On behalf on my Beninese authorities, I would like to thank Management and staff for the continued support they have received in their ongoing efforts to improve the economic and financial performance of the country. They especially appreciate the advice and assistance provided in the implementation of the program supported by the Extended Credit Facility (ECF).

Abstract

On behalf on my Beninese authorities, I would like to thank Management and staff for the continued support they have received in their ongoing efforts to improve the economic and financial performance of the country. They especially appreciate the advice and assistance provided in the implementation of the program supported by the Extended Credit Facility (ECF).

On behalf on my Beninese authorities, I would like to thank Management and staff for the continued support they have received in their ongoing efforts to improve the economic and financial performance of the country. They especially appreciate the advice and assistance provided in the implementation of the program supported by the Extended Credit Facility (ECF).

Program implementation under the present ECF arrangement has been broadly satisfactory, in spite of a number of adverse exogenous developments. All performance criteria and all indicative quantitative targets for end-September 2012 were met. The macroeconomic framework put in place in October 2012 remains unchanged, and my Beninese authorities remain committed to the implementation of the policies under the program. In this context they are requesting the completion of the fifth review and an extension of the ECF arrangement until end-April 2014 so that they can implement the new approach to customs reform, which should help improve fiscal performance significantly.

This new approach has been made necessary due to difficulties encountered in the implementation of the import verification program (IVP) at the Port of Cotonou. It has been developed with technical assistance from the IMF, and is focused on capacity building in customs administration. The new strategy is comprehensive and includes reform measures that cover all aspects of customs administration. To implement this strategy, the government has drafted and adopted an action plan, and has also established the institutional framework for reform comprising a strategy and surveillance committee and steering committee.

Recent economic developments

Since the cancellation of the two management and service contracts in 2012, performance at the port and in the cotton sector has improved significantly under the government supervision. Traffic at the port has returned to its pre-IVP levels and efficiency even improved as dwell time at the port is now shorter than its pre-reform level. This surge in port traffic boosted trade-related activities. Cotton production of the 2012/13 campaign, which the government managed entirely, increased by 20 percent to 240,000 tonnes, thanks to favorable weather conditions and strengthened assistance to cotton producers. The good performance in the two sectors drove economic growth which reached 5.4 percent in 2012. As expected, inflation shot up to 6.9 percent at end-2012 as result of the reduction in petroleum subsidies in Nigeria in early 2012. It subsided in 2013 and stood at 5.0 percent in May 2013. Despite higher exports, notably cotton and textiles, the current account deficit widened due to much higher imports of oil products and agricultural inputs. Nevertheless, the balance of payments deficit declined reflecting strong financial flows.

Fiscal performance in 2012 was better than expected as my authorities steadily pursued the implementation of their fiscal consolidation program. The prudent fiscal policy continued in 2013 with notably revenues at end-March 2013 in line with program targets thanks to reforms at the Port of Cotonou and a strengthening of the tax administration. Expenditures however exceeded the program target due to advances to the cotton sector for the 2013/14 campaign (it is expected that these advances will be repaid by end-2013 with cotton exports receipts). Consequently the overall fiscal deficit was higher than expected at 1.5 percent instead of 1.3 percent. Along with fiscal consolidation, my authorities pursued a prudent debt policy management throughout 2012. Public debt decreased from 31.9 percent of GDP in 2011 to 29.1 percent in 2012 and the risk of a debt crisis remains low.

Money supply increased by 8.9 percent in 2012 and 11.2 percent at end-March 2013 along with traffic recovery at the Port of Cotonou and greater trade-related activities. The banking sector remains generally sound. However, as staff indicates, non-performing loans increased between June 2012 and May 2013 due to a sharp increase in the NPLs of a private bank that accounts for less than 4 percent of the total assets of the banking system. This bank has been recapitalized to meet the capital adequacy ratio.

The implementation of structural reforms has advanced significantly. As noted above, a new approach to customs reform has been put in place. My authorities developed a comprehensive and an integrated information system in the tax administration. In the same vein, the generalization of the single taxpayer identification number (TIN) to all taxpayers has continued. Significant progress was also made in the civil service reform, with notably the adoption of the reform strategy in April 2013. The financial governance framework was strengthened with the creation of a National Anti-Corruption Authority and the issuance of the implementation decrees for the anti-corruption law. Also noteworthy are the measures taken to enhance investment and social spending and the decision to audit public enterprises, including those involved in the 2012/13 cotton campaign. On the legislative front, the Parliament adopted a new organic budget law in accordance with regional directives. In the same vein, three regional pieces of legislation regarding the financial sector were promulgated. Recent reforms to improve the business environment include the establishment of a single window to speed up the process of creating new businesses and the creation of three specialized chambers within the Cotonou Court to accelerate the settlement of trade disputes.

Policies for the remainder of 2013 and beyond

My authorities remain committed to achieving its macroeconomic stability and sustainable development objectives. In this regard, they intend to pursue their economic and financial program aimed at sustaining a strong and equitable growth over the medium-term and improving the populations’ living conditions, in accordance with the third-generation Growth and Poverty Reduction Strategy document (PRSP III) for 2011-2015 and the Priority Action Program (PAP). In particular, while significant progress has been made towards achieving the Millennium Development Goals, my authorities recognize that further efforts will be necessary to meet the MDGs on time, especially in the sectors of health, primary education, water and sanitation. Therefore, a special emphasis will be placed on the priority actions defined to that effect, building on the priority social expenditures mechanism.

In addition, my authorities believe that sustaining a high growth rate over the medium-term will require investment in infrastructure, notably for energy and transportation. This will further improve business environment, consolidate recent gains at the port and in the cotton sector and strengthen Benin’s position as a transit hub for the countries in the hinterlands. With the assistance of the World Bank, a list of strategic investment projects is being prepared and a public private partnership framework is being developed. Both elements will be presented to private investors at a roundtable for development financing which will take place in November 2013. My authorities will assess the fiscal implications of the final list of projects following this event and integrate them into the medium-term projections. In developing their investment plan, my authorities will remain committed to a prudent debt management.

On the basis of the policies being implemented, real GDP growth in 2013 is forecast to remain high at 5 percent, owing to the ongoing measures to increase agricultural output and enhance the capacity and competitiveness of the Port of Cotonou. Inflation is projected to continue to decline to 3 percent, the inflation threshold in the WAEMU. The current account deficit is projected to decline due to higher cotton export and lower imports. My authorities agree with the staff’s assessment of risks to the country’s economic outlook, notably those stemming from the dependence on weather and the vulnerabilities to commodity price volatility and trade policy decisions in neighboring Nigeria.

Fiscal policy will focus on achieving the fiscal objectives for 2013. In this regard, my authorities will accelerate the implementation of fiscal reforms by placing a particular emphasis on public financial management and the strengthening of the tax administration in order to increase mobilization of domestic revenue, and reduce reliance on customs revenue. Regarding the customs reform, measures will be taken in accordance with the action plan adopted.

My authorities will continue to strengthen the financial sector framework with a view to increasing its contribution to the country’s economic development. They will pursue, as in the past, the resolution of troubled banks in cooperation with the regional banking supervision commission.

Conclusion

Performance under the ECF at end-September has been satisfactory. In light of the good performance under the ECF, and given my authorities’ continued commitment to the program, I will appreciate the Executive Board’s support for the completion of the fifth review under the ECF, as well as the request for the extension of the arrangement.