Front Matter Page
IMF Country Report No. 13/9
BENIN
Benin: 2012 Article IV Consultation and Fourth Review Under the Extended Credit Facility Arrangement—Staff Report; Staff Supplements; Public Information Notice and Press Release on the Executive Board Discussion; and Statement by the Executive Director for Benin
January 2013
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of a combined discussion of the 2012 Article IV consultation with Benin and Fourth Review under the Extended Credit Facility Arrangement, the following documents have been released and are included in this package:
The staff report for the combined 2012 Article IV consultation and fourth review under the Extended Credit Facility arrangement, prepared by a staff team of the IMF, following discussions that ended on July 30, 2012, with the officials of Benin on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on October 26, 2012. The views expressed in the staff report are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF.
Financial Sector Review prepared by the IMF.
Debt Sustainability Analysis prepared by the staffs of the IMF and the World Bank.
Informational Annex prepared by the IMF.
Public Information Notice (PIN) and Press Release, summarizing the views of the Executive Board as expressed during its November 9, 2012, discussion of the staff report on issues related to the Article IV consultation and the IMF arrangement, respectively.
Statement by the Executive Director for Benin.
The documents listed below have been or will be separately released.
Letter of Intent sent to the IMF by the authorities of Benin*
Technical Memorandum of Understanding*
Financial Sector Review*
*Also included in Staff Report
The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information.
Copies of this report are available to the public from
International Monetary Fund • Publication Services
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International Monetary Fund
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© 2013 International Monetary Fund
Front Matter Page
BENIN
2012 ARTICLE IV CONSULTATION AND FOURTH REVIEW UNDER THE EXTENDED CREDIT FACILITY ARRANGEMENT
October 26, 2012
Key Issues
Context. Real GDP growth is projected at about 3½ percent in 2012, and to increase moderately in 2013. Benin is strongly interconnected with Nigeria, including through the supply of most of its fuel. The reduction of Nigerian fuel subsidies in early 2012 caused inflation to rise sharply, but only temporarily.
Program implementation. All quantitative performance criteria and targets were met, but earlier reforms to the cotton sector and a key component of the customs reform program were suspended. Revenue targets and performance criteria on the basic primary balance and net domestic financing were met, as were all indicative targets, including on social expenditure, in March and June 2012. Some structural measures were implemented, but most others were postponed because of difficulties with donor financing and the suspension of the import-verification program. The authorities have committed to re-launching the reforms, progress on which would be monitored in the next review.
Article IV consultation. Discussions focused on the stabilization achieved over the first two years of the program, in spite of severe shocks, and also on the challenges ahead to achieving sustainable, higher growth.
Challenges. Going forward, the key policy priority is to increase growth and to make it more inclusive. While macroeconomic performance has strengthened in recent years, growth has been modest and insufficient to reduce poverty. Larger public investment, and measures to promote greater private sector participation in the economy, including by improving the business environment, should underpin the country’s strategy. They should be buttressed with measures to improve financial intermediation. This will require, among other things, strengthening the financial soundness of the banking and microfinance sectors.
Risks. Risks to the economy include a persistence of difficulties at the Port of Cotonou, and continued suspension of the import-verification program—they would curtail growth and reduce fiscal revenue. Developments in Nigeria, including a further reduction of fuel subsidies, changes in trade restrictions, and other policy decisions could weaken economic activity in Benin. Risks to program performance include wage slippages and continued delays in the implementation of structural reforms.
Approved By
Michael Atingi-Ego and Peter Allum
The consultation mission comprised Mr. de Zamaróczy (head), Mmes. Macario and Zdzienicka, and Mr. Wiseman (all AFR). Mr. Farah, the IMF’s resident representative and Mr. Houessou (resident office), ably assisted the mission. Messrs. Assimaidou and Nguema-Affane (OED) attended key meetings. The discussions took place in Cotonou July 16-30, 2012. The mission met with President Yayi, Prime Minister Koupaki, Minister of Development de Souza, Minister of Finance Gbian, National Director of the Central Bank of West African States (BCEAO) Bonou; and other senior officials, members of the National Assembly, and representatives of labor unions, the private sector, and the donor community. A follow-up financial mission, comprising Messrs. de Zamaróczy (head, AFR), Branger (MCM expert), Nsengiyumva (MCM), and Strobbe (World Bank), visited Cotonou September 11-17, 2012. The last Article IV consultation was concluded on May 27, 2010. Benin is an Article VIII country and has no exchange rate restrictions subject to IMF jurisdiction. Benin is a member of the West African Economic and Monetary Union, and shares a common currency, a common pegged exchange rate, and common external tariffs with other members of the union. Monetary and exchange rate policies are conducted by the BCEAO. Benin accepted the IMF’s quota and voice reforms.
Contents
ROBUST MACROECONOMIC PERFORMANCE, BUT A NEED FOR STRONGER GROWTH
A. Background
B. Recent Economic Developments
C. Strong Quantitative, Mixed Structural Program Implementation
D. Favorable Medium-Term Outlook, but with Vulnerabilities
POLICY DISCUSSIONS
A. Fiscal Policy: Good Performance Thus Far, but Risks Going Forward
B. Raising Medium-Term Growth and Reducing Poverty
C. Strengthening Financial Sector Stability and its Contribution to Growth
STAFF APPRAISAL
BOXES
1. Benin-Nigeria Interrelations
2. Suspension of the Import-Verification Program
3. Suspension of the Framework Governing the Cotton Sector
FIGURES
1. Macroeconomic Performance Vis-à-vis Peers, 2006-2012
2. Recent Economic Developments, 2007-2013
3. Selected Fiscal Indicators, 2011-12
TABLES
1. Selected Economic and Financial Indicators, 2010-17
2a. Consolidated Central Government Operations, 2010-17
2b. Consolidated Central Government Operations, 2010-13
3. Consolidated Central Government Operations, 2010-17
4. Balance of Payments, 2010-17
5. Monetary Survey, 2010-17
6. Schedule of Disbursements Under the ECF Arrangement, 2010-13
7. Indicators of Capacity of Repay the IMF, 2011-23
8. Millennium Development Goals, 1990-2015
APPENDICES
I. Letter of Intent
Attachment 1. Technical Memorandum of Understanding
II. Developments in the Cotton Sector
III. External Stability Assessment
IV. Risk Assessment Matrix
Selected Abbreviations
| AFRITAC West |
Africa Regional Technical Assistance Center West |
| AIC |
Association Interprofessionnelle du Coton (Professional Association of Cotton) |
| AML/CFT |
Anti-Money Laundering/Combating the Financing of Terrorism |
| ASYCUDA |
Automated System for Customs Data |
| AV |
Attestation de Vérification (Inspection Certification) |
| BCEAO |
Banque Centrale des États de l’Afrique de l’Ouest (Central Bank of West African States) |
| CFAF |
Communauté Financière Africaine Franc (CFA Franc) |
| DGDDI |
Direction Générale des Douanes et Droits Indirects (Customs Directorate) |
| DGID |
Direction Générale des Impôts et des Domaines (Tax Directorate) |
| DSA |
Debt Sustainability Analysis |
| ECF |
Extended Credit Facility |
| ESA |
External Stability Assessment |
| FAD |
Fiscal Affairs Department, IMF |
| FNRB |
Fonds National des Retraites du Bénin (National Pension Fund) |
| GDP |
Gross Domestic Product |
| GPRS |
Growth and Poverty Reduction Strategy |
| IMF |
International Monetary Fund |
| IVP |
Import-Verification Program (Programme de Vérification des Importations) |
| JSAN |
Joint Staff Advisory Note |
| LIC |
Low-Income Country |
| LOI |
Letter of Intent |
| MCM |
Monetary and Capital Markets Department, IMF |
| MDG |
Millennium Development Goal |
| NPL |
Nonperforming Loan |
| PAP |
Priority Action Program |
| PIP |
Public Investment Program |
| PSIP |
Public Sector Investment Program |
| REER |
Real Effective Exchange Rate |
| SDR |
Special Drawing Right |
| SIGRH |
Système Intégré de Gestion des Ressources Humaines (Integrated Human Resource Management System) |
| SSA |
Sub-Saharan Africa |
| TIN |
Taxpayer Identification Number |
| TMU |
Technical Memorandum of Understanding |
| TOFE |
Tableau des Opérations Financières de l’État (Government’s Flow-of-Funds Table) |
| VAT |
Value-Added Tax |
| WAEMU |
West African Economic and Monetary Union (Union Économique et Monétaire Ouest-Africaine) |
Front Matter Page
BENIN
2012 ARTICLE IV CONSULTATION AND FOURTH REVIEW UNDER THE EXTENDED CREDIT FACILITY ARRANGEMENT—FINANCIAL SECTOR REVIEW
October 26, 2012
Prepared by
The African Department and the Monetary and Capital Markets Department, in collaboration with the World Bank
This enhanced review of Benin’s financial sector is the first of several pilot reviews called for by the Executive Board in May 2012. The purpose of the reviews is to better understand the interplay between financial deepening, macrostability, and effectiveness of macroeconomic policies in low-income countries, under bilateral surveillance.
This study follows a “bottom up” approach and goes beyond the traditional surveillance focus on banking system soundness and solvency. It looks at the actual way the financial sector operates in Benin, as opposed to a mere survey of existing regulations and indicators. It examines the financial sector’s depth, breadth, and reach, as well as these factors’ relevance for the effectiveness of macroeconomic policies.
Benin’s financial sector is shallow, segmented, and provides limited financial inclusion. The banking sector, dominated by 12 international banks, is generally sound, but plays a limited role in financial inclusion. Conversely, the microfinance sector has good reach, but the volumes it handles are small, and the bulk of its institutions operate without adequate supervision. The sector would benefit from a consolidation and a strategic reorientation toward micro- and small enterprises. The interbank market is virtually nonexistent, and the government securities market tends to crowd out lending to the private sector.
The effectiveness of the regional monetary policy is constrained by the shallowness of the financial system and a number of structural impediments, including insufficient property and creditor rights; excess liquidity in the largest banks; and lack of competition among banks. As a result, monetary policy has limited traction in Benin.
The study makes a number of recommendations. Most important among them are the establishment of better institutional and market infrastructure that could help banks better assess risks; and the strengthening of supervision, both for banks and microfinance institutions.
Contents
BACKGROUND
FINANCIAL DEEPENING IN BENIN
THE BANKING SECTOR
A. Sector Profile
B. The Interbank Market
C. Macro-Financial Linkages
THE MICROFINANCE SECTOR
A. Sector Profile
B. Constraints Facing the Sector
OTHER FINANCIAL INSTITUTIONS
FINANCIAL SUPERVISION
A. Bank Supervision
B. Prudential Norms and Bank Soundness Indicators
C. Supervision of the Microfinance Sector
THE GOVERNMENT SECURITIES MARKET
CHALLENGES TO MACROECONOMIC POLICY
RECOMMENDATIONS FOR FINANCIAL DEEPENING
A. Banking Sector
B. Microfinance Sector
BOXES
1. National Fund for Microcredit
2. Credit Registry
3. Ponzi Schemes
4. IMF Technical Assistance to the Financial System
FIGURES
1. Sub-Saharan Africa: Broad Money, 2000-11
2. Sub-Saharan Africa: Credit to Private Sector, 2000-11
3a. Benin and Sub-Saharan Africa: Private Credit, 2001-10
3b. Benin and Sub-Saharan Africa: Domestic Bank Deposits, 2001-10
4a. Benin and Sub-Saharan Africa: Three-Bank Asset Concentration, 2001-10
4b. Benin and Sub-Saharan Africa: Credit to Government and State-Owned Enterprises, 2001-10
5. WAEMU: Adult Population with a Bank Account, 2010
6. WAEMU: Adult Population with an Account at a Formal Financial Institution, 2010
7. Account Penetration, 2011
8. Formal and Informal Savings, 2011
9. Formal and Informal Borrowing, 2011
10. Excess Bank Reserves, December 2007-June 2012
11. The Missing Middle in Access to Finance
12. Mobile Phone Subscriptions, 2000-10
13. Benin and SAA Countries: Financial Soundness Indicators, 2006-11
14. Licensed Microfinance Institutions, 2000-12
15. Policy, Deposit, and Lending Interest Rates, 2009-12
TABLES
1. Banking System, May 2012
2. Repartition of Banks’ Capital, 2008-10
3. Sectoral Distribution of Lending, 2005-11
4. Selected Indicators for Microfinance Institutions, 2008-12
5. Commercial Banks and Microfinance Institutions—Selected Indicators, 2008-11
6. Compliance with Prudential Norms by Microfinance Institutions, 2008-10
7. Number of Banks in Violation of Prudential Ratios, 2009-12
8. Financial Soundness Indicators, 2005-11
Selected Abbreviations
| ACIM |
African Conference of Insurance Markets (Conférence Africaine des Marchés d’Assurances) |
| ALAFIA |
Professional Association of Microfinance Institutions (Association Professionnelle des Systèmes Financiers Décentralisés) |
| BCEAO |
Central Bank of West African States (Banque Centrale des États de l’Afrique de l’Ouest) |
| BC-WAEMU |
Banking Commission of the West African Economic and Monetary Union |
| BOAD |
Regional Developpment Bank (Banque Ouest-Africaine de Développement) |
| CEMAC |
Central African Economic and Monetary Union (Communauté Économique et Monétaire de l’Afrique Centrale). |
| CFAF |
Franc of the African Financial Community (Communauté Financière Africaine Franc) |
| CGAP |
Consultative Group to Assist the Poor |
| CREPMF |
Regional Council for Public Savings and Financial Markets (Conseil Régional de l’Épargne Publique et des Marchés Financiers) |
| CRRH-UÉMOA |
WAEMU Financial Entity for the Refinancing of Mortgage Loans (Caisse Régionale de Refinancement Hypothécaire de l’UÉMOA) |
| CSFASM |
Committee for Financial Stability and Rationalization of the Microfinance Sector (Comité de Stabilité Financière et d’Assainissement du Secteur de la Microfinance) |
| CSSFD |
Unit in Charge of Decentralized Financial Entities (Cellule de Surveillance des Structures Financières Décentralisées) |
| ECF |
Extended Credit Facility |
| FAGACE |
African Guarantee and Cooperation Fund (Fonds Africain de Garantie et de Coopération Économique) |
| FECECAM |
Federation of Savings and Rural Loan Cooperatives (Fédération des Caisses d’Épargne et de Crédit Agricole Mutuel) |
| FSAP |
Financial Sector Assessment Program |
| IMF |
International Monetary Fund |
| LIC |
Low-Income Country |
| NCC |
National Council of Credit (Conseil National du Crédit) |
| MFI |
Microfinance Institution |
| MOFE |
Ministry of Finance and Economy |
| MSME |
Micro, Small, and Medium-Size Enterprise |
| NFM |
National Fund for Microcredit (Fonds National de Microcrédit) |
| NPL |
Nonperforming Loan |
| SSA |
Sub-Saharan Africa(n) |
| T-bill, T-bond |
Treasury Bill or Bond |
| WAEMU |
West African Economic and Monetary Union (Union Économique et Monétaire Ouest-Africaine) |
Front Matter Page
BENIN
October 26, 2012
2012 ARTICLE IV CONSULTATION AND FOURTH REVIEW UNDER THE EXTENDED CREDIT FACILITY ARRANGEMENT—UPDATE OF THE DEBT SUSTAINABILITY ANALYSIS
Approved By
Michael Atingi-Ego and Peter Allum (IMF) and Jeffrey Lewis and Marcelo Giugale (IDA)
Prepared by the International Monetary Fund and the International Development Association1
The update of debt sustainability analysis (DSA) confirms a low risk of debt distress. The projected external debt indicators, despite a moderate deterioration owing to less favorable medium-term growth and export prospects, remain below the policy-dependant thresholds under the baseline scenario and stress tests. The inclusion of domestic public debt shows a gradual decrease in all debt indicators confirming the conclusion of the external DSA. This assessment, however, critically depends on the assumption that the authorities will continue to pursue prudent fiscal and debt policies and will implement structural reforms to enhance competitiveness and growth.
Front Matter Page
BENIN
2012 ARTICLE IV CONSULTATION AND FOURTH REVIEW UNDER THE EXTENDED CREDIT FACILITY ARRANGEMENT—INFORMATIONAL ANNEX
October 26, 2012
Prepared By
The African Department
(In consultation with other departments)
Contents
I. RELATIONS WITH THE FUND
II. JOINT WORLD BANK-IMF WORK PROGRAM, 2012–13
III. STATISTICAL ISSUES
Front Matter Page
Public Information Notice (PIN) No. 12/132
FOR IMMEDIATE RELEASE
November 26, 2012
International Monetary Fund
700 19th Street, NW
Washington, D. C. 20431 USA
Telephone 202-623-7100
Fax 202-623-6772
Front Matter Page
Press Release No. 12/425
FOR IMMEDIATE RELEASE
November 9, 2012
International Monetary Fund
Washington, D.C. 20431 USA
Telephone 202-623-7100
Fax 202-623-6772
Front Matter Page
Nevember 9, 2012
