rate and expand employment. The authorities also intend to develop sectoral and local development strategies, encourage the diversification of agriculture, promote female and youth employment, and strengthen social protection and the legal rights of the poor.

A. The Macroeconomic Impact of Public Wage Policies

18. The mission presented the results of a study showing that, if the wage bill continued to increase in line with recent trends, it would compromise debt and fiscal sustainability by generating excessive deficits or by crowding out growth-enhancing public investment.3 From 2000 through 2009, the wage bill in Benin grew at an average real annual rate of 9.6 percent, compared to an average real GDP growth of 4.2 percent. From 2007 to 2009, wage bill growth accelerated to an average real rate of 14.7 percent. This growth was driven by an increase in allowances and bonuses to civil servants. If these trends persist and if the growth in the total wage bill were accommodated by a corresponding increase in total expenditure, the overall fiscal deficit would widen by 6½ percentage points to 10 percent of GDP by 2015. If instead total spending and the corresponding fiscal deficit were maintained at the level projected under the authorities’ program, there is a risk that spending on wages crowds out public investment, with an adverse impact on long-term growth. In this case, fiscal and debt sustainability would be compromised in the long run. Taking into account population growth and the intent to make progress toward the MDGs, there will be limited scope for increasing civil service wages without corresponding increases in civil service productivity.

19. The second study by the mission suggests that excessive wage increases for civil servants could result in lower growth, more unemployment, and larger income disparities in Benin.4 This study estimates the macroeconomic impact of alternative decisions in the allocation of public expenditure between wages and public investment under two scenarios. In the first, the overall expenditure envelope is unchanged compared with the authorities’ program, and public expenditure is merely reallocated between wages and public investment. In the second scenario, an increase in expenditure financed by additional external grants is used either to increase civil servant wages or to increase investment. The study shows that, under both scenarios, an increase in civil servant wages would depress growth, increase unemployment, and widen income disparities, reflecting the likely spillovers of public sector wages onto the private sector. At the root of these effects is the use of civil service wages as a benchmark for wage negotiations in the formal private sector; a public wage increase thus increases labor costs in the private sector and thereby reduces private labor demand and investment. By comparison, an increase in public investment increases productivity and thereby encourages investment, employment, and growth.

20. Based on these studies, the mission emphasized that limiting growth of the public wage bill over the medium term is essential to preserving fiscal and debt sustainability and improving competitiveness. These objectives could be achieved by following the mission’s earlier recommendations of implementing a new institutional framework for centralized wage bargaining and introducing multiyear labor contracts for civil servants. These measures should reduce pressures on the wage bill by eliminating successive rounds of wage negotiations and by linking wage increases to available budgetary resources over the medium term. Increases in public wage bills also reduce unit labor cost competitiveness, given their influence on private wages.

21. The authorities acknowledged the importance of containing growth in the wage bill but underlined that implementing this policy will be difficult politically. They noted that labor unions are intensifying their wage demands ahead of the 2011 presidential and legislative elections, with key categories of employees, including teachers and health care workers, engaging in prolonged strikes. They underscored that the main challenge in this area is to maintain wage restraint without compromising social peace and to ensure adequate provision of essential public services. They shared the mission’s view that the move toward centralized wage bargaining should facilitate progress in this direction by preventing concessions to one sector from triggering new demands from other sectors. They also noted that, from now on, civil servants will not be paid for strike days.

22. The mission encouraged the authorities to undertake a broader reform of the civil service. Although the need to contain the budgetary costs may be the most pressing concern, a comprehensive civil service reform is needed to increase efficiency in the provision of public services and better target the government’s human resources toward priority sectors. Essential in this respect is the ability to attract, retain, and motivate well-qualified civil servants. The ongoing study of the civil service remuneration system, commissioned by the authorities, will provide detailed information on the use of the wage bill and the actual remuneration for different staff categories.

23. The authorities agreed that a comprehensive civil service reform is needed to establish a prodevelopment administration. They committed to adopting a comprehensive reform strategy based on the study recommendations by June 2011.

B. External Sustainability and Competitiveness

24. Benin’s external sustainability assessment and survey-based indicators point to an erosion of competitiveness in 2009. The real effective exchange rate (REER) is overvalued by 13–22 percent at the end of 2009 (Figures 9-11). These results are consistent with the assessment in the 2010 Article IV Consultation for the WAEMU region and confirm the importance of pursuing prudent policies and accelerating structural reforms.

Figure 6.
Figure 6.

Revenue Composition, 2005–09

(Percent of GDP)

Citation: IMF Staff Country Reports 2010, 195; 10.5089/9781455203239.002.A001

Sources: Beninese authorities and Fund staff estimates.
Figure 7.
Figure 7.

Expenditure Composition, 2005–09

(Percent of GDP)

Citation: IMF Staff Country Reports 2010, 195; 10.5089/9781455203239.002.A001

Sources: Beninese authorities and Fund staff estimates.
Figure 8.
Figure 8.

Overall Fiscal and Primary, excl. Grants, 2005–09;

(Percent of GDP)

Citation: IMF Staff Country Reports 2010, 195; 10.5089/9781455203239.002.A001

Sources: Beninese authorities and Fund staff estimates.
Figure 9.
Figure 9.

Macro-Balance Approach, Current Account Balance, excl. Grants, 1985-09

Citation: IMF Staff Country Reports 2010, 195; 10.5089/9781455203239.002.A001

Sources: Beninese authorities and Fund staff estimates.
Figure 10.
Figure 10.

The Fundamental Equilibrium Real, Exchange Rate Approach, 1980–09

Citation: IMF Staff Country Reports 2010, 195; 10.5089/9781455203239.002.A001

Sources: Beninese authorities and Fund staff estimates.
Figure 11.
Figure 11.

External Sustainability Approach, NFA Positions, 2009–60

Citation: IMF Staff Country Reports 2010, 195; 10.5089/9781455203239.002.A001

Sources: Beninese authorities and Fund staff estimates.

25. Business climate indicators also highlight a loss of competitiveness. In the last four years, Benin moved down to the bottom 10th and 20th percentiles of all countries surveyed by the World Bank and the World Economic Forum, respectively; and ranked among the least competitive countries in the WAEMU region in 2010.

26. The authorities shared the mission’s concerns about the erosion of competitiveness and the overvaluation of the real exchange rate, which could jeopardize Benin’s growth potential. They restated their commitment to improve external competitiveness and the business climate. To this effect, fiscal policy is being tightened, and an ambitious structural reform agenda is being implemented aimed at reducing the cost of doing business in Benin. The authorities confirmed that Benin had not imposed measures that could give rise to exchange restrictions subject to Fund jurisdiction.

C. Health of the Financial Sector

27. Commercial banks’ asset quality has improved. The ratio of nonperforming loans declined from 9.2 percent in 2008 to 8.1 percent in 2009, and the capital adequacy ratio of the five largest banks (holding 79 percent of deposits) was constant at about 11.6 percent during the period. Banks indicated that performance of their loan portfolios had suffered from government payment delays earlier in 2009, but the situation had recently improved.

28. The authorities expect the capital of banks to strengthen significantly in 2010, in line with new WAEMU requirements. Most banks have already submitted plans to comply with the new own capital requirement of CFAF 5 billion.

29. The mission urged the authorities to implement prompt corrective actions to ensure that all banks comply with prudential regulations. Four banks continue to have negative capital, two of which hold more than 5 percent of bank deposits. The planned Financial Sector Assessment Program (FSAP) mission in the second half of 2010 could help the authorities strengthen their supervisory framework.

30. The authorities are closely following banks that do not meet the prudential requirements. One of these banks, with a severe capital deficiency, has been put under provisional administration. The authorities have delayed withdrawing the bank’s license and granted it six months to implement corrective measures. Prudential ratios indicate that the liquidity condition of the bank is comfortable, and the provisional administrator will shortly determine the necessary increase in shareholders’ capital and other corrective measures.

31. The mushrooming of unlicensed microfinance institutions poses potential risks to the whole sector. The mission learned of a number of unlicensed microfinance institutions offering unrealistically high deposit rates, possibly amounting to “Ponzi-type” schemes. These institutions are reportedly attracting deposits away from commercial banks. The mission alerted the authorities to the risks of these operations and urged the authorities to ensure that all operating microfinance institutions are licensed and properly supervised.

32. The authorities reassured the mission that they had informed the judicial system of certain unauthorized microfinance institutions. They indicated that they would intervene if and when necessary to protect depositors and would strengthen the licensing and supervision of all microfinance institutions.

IV. The New ECF Arrangement

33. Building on lessons learned from the previous arrangement, the authorities’ proposal for the new three-year ECF arrangement will maintain macroeconomic stability and accelerate structural reforms to contain the negative impact on Benin of the global economic crisis in the short run and increase sustainable growth over the medium term. In this context, the program will:

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    Raise annual real GDP growth from 3.2 percent in 2010 to 6 percent by 2013,

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    Hold inflation below the WAEMU convergence criterion of 3 percent, and

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    Reduce the external current account deficit to 7 percent of GDP by 2013.

The pursuit of these objectives will be supported by containment of domestic demand through a prudent fiscal policy and a moderate WAEMU regional monetary policy under the fixed peg with the euro (with broad money projected to increase by 5.4 percent in 2010). The fiscal anchor of the program is to stabilize the total public debt to GDP ratio at around 25 percent of GDP over the medium term.

34. Fiscal policy will preserve debt sustainability, by:

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    Increasing the basic primary fiscal balance through a stronger mobilization of revenue and a more rigorous management of public expenditure (Memorandum on Economic and Financial Policies [MEFP], ¶15). Tax revenue will be increased from 16.0 percent of GDP in 2009 to 19.3 percent of GDP by 2013 through reforms in tax policy and administration (MEFP ¶16). Public expenditure will be kept at about 26 percent of GDP, while improving public expenditure management and containing the growth of the public wage bill (MEFP ¶17–19). The authorities plan to develop a tracking system for priority expenditures (MEFP ¶28). Staff expects to be able to track priority spending starting with the 2011 budget.

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    Financing the overall fiscal deficit primarily through external concessional sources (MEFP ¶20). The proposed ECF arrangement is expected to play a catalytic role, facilitating the mobilization of new budget support. Notwithstanding the new Fund policy on debt limits for low-income countries, the authorities do not plan to borrow on nonconcessional terms for the time being.

35. These measures will create fiscal space for growth-enhancing priority expenditure (MEFP ¶15). Public investment will be kept at about 9 percent of GDP annually throughout the period, and its effectiveness will be enhanced by improving the selection and monitoring of projects, and strengthening transparency and accountability in public procurement contracts. The use of exceptional payment procedures outside the expenditure chain will be strictly limited and monitored as an indicative target under the program.

36. Monetary policy conducted by the regional central bank will continue to be consistent with the objective of price stability. The BCEAO will continue to use interest rate policy to keep inflation under control and maintain a comfortable level of official international reserves (MEFP ¶35).

37. The program will be supported by structural reforms to strengthen external competitiveness and improve the business climate (MEFP ¶21). These reforms will improve the mobilization of revenue, and the quality and efficiency of public expenditure, enhancing transparency and accountability in public financial management, widening the role of the private sector, and modernizing the public administration. The authorities also plan to introduce “second generation” reforms to improve land registration and property rights and the financial and judiciary systems (MEFP ¶12). Microfinance supervision will be strengthened, and more resources will be devoted to encouraging youth entrepreneurship in agriculture and the establishment of small and medium enterprises (MEFP ¶27).

A. Fiscal Policy in 2010

38. Fiscal policy will support the economic recovery in 2010, while preserving fiscal and debt sustainability. Economic activity is expected to remain subdued. Real GDP growth is projected to pick up marginally from 2009 to 3.2 percent of GDP as demand for exports remains anemic amid persistent uncertainties on the external economic outlook, most notably from Nigeria.

39. The 2010 budget, while based on optimistic projections, will have more prudent assumptions. The authorities cannot muster political support in parliament to adopt a supplementary budget, but have committed to executing the budget in accordance with the fiscal projections agreed to with Fund staff. Starting with the 2011 budget, they will present the draft budget law to parliament in line with the Fund-supported program (MEFP ¶18).

40. Government revenue is projected to rebound in 2010. Improvements in tax administration, selected tax increases, and the planned sale of three third-generation Global System for Mobile (GSM) Communication licenses are projected to boost revenue to 20.6 percent of GDP (MEFP ¶30). Public expenditure will increase as a share of GDP and thus continue to provide a stimulus to the economy. The increase in the wage bill will be limited to 7.7 percent in nominal terms, reflecting wage concessions already granted to the education sector in early 2010. Expenditure on transfers and purchases of goods and services will increase by 0.5 percent of GDP. Capital spending will be maintained in line with the 2009 level by mobilizing more concessional financing from donors. The domestically financed portion of capital spending also includes the CFAF 50 billion (1.4 percent of GDP) in expenditure carryover from 2009, thus ensuring that all expenditure commitments are financed in 2010 (MEFP ¶32–33).

41. A smaller deficit will strengthen debt sustainability. The basic primary deficit is projected to be reduced by 3.5 percentage points to 0.3 percent of GDP. The overall deficit will decline less (1.4 percent of GDP), reflecting more external financing of investment (MEFP ¶34). The deficit will be financed primarily with external concessional budget support. The World Bank approved a $30 million Poverty Reduction Support Credit (PRSC)-6 credit in April 2010. In addition, the African Development Bank, the EU, and the French government have committed CFAF 22.2 billion (0.7 percent of GDP) in additional budget support. The authorities will cover the remaining financing gap with additional assistance from multilateral and bilateral donors, and the proposed ECF arrangement. Staff expects the program to be fully financed.

42. Privatization proceeds will be saved, pending discussions with Fund staff on their use (MEFP ¶23). These include CFAF 17.5 billion (0.5 percent of GDP) from the sale of shares of the cement company (Société de Ciments d’Onigbolo) received in March 2010, and the proceeds from the forthcoming privatization of Benin Telecom. The authorities agreed on the principle that these resources should be used to finance investment projects with a high social rate of return.

43. Preliminary data indicate that fiscal performance through the first quarter of 2010 was broadly in line with program projections. Income tax receipts were CFAF 1.1 billion higher than targeted and helped offset part of the shortfall in customs collections (CFAF 6.6 billion). Primary expenditure was in line with program projections, thus keeping the basic primary balance to a small deficit of CFAF 6.2 billion (0.2 percent of GDP). The authorities cleared all end-2009 outstanding bills by March 2010, leading to an overall cash deficit (excluding grants) of CFAF 62.5 billion (1.9 percent of GDP).

B. Structural Reforms

44. Fiscal reforms in 2010 will improve revenue collection and public financial management. Legislation will be introduced to establish a personal income tax, which will expand the tax base. The authorities also intend to introduce a more favorable tax regime for private savings and small and medium enterprises. Moreover, the tax and customs administration will be strengthened by coordinating the tax collection agencies, reinforcing their inspection capacity, refining the targeting of controls, and enhancing the use of information technologies (MEFP ¶16). The new public procurement code will be fully implemented (MEFP ¶19). The organic budget law will be revised in line with WAEMU guidelines. Program budgeting will be extended to all branches of public administration and controls at all levels of budget implementation will be improved (MEFP ¶18).

45. The authorities called for bids for the implementation of the one-stop window at the Port of Cotonou in May 2010. The new system will modernize the clearance process through the port and increase transparency in port and customs operations. The one-stop window is expected to be completed by the end of 2010 for the Port of Cotonou and to be extended to the customs department by June 2011.

46. The privatization of a majority stake of Benin Telecom to a strategic investor will be completed by the third quarter of 2010. An additional six percent of the company will be sold to domestic investors.

47. A global strategy will be adopted in 2011 to reform the civil service. It will include a comprehensive revision of the remuneration system. Measures to improve the actuarial balance of the pension fund will also be implemented (MEFP ¶17, ¶25).

48. The restructuring of the state-owned electricity company, SBEE, is underway with a plan to launch its privatization by the end of 2011 (MEFP ¶22). Ahead of the privatization, the authorities plan to implement a regulatory framework for the electricity sector, including a transparent system for determining electricity tariffs.

C. Access, Disbursements, and Program Monitoring

49. The proposed access level for the three-year arrangement is 120 percent of quota, equivalent to SDR 74.28 million. It aligns with the ECF norm for a country like Benin with less than 100 percent of the quota outstanding (Table 6). The proposed access would be disbursed in seven equal semiannual disbursements (Table 7). SDR 10.62 million would become available after Board approval of the arrangement.

Table 1.

Benin: Selected Economic and Financial Indicators, 2007–15

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Sources: Beninese authorities; and IMF staff estimates and projections.

In percent of beginning-of-period broad money

Total revenue minus all expenditure, excluding interest due.

Total revenue minus all expenditure, excluding foreign-financed capital expenditure and interest due.

Table 2.

Benin: Consolidated Central Government Operations, 2007–15

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Sources: Beninese authorities; and IMF staff estimates and projections.

Total receipts (excl. grants) minus total expenditure, excluding investment expenditure financed from external sources and accrued interest.

Payment orders whose payment has been postponed to the following period.

Expenditure committed during the year whose payment has been carried over into the following year.

Table 3.

Benin: Consolidated Central Government Operations, 2007–15

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Sources: Beninese authorities; and IMF staff estimates and projections.

Total receipts (excl. grants) minus total expenditure, excluding investment expenditure financed from external sources and accrued interest.

Payment orders whose payment has been postponed to the following period.

Table 4.

Benin: Balance of Payments, 2007–15

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Sources: Beninese authorities; and IMF staff estimates and projections.

Excluding re-exports and imports for re-export, whose net balance is divided between services and public transfers.

Including the Special Drawing Rights allocation of August 2009.

Months of future imports of goods and services