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.
This statement provides information that has become available since the staff report was issued to the Executive Board on May 28, 2010. The new information does not alter the thrust of the staff appraisal.
1. Preliminary data through April 2010 indicate that consumer price inflation rose to 3.0 percent year-on-year, reflecting the government decision to increase electricity tariffs by 10 percent on April 1 and higher food and transport costs. On the fiscal front, revenue collections were CFAF 36.9 billion (1.1 percent of GDP) lower than projected under the program on account of weaker tax and non-tax revenue. Nevertheless, government expenditure was in line with program projections, with lower domestic capital spending offsetting somewhat higher transfers. In particular, the wage bill was in line with the program.
2. The authorities indicated to staff this week that they have taken measures to increase revenue collections and regulate spending in order to achieve the end-June targets under the program. In particular, the management of the customs department has been recently replaced. The authorities have also made the use of the single Tax Identification Number mandatory for customs declarations, and have intensified customs controls at the borders. New internal controls at the income tax department have also been introduced. Finally, they expect to receive CFAF 52 billion (1.7 percent of GDP) in nontax revenue in July 2010 from the sale of three third-generation GSM licenses.
3. The authorities have revised their external financing projections upwards for 2010 to take account of the recent sharp depreciation of the CFA franc against the US dollar and the SDR. Based on the latest market exchange rates, the revised financing gap is now estimated at CFAF 19.5 billion, compared with CFAF 24.3 billion in the staff report. They expect to cover the revised financing gap with the two disbursements under the proposed ECF arrangement (CFAF 16.9 billion) and additional bilateral support (CFAF 2.6 billion) that they expect to be committed after the regular annual donors’ review in June 2010. In any event, the authorities reconfirmed this week their commitment in the memorandum on economic and financial policies (paragraph 34) to cut the equivalent amount of any residual financing gap in nonpriority expenditures.
4. The authorities signed a restructuring agreement on June 3, 2010 with the Belgian Export Agency for a €10.8 million loan contracted by Benin Telecom in 2003 which had become overdue.