Benin: Staff Report for the 2017 Article IV Consultation and First Review Under the Extended Credit Facility Arrangement and Request for Modifications of Performance Criteria
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International Monetary Fund. African Dept.
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Publication Date:
05 Jan 2018
eISBN:
9781484336533
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English
Keywords:
ISCR; CR; private sector; Benin; Beninese authorities; authority; long-term debt; public spending; infrastructure gap; revenue mobilization; public investment management; Public investment and public-private partnerships (PPP)
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2017 Article IV Consultation and First Review Under the Extended Credit Facility Arrangement and Request for Modifications of Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for Benin

Abstract

2017 Article IV Consultation and First Review Under the Extended Credit Facility Arrangement and Request for Modifications of Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for Benin

Background and Outlook: Strengthening the Pillars for a Structural Transformation of the Economy

1. Inclusive growth has been elusive. Following a decade of mediocre economic performance, growth over the last 3 years (2013–15) averaged 5.2 percent, closing the gap with the sub-Saharan Africa (SSA) average in per capita GDP growth (Box 1). However, this solid macroeconomic performance did not translate in a meaningful reduction in poverty, which remains a major challenge calling for a higher and more inclusive growth over the medium term (Text Figure 1). Low and stagnant productivity in the agriculture sector is the primary cause of the limited poverty reduction in rural areas.1

Text Figure 1.
Text Figure 1.

Benin: Poverty Rate, 2011–15

(percent of population)

Citation: IMF Staff Country Reports 2018, 001; 10.5089/9781484336533.002.A001

Source: Beninese authorities.

2. The government is committed to structurally transform Benin’s economy by scaling up investment and diversifying the economy. On April 7, the Board approved the authorities’ request for a three-year arrangement under the ECF. Executive Directors underscored the importance of adhering to policies that preserve macroeconomic stability and public debt sustainability. At the time of the 2017 IMF/World Bank Annual Meetings, Benin became a full participant in the G20 Compact with Africa (CWA) Initiative in the hope of bolstering private sector financing of the Government’s Action Program (GAP), 2016–21.2

3. The government’s reform agenda suffered some setback but the authorities remained committed to it. In April, a revision of the Constitution aimed at fostering transparency and accountability by public office holders did not pass. Also, little progress is being made with reforms of audit institutions. Nonetheless, the authorities are developing strategies to ensure that the reform program will continue unabated, reiterating their commitment to improve governance and transparency and strengthened accountability for public office holders.

4. Implementation of past policy recommendations was broadly satisfactory (Annex I). The authorities are making notable progress in consolidating the macroeconomic situation and advancing key structural reforms, including the need for improved fiscal policy management to broaden the fiscal space, preserve debt sustainability, and reduce macro-financial risks. However, the business environment continues to be challenging and financial deepening and inclusion are lagging.

Poverty

The evolution of household consumption between 2011 and 2015 shows that real per capita annual expenditure decreased from CFAF 226,440 to CFAF 223,402, a drop of, approximately, 1.3 percent. Growth in Benin has been the result of expanded acreages and increased labor effort rather than increases in productivity. The highly informal nature of the economy and low productivity—particularly, in the agricultural sector are the main causes of the lack of inclusiveness. Despite the drop of the overall non-monetary poverty in recent years, the data shows a high incidence of poverty in rural populations (north part of the country) compared with urban populations (concentrated in the south).

Benin: Spending per capita and poverty, 2011 vs.2015

(CFA francs)

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Spending per capita in 2015 deflated by 2011 prices

Source: INSAE

The survey and analysis conducted by the INSAE also found:

  • Overall, poverty indicators deteriorated from 36.2 percent of population in 2011 to 40.1 percent in 2015, mainly explained by the contraction of consumer spending.

  • Nonetheless, the proportion of people who consider themselves poor decreased across the board. In urban areas, it fell from 77 percent in 2011 to 66 percent in 2015 and in rural areas, the proportion was 67.2 percent in 2015 compared with 73 percent in 2011.

  • Per the 2016 report titled: ‘Human Development for Everyone,’ Benin ranked 167 out of 185 against 166 in 2015. At the regional level, Benin ranked 35th against 31th in 2015. Nonetheless, Benin’s level of development has remained virtually unchanged, as its Human Development Index has risen from 0.480 in 2015 to 0.485 in 2016 below the average of 0.497 for countries in the low human development group and below the average of 0.523 for countries in SSA.

  • Women experienced higher levels of (non-monetary) poverty than men. However, regarding monetary poverty, the analysis found that groups led by women are better off than those led by men (women heads of households generally enjoy sufficient economic autonomy, resulting in part from their marital status, household size and sectors of activity, and by the fact that women are benefiting from better access to credit). Individuals living in households headed by persons with at least primary education are less affected by monetary or non-monetary poverty.

  • While the persistence of non-monetary poverty is explained by the lack of basic infrastructure, the increase in monetary poverty is rooted in: (i) the fall in per capita incomes in rural areas linked to a fall in yields; (ii) the structural weaknesses of the agricultural sector (climatic hazards, non-control of water, poor access to good seeds, lack of or weak extension services), and (iii) the expansion of the informal sector.

Source: Note sur la pauvreté au Bénin en 2015, Institute of Statistics and Economic Analysis (INSAE).

Recent Developments

Economic growth is accelerating and inflation remains subdued. Budget execution is expected to be better than programmed while the current account would widen marginally on the back of import growth.

5. GDP growth is recovering based on agriculture. Benin achieved an economic growth rate of 4.0 percent in 2016; up from 2.1 percent in 2015 (Table 3 and Text Figure 2). Strong GDP growth in 2016 is mainly due to favorable weather conditions and better access to agricultural inputs. By contrast, the depreciation of the naira, coupled with the decline in 2016 of the activities related to cotton ginning, negatively impacted the secondary sector (2.6 percent growth in 2016 vs. 10.1 percent in 2015). Despite a difficult sub-regional context, the tertiary sector showed a 3.4 percent increase in value added compared to an initial forecast of 2.7 percent. Inflation turned negative in 2016 (-0.8 percent) after a moderate increase in 2015. Indicators of industrial and electricity production show a pickup in economic activity in recent months (Text Figure 2). As a result, growth for 2017 is expected to reach 5.6 percent with inflation turning positive at 0.6 percent.

Table 1.

Benin: Status of Quantitative Performance Criteria and Indicative Targets and Proposed Modifications, 20171

(Billions of CFA francs)

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Sources: Beninese authorities; IMF staff estimates and projections.

The terms in this table are defined in the Technical Memorandum of Understanding (TMU).

The performance criteria and indicative targets are cumulative from the beginning of the calendar year.

The performance criterion on net domestic financing is automatically adjusted as indicated in the TMU.

If the amount of disbursed external budgetary assistance net of external debt service obligations falls short of the program forecast, the ceiling on net domestic financing will be adjusted pro-tanto, subject to limits specified in the TMU.

If the amount of disbursed external budgetary assistance net of external debt service obligations exceeds the program forecast, the ceiling will be adjusted downward by the excess disbursement unless it is used to reduce domestic payment arrears.

Gross disbursements, not adjusted for debt service obligations.

Table 2.

Benin: Status of Structural Benchmarks for 2017*

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Including prior actions for the approval of the ECF arrangement.

Table 3.

Benin: Selected Economic and Financial Indicators, 2014–22

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Sources: Beninese authorities; IMF staff estimates and projections.

Including off-budget investment implemented by non-financial public enterprises.

Total revenue minus current primary expenditure, capital expenditure, and net lending.

Total revenue minus current primary expenditure and capital expenditure financed by domestic resources.

Data include projected central government debt and new non-financial public sector borrowing for infrastructure from 2016 onward as well as the nominal amount of government guarantees.

Text Figure 2.
Text Figure 2.

Benin: Real GDP Growth and Economic Activity

Citation: IMF Staff Country Reports 2018, 001; 10.5089/9781484336533.002.A001

Sources: Beninese authorities and IMF staff calculations.

6. The fiscal outturn at end-June 2017 is in line with the program. Total revenues amounted to CFAF 443.9 billion at end-June 2017, slightly above the target of CFAF 386.1 billion while the basic primary deficit was limited to CFAF 33.1 billion, well below the floor of CFAF 73.1 billion targeted under the program. Regarding priority social sectors, expenditure commitments were estimated at CFAF 55.6 billion, significantly below the target set for end-June (CFAF 85.0 billion). Similarly, investment spending was lagging, reflecting delays in validating sectorial ministries’ annual work plans consistent with the GAP and the ECF-supported program. The stronger domestic revenue performance is expected to result in a lower-than-programmed fiscal deficit (including grants) of 6.1 percent of GDP in 2017 against a program projection of 7.9 percent.

7. The current account deficit (including grants) is expected to remain elevated in 2017. After a brief improvement in 2016, it is projected to reach 9.1 percent of GDP, reflecting the investment scaling up in 2017 with imports of goods and services increasing by about 19 percent.

8. Debt vulnerabilities remain moderate but need to be monitored closely. Benin’s updated debt sustainability analysis confirmed a moderate risk of debt distress (Annex VI)3. Total public debt increased in 2016, reflecting the government’s strategy of using domestic financing for capital investment projects. Approximately 90 percent of public domestic liabilities consist of government securities issued on the regional financial market. Staff has recommended to the authorities to continue working with potential donors to mobilize more concessional financing.

9. The financial sector is stable but vulnerability has intensified. Although the capitalization of banks has increased, the persistently high level of non-performing loans indicates structural problems, limiting the role of commercial banks in financing the private sector (Table 11). The regulatory capital to risk-weighted assets of the banking system reached 10.0 percent at end-June 2017. The liquidity ratio (total loans/total deposits) is maintained at 78 percent. However, the high concentration of banks’ loan portfolio is a source of concern. Non-performing loans to total loans stands at 20.3 percent of total credits at end-June 2017. The microfinance sector showed growth in loans and deposits, but progress in the closure of non-approved microfinance institutions remained limited.

Table 4.

Benin: Consolidated Central Government Operations, 2014–22

(Billions of CFA francs)

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Sources: Beninese authorities; IMF staff estimates and projections.

Data include executed pre-financed projects.

Total revenue minus current primary expenditure, capital expenditure, and net lending.

Total revenue minus current primary expenditure and capital expenditure financed by domestic resources.

As presented in the authorities’ 2016 supplementary budget as of June 10, 2016.

Table 5.

Benin: Consolidated Central Government Operations, 2014–22

(Percent of GDP)

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Sources: Beninese authorities; IMF staff estimates and projections.

Total revenue minus current primary expenditure, capital expenditure, and net lending.

Total revenue minus current primary expenditure and capital expenditure financed by domestic resources.

Net change in the stock of payment orders whose payment has been postponed to the following period.

Data include projected central government debt and new non-financial public sector borrowing for infrastructure from 2016 onward as well as the nominal amount of government

As presented in the authorities’ revised 2016 budget as of June 10, 2016.

Table 6.

Benin: Consolidated Central Government Operations, 2016–18

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Sources: Beninese authorities; IMF staff estimates and projections.

Total revenue minus current primary expenditure, capital expenditure, and net lending.

Total revenue minus current primary expenditure and capital expenditure financed by domestic resources.

Table 7.

Benin: Balance of Payments, 2012–22

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Sources: Beninese authorities; IMF staff estimates and projections. Note: … = not available.

Excludes re-exports and imports for re-export.

Projections for short-term capital include estimates to adjust for the trend in errors and omissions.

Table 8.

Benin: Monetary Survey 2013–18

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Sources: BCEAO; IMF staff estimates and projections.

Including credit to the private sector and to other non-financial public sector.

Table 9.

Benin: Schedule of Disbursements Under the ECF Arrangement

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Source: International Monetary Fund.
Table 10.

Benin: Indicators of Capacity to Repay the Fund, 2017–31

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Sources: IMF staff estimates and projections.

Data are projections

On December 10, 2014 the IMF Executive Board extended through December 31, 2016, the interest waiver for concessional loans that was introduced on January 7, 2010. The following rates are assumed beyond 2016: projected interest charges between 2017 and 2018 are based on 0/0/0.25/0.25 percent per annum for the ECF, RCF, SCF, and ESF, respectively, and beyond 2018 0.25/0.25/0.5/0.25 percent per annum. The Executive Board will review the interest rates for all PRGT facilities by end-2016 and every two years thereafter.

Total debt service includes IMF repurchases and repayments.

Table 11.

Benin: Financial Soundness Indicators 2011–17

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Source: BCEAO. Note: … = not available.

Tier 1 Capital.

Identified sectors represent at least 80 percent of credit

The improvement of NPLs since 2014 includes the reduced exposure by several banks to a business group that encountered difficulties in 2012–14.

Some account elements available semi-annually.

Excluding taxes on banking operations.

Including savings accounts.

Outlook and Risks

The medium-term outlook is favorable and in line with original program assumptions. However, risks are on the downside (¶ 11).

10. Medium-term growth prospects are favorable. Real GDP growth is projected to accelerate over the medium term on the back of: (i) continued strength in agricultural production; (ii) sustained investment, both public and private; and (iii) a rebound in the tertiary sector. Inflation is expected to remain below the WAEMU convergence rate of 3 percent. The fiscal deficit is programmed to fall below the WAEMU convergence criterion of 3 percent of GDP by 2019 following the significant increase in 2017. The external position is projected to improve with the overall balance shifting to a surplus starting in 2017. Based on available data at end-June 2017, the macroeconomic aggregates for 2017–18 were projected as follows:

  • Growth would reach 6.0 percent in 2018 and average 6.6 percent over 2019–22, driven mainly by a good performance of the agricultural sector, the ongoing recovery of the Nigerian economy, the scale up in public investment, the resilience of the tertiary sector (transport and telecommunications, trade), and an uptake in private investment in response to expected improvement in infrastructure.

  • Inflation is projected to average 2.8 percent on average in 2018–22.

  • The budget deficit (including grants) is expected to fall to 4.5 percent in 2018 and further to 1.8 percent of GDP in 2019.

  • Monetary policy by the regional central bank (BCEAO) is expected to remain supportive, buttressing the programmed increase in credit to the private sector.4

  • Non-financial public sector (NFPS) debt is projected to reach 56.2 percent of GDP in 2018 with a present value (PV) of 48.3 percent of GDP.

  • After peaking in 2017, the external current account deficit (including grants) would decline to 8.2 percent of GDP in 2018 and average 6.4 percent of GDP for 2019–22 as investment and import growth.

Text Table 1.

Benin: Selected Economic and Financial Indicators—Baseline and Alternative Scenarios, 2017–22

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Source: IMF staff estimates and projections.

Same volume of investment in both scenarios.

11. The external sector assessment does not raise immediate concerns, but highlights the need to boost competitiveness (Annex III). It found that the real effective exchange rate is broadly consistent with fundamentals although competitiveness remains weak. The authorities agree with the assessment and are committed to advance structural reforms that would enhance the competitiveness of the economy.

12. Risks. Risks to the outlook include: (i) delayed recovery in Nigeria and attendant shocks; (ii) resistance from the NA to support the reform agenda; (iii) unforeseen contingent liabilities associated with SOEs and other government contracts; (iv) the volatility of cotton export prices; and (v) the potential non-materialization of the efficiency gains expected from public investment and a limited private sector response (Annex II Risk Assessment Matrix). An alternative scenario based on lower growth stemming from the non-materialization of the efficiency gains expected from public investment shows a deterioration of key macroeconomic indicators over the medium term, calling for stronger domestic adjustment (Text Table 1).

Authorities’ Views

13. The authorities broadly shared staff’s views on the medium-term outlook and risks. The authorities concurred with staff that a fiscal adjustment is needed to reduce debt and ensure continued macroeconomic stability and growth. They also agreed with the outlook for moderate inflation and that a strengthened fiscal stance will contribute to improve the external position. The authorities concurred with staff that private sector involvement is critical to consolidate the reform program.

Policy Discussions

Discussions focused on how to: (i) accelerate reforms to create fiscal space; (ii) preserve debt sustainability; (iii) diversify the economy and promote inclusive growth, and (iv) promote good governance and transparency.

A. Accelerating Reforms to Broaden the Tax Base and Enhance the Efficiency of Public Spending

Revenue mobilization

14. Tax and customs administration reforms remain on track but need to be accelerated. The priority given by the government to strengthen domestic revenue mobilization is beginning to bear fruit. Preliminary measures to facilitate the achievement of the programmed revenue target have been put in place. Total revenue is expected to increase by 21.7 percent in 2017 to reach CFAF 907.5 billion. However, the implementation of reforms aimed at modernizing the tax and customs administrations, improving their efficiency and strengthening their coordination must continue with vigor to sustain the improvement noted through end-June 2017 (Tables 5 and 6 and Box 3). Nonetheless, tax revenues remained at 13.5 percent of GDP in 2017, well below the 20 percent threshold set by the WAEMU.

Authorities’ views

15. The authorities reaffirmed their commitment to implementing additional reforms to mobilize more resources. In line with the development objectives set in the Economic Development Document (Box 2), the authorities will continue their efforts in tax and customs administration reforms to create additional fiscal space necessary for financing the PAG. To boost tax revenue collection, the authorities will seek: (i) improving human resources management within the tax administration; (ii) implementing a plan to improve tax compliance to mitigate risks that can potentially harm revenue and / or tax functions; and (iii) strengthening the implementation of transactional values within customs (MEFP ¶16). They are also accelerating reforms to integrate the electronic systems of the tax and customs administrations to enhance their efficiencies and strengthen coordination.

Economic Development Document (EDD), 2017–21

Benin’s EDD for 2017-21 builds on the government’s long-term economic and social programs (Etudes Nationales de Perspectives a Long Terme—Benin Alafia 2025) and on the achievements and implementation challenges of Benin’s previous poverty reduction strategic documents (SCRP), the Economic and Social Development Plan (PDES), 2012-15. The PDES recorded steady progress on several fronts, but challenges remain as regard to governance, lack of capacity, effective implementation of reforms, project management, domestic revenue mobilization, expenditure prioritization, agriculture modernization, and food security.

To address these challenges, the EDD aims first at further enhancing the macroeconomic environment to achieve inclusive growth through accelerated and sustained growth and meet the dual objective of improving incomes and job creation, while strengthening the foundations of sustainable development.

The EDD document recognizes that the average rate of growth during the SCRP, 2011-15 (5.3 percent), was insufficient (against a target of 7.5 percent for 2015 percent) to contribute to a significant reduction of poverty and unemployment (vis-à-vis a demographic growth of 3.5 percent during the period). The EDD also acknowledges the seriousness of the poverty dynamics in Benin (described in more detail in Box 1). The EDD recognized four major development challenges: (i) increase economic competitiveness; (ii) reduce inequalities of access to basic services by the population; (iii) address and correct disparities among different economic zones, and (iv) improve the business environment. To support the achievement of macroeconomic objectives, the EDD sets sectoral and key reforms priorities: (i) strengthen the state of law; (ii) improve governance; (iii) maintain macroeconomic stability; (iv) improve economic growth, (v) strengthen the performance of education; (vi) reinforce social protection, and (vii) promote sustainable and durable economic development.

The principles underlying the EDD are in line with the pillars of the Government Action Program and previous PDEs. Nonetheless, further emphasis on improving public financial management and domestic resource mobilization and accelerating the implementation of the domestic food security could be advisable within the strategy. In addition, focusing on agribusiness to promote export diversification; enhancing public investment in priority infrastructures and in the social sectors; and attracting foreign direct investment to boost exports could also help to support inclusive growth.

Public Investment Efficiency

Benin is projected to increase public investment significantly to help close the its infrastructure gap. Benin’s infrastructure gap is relatively large and has been widely identified as a growth bottleneck. Nonetheless, Benin is lagging behind SSA average in electricity supply, paved road density and telecommunication infrastructure. Insufficient or inefficient infrastructure reduces the return to trade and economic activity and constrains growth. To close this gap, Benin is envisioning to significantly boost public capital expenditure in the medium term.

In addition to the infrastructure gap, Benin’s infrastructure is also perceived as being of relatively low quality, and investment efficiency appears low. According to the most recent World Economic Forum’s (WEF) Global Competitiveness, the quality of electricity supply, railroads and roads scored below SSA benchmark countries’ average. At a comparable level of real public capital stock, Benin’s overall infrastructure quality is perceived lower than that of regional peers.

uA01fig01

Benin: Selected Qualitative Indicators of Infrastructure, 2015

Citation: IMF Staff Country Reports 2018, 001; 10.5089/9781484336533.002.A001

Sources: Global Competitiveness Index, and IMF Staff estimates.

The efficiency frontier approach (Selected Issues paper) assess the relative efficiency of Benin in translating public investment (inputs) into infrastructure (outputs). It shows that Benin’s public investment efficiency compares unfavorably with regional comparators with substantial scope to improve efficiency. Benin’s performance lags that of all comparator groups, with the magnitude of the inefficiency depending on the efficiency score index. Under three efficiency scores indexes, the results indicate that Benin could increase investment efficiency by 55 percent in average with the same amount of investment. Benin could improve public investment efficiency significantly by improving the quality of institution. This is borne out by the regression analysis suggesting that stronger institutions could reduce the public investment efficiency gap in Benin. Improving public investment efficiency, in turn, could help boost growth and speed up progress in realizing the development agenda.

Investment efficiency

16. The authorities’ reform agenda needs to focus on reducing the efficiency gap in public investment to buttress implementation of the GAP, 2016–21. A preliminary analysis of available data on public investment management shows that the efficiency of public investment is relatively low in Benin (Text Figure 3) compared with benchmark countries. In addition, analytical work on investment efficiency shows that Benin’s infrastructure quantity and quality remain relatively low and that there is a need to improve certain public investment management (PIM) institutions that could reduce the efficiency gap. Poor selection criteria of public projects and non-transparent procurement processes contribute to inefficiency of public spending. Based on the findings of the SIP, staff recommended measures to address inefficiencies in public spending, including a robust planning system coordinated with budget preparation, effective state and local government coordination, and a comprehensive normative and institutional framework for public procurement.

Text Figure 3.
Text Figure 3.

Benin: Indicators of efficiency of public investment

Citation: IMF Staff Country Reports 2018, 001; 10.5089/9781484336533.002.A001

Source: IMF Staff calculations.

Authorities’ views

17. The authorities confirmed their commitment to improve the efficiency of public investment. They welcomed the findings and key recommendations of the October 2017 IMF technical assistance (TA) mission assessing Benin’s public investment management (PIMA) and expressed their commitment to draw on this to strengthen the planning and execution of public infrastructure projects, with a view to improve monitoring of commitments, conduct ex-post project evaluation, improve inter-ministerial coordination, and strengthen human capital. The authorities will seek to strengthen project selection with to enhance the procurement and execution processes with a view to ensure value for money.

B. Preserving Long-Term Debt Sustainability

Strengthen debt sustainability

18. The rapid increase in domestic debt in recent years calls for strict adherence to the programmed fiscal consolidation path to preserve long-term debt sustainability. The September 2017 DSA confirms a moderate risk of debt distress for Benin (Annex VI). However, domestic public debt increased from about 8.6 percent of GDP to 33.6 percent of GDP between 2013 and 2017 (Text Figure 4) to account for 60 percent of the total debt. Staff urged the authorities to remain steadfast in the implementation of the fiscal reforms to ensure that the programmed fiscal consolidation path is achieved to support the public debt anchor5 and preserve long-term debt sustainability.

Text Figure 4.
Text Figure 4.

Benin: Total non-financial public sector debt 2010–2017

(in percent of GDP)

Citation: IMF Staff Country Reports 2018, 001; 10.5089/9781484336533.002.A001

Sources: Authorities’ data and staff calculations.

19. Ongoing efforts to strengthen public debt management should be sustained. The government’s increased reliance on the regional financial market to finance public investment projects has increased the present value (PV) of public debt to 48.4 percent of GDP in 2017. Staff encouraged the authorities to build on the recent improvement in the availability of information on public debt and the preparation of a medium-term debt management strategy with a view to optimizing recourse to the regional debt market.

20. Further progress is needed to assess fiscal risks related to PPPs. Staff welcomed the progresses made by the authorities on monitoring state-owned enterprises (SOEs). The authorities are collecting and are analyzing the financial statements and questionnaire responses of all 22 SOEs and 140 autonomous agencies to assess their indebtedness. However, the assessment of fiscal risks related to PPP projects remain an issue despite the creation of the unit in charge of PPP at the Ministry of Finance.

Authorities’ views

21. The authorities concurred with staff on the need to strengthen debt management. Given the importance of domestic debt, which includes regional borrowing with shorter maturities, higher interest rates, and lower grace periods, hence its higher weight on the stock of total debt, the authorities will favor concessional external borrowing and strengthen the debt management agency (MEFP ¶5). They will accelerate the transition to the treasury single account, improve the quality of its cash flows, and match short-term debt instruments with liquidity needs. Given the roll-over risks associated with the domestic debt, the authorities will seek longer maturity obligations when tapping the regional financial market.

C. Promoting Diversification, Inclusive Growth, and Financial Deepening

22. Economic diversification and development of the financial sector are essential to enhance the inclusiveness of growth. Despite the agricultural sector’s strong contribution to economic growth over recent years, Benin faces critical challenges regarding export diversification and domestic production. Based on cross-country experiences, the Selected Issue Paper (SIP) prepared by staff on: Growth, Structural Transformation, and Export Diversification shows the type of structural reforms and economic diversification that could contribute to boost and sustain growth in Benin. These reforms should:

  • aim at improving infrastructure and trade networks, reducing barriers to entry for new products, deepening financial markets, fostering more efficient financial intermediation and access to markets, and investing in human capital (Box 4);

  • reinforce Benin’s relative good standing regarding the extent of foreign value added in its exports—traditionally referred to as backward integration (Text Figure 5),6 and

  • focus more on sectoral policies such as developing high value added agro-commodity crops, promoting agro-processing, and developing the tourism sector—efforts to improve education outcomes, bolster governance and transparency in regulation should complement these sectoral policies.

Text Figure 5.
Text Figure 5.

Sub-Saharan Africa and Comparator Countries: Depth of Integration in Global Value Chains, Average 2008–12

Citation: IMF Staff Country Reports 2018, 001; 10.5089/9781484336533.002.A001

Source: Regional Economic Outlook, IMF African Department (April, 2015).

Stages of Transformation and Diversification

Benin’s economy remains poorly diversified and there has been some de-industrialization with the output share of manufacturing falling from 22 percent in 2000 to 12 percent in 2012. Today, agriculture employs around 70 percent of Benin’s workforce and contributes approximately to 22 percent to its GDP. Benin is addressing de-industrialization with policies to boost value-added in agriculture and tourism. One of the pillars of the GAP is the structural transformation of the economy to create more value added in agriculture and tourism, both identified as key drivers of future growth. Specifically:

  • Cross-cutting policies aimed at achieving efficiency gains in public investment, boosting private investment in energy and transport and strengthening education, skills, and human capital. Initiatives have been implemented to improve the business environment, although further progress in increasing access to electricity, facilitating paying taxes, and obtaining credit are needed.

  • In the agricultural sector, the government has developed policies aimed at: (i) creating seven regional poles for agricultural development and promoting high value added sectors such as pineapples, cashew nuts, cotton, maize, cassava, and rice, (ii) evolving the processing industry through technological innovations, and (iii) boosting continental aquaculture.

  • In the tourism sector, investment projects seek to: (i) build a tourist pole around Voodoo art, and (ii) recreate the historic city of Ouidah to make it the flagship destination of memorial tourism in Africa.

23. To tackle inequalities and make growth more inclusive, the findings of the SIP point to the following recommendations: (i) support urbanization policies to allow more people to take advantage of economies of scale and boost economic development, (ii) improve agricultural productivity via land tenure security, irrigation, and enhancing extension services to foster food security in rural areas, (iii) implement pro-poor fiscal transfers via inter-region transfers (for example, local governments in disadvantaged areas can use the fiscal transfers received from the central government to invest in health and education) and (iv) adopt cost-effective safety net programs such as e-vouchers and mobile transfers to protect the most vulnerable.

24. Staff underscored the need to address weaknesses of the financial infrastructure and business environment to spur banks’ lending to the private sector. Although macroeconomic conditions in recent years have been favorable for financial stability, Benin’s financial sector remains under-developed and vulnerable, limiting its ability to support credit to the private sector and, ultimately, economic growth. The large number of unauthorized microfinance institutions (MFIs) raises stability risks. A SIP reviewed the financial sector’s contribution to sustainable economic growth, outlined stability concerns, and explored how to further improve financial inclusion.7

Authorities’ views

25. The authorities recognized the urgency of promoting inclusive growth and reduce poverty. They stressed that one of the key pillars of the GAP is to improve the living conditions of the population and will consider the feasibility of staff recommendations and implement those that support that pillar. In the meantime, they indicated that they have adopted a flagship reform for the social protection of the poorest sector of the population. The reform known as the Insurance for Strengthening Human Capital (Assurance pour le Renforcement du Capital Humain—ARCH), will become operational in late 2017/early 2018 and includes universal medical coverage for the poorest segments of the population, food care, clean water and sanitation, and health care during early childhood years.

26. The authorities agreed with the need to improve competitiveness by removing structural bottlenecks. In this regard, they will undertake actions to achieve further progress on improving the business climate and developing human capital that could ease production constraints and improve the investment cycle. In particular, policy changes aimed at improving education and productivity could carry positive impacts on the informal economy. Overall export diversification and export volume increased slightly in recent years but production diversification could yield higher growth rates.

Redistributive Effects of Revenue and Expenditure Measures

Fiscal Incidence and Inequality

A Selected Issues Paper provides an assessment of existing revenue and expenditure measures on inequality and poverty and incorporates most of the social spending portfolio (e.g., education and healthcare). Based on data availability, the assessment focuses on the redistributive impact of fiscal policies at a point in time and has allocated only health and education spending (on the expenditure side) and the VAT (on the revenue side). On the government revenue side, only VAT are included in the analysis (only data available for the evaluation).

The effect of redistributive fiscal policy on incomes is based on the comparison of two so-called “income concepts” excluding (i.e., pre-fiscal) and including (i.e., post-fiscal) fiscal policy measures. The analysis found that fiscal policy has had a redistributive effect in Benin. While VAT reduces inequality, it also contributes to an increase in the poverty headcount rate. The Gini coefficient for disposable income, is 0.43, one Gini point higher than the coefficient for final incomes, i.e., consumption expenditures minus indirect taxes and in-kind benefits from created by the public health and education systems (Figure). While inequality is marginally higher in urban area compared to rural ones, fiscal policy is equally effective in both.

uA01fig02

Benin: Gini Coefficient and Poverty Headcount

Citation: IMF Staff Country Reports 2018, 001; 10.5089/9781484336533.002.A001

Macro-Structural Policies and Inequality

Based on a dynamic general equilibrium framework developed by Fabrizio et al (2017),* another Selected Issues Paper provides simulations of possible revenue and expenditure measures. A comparison of simulation results of revenue mobilizations suggests that VAT is the least distortive alternative in terms of aggregate output. The analyzes centers on measures to mobilize domestic resources and provides two major results:

  • The VAT reform results in higher income inequality in urban areas. In urban areas, poor households work in the non-tradable sector, which is informal, while richer households work in the manufacturing sector. The VAT reform reduces aggregate demand and the prices of non-tradable goods leading to a reduction on the income of the urban poor. The urban rich households observe an increase in income due to the increase in the investment in the economy, which leads to relative higher wage in the manufacturing sector.

  • The VAT reform leads to lower income inequality in rural areas. The decrease of aggregate demand leads to a reduction of agricultural prices affecting rural households. The richest rural households are affected more, because they sell a largest share of their production, which leads to lower levels of income inequality in the sector.

* Fabrizio, Stefania, David Furceri, Rodrigo Garcia-Verdu, Bin Grace li, Sandra V. Lizarazo, Marina Mendes Tavares, Futoshi Narita, and Adrian Peralta-Alva, 2017, Macro-Structural Policies and Income Inequality in Low-Income Developing Countries. SDN/17/01, January.

27. The authorities also acknowledged the need to foster inclusive growth. Drawing on the findings of two assessments on poverty prepared as background for the Article IV consultation, staff emphasized the redistributive effects of tax and spending policies and recommended to prioritize investment in rural areas.8 The SIP found that: (i) value added taxation (VAT) can help raise significant revenue while reducing inequality, but can also adversely impact the very poor; (ii) health and education standings are more efficient than VAT at reducing inequality and positively impact the very poor, but need significant financing to achieve this goal; and (iii) the marginal effect of redistributive policies are larger in rural areas, given greater needs and similar impact. Based on these findings, staff underscored the importance of strengthening the VAT and use ensuing resources to finance health and education spending to rural low-income households. The authorities also acknowledged the need to foster inclusive growth (Box 5).

28. The authorities agreed to take actions to improve financial deepening. They will undertake electronic title registration, extend it to the whole country, and seek to improve the judicial system’s capacity by extending training on commercial regulation and creating commercial courts and arbitration mechanisms. To strengthen the supervisory framework, the BCEAO and the regional banking commission (Commission Bancaire) are proceeding with the implementation of risk-based supervision. The authorities agreed on the need to speed up the implementation of the new harmonized regional resolution framework, strengthen the supervisory body for microfinance by increasing the number of supervisors, especially in rural areas, necessary for timely supervision and enforcement of regulations. They have also agreed to clean the microfinance sector by regularizing unauthorized MFIs.

D. Strengthening the Business Environment by Promoting Good Governance

29. A favorable business environment is critical for private sector-led growth. The authorities initiated several reforms aimed at improving the business and investment climate to support the process of economic diversification and improve the still weakly inclusive character of growth (MEFP ¶6). Heavy reliance on private investment to help address the infrastructure gap and Benin’s participation in the G20 CWA have heightened the importance of these reforms (MEFP ¶9). However, little progress is being made in: (i) strengthening audit institutions; (ii) addressing weaknesses in the doing business indicators; and (iii) addressing corruption and improving governance and transparency.

Authorities’ views

30. The authorities will accelerate reform of audit institutions and strengthen the procurement system. They agreed on the need to complete the plan for reforming the government’s internal and external audit and create a truly independent and transparent audit system, including strengthening both internal and external audit Furthermore, the authorities are planning to create a competitive procurement system, by reducing direct tendering and practicing best practice disclosure on procurement outcomes.

31. Ongoing reforms are expected to improve the business climate. Although Benin has continued to implement reforms, their ranking in the World Bank Doing Business Indicators has declined two positions in 2017. Benin ranks at 155 in 2017, with slight improvements on indicators covering the difficulty of starting a business, getting credit and protecting minority investors. The authorities plan to make progress regarding access to electricity, paying taxes, and enforcing contracts. Corruption has been identified in the 2017–2018 Global Competitiveness Index as one of the most problematic factor for doing business and some other third-party indicators suggest continued challenges for Benin.9 Additional steps should be taken to decisively tackle corruption, including through continued efforts towards establishing an effective AML/C FT regime to help deter, detect and prosecute the laundering of acts of corruption.

32. The authorities are committed to strengthen the AML/CFT and anticorruption frameworks. On November 2, 2017, the authorities approved for submission to the National Assembly a bill on AML/CFT, which coalesce existing legislation on the fight against money laundering with that on combating the financing of terrorism (MEFP ¶16). The authorities will further strengthen the framework for combating corruption, improve transparency, and proceed with a coherent implementation of the legislative and regulatory framework for AML/CFT. They are also committed to implement a meaningful and enforceable asset declaration regime, which is an important building block to support anti-corruption efforts going forward. Benin’s AML/CFT mutual evaluation, to be conducted in February 2019, should help guide efforts to address pending deficiencies in the implementation of the FATF standard.

Program Performance

A. Program Implementation

33. Program implementation is broadly satisfactory. All the performance criteria at end June 2017 were met (Table 1). Also, all structural benchmarks for end-June were met with good progress on the end-September and end-December ones (MEFP Table 2). The under-execution of social priority spending (CFAF 55.6 billion versus a target of CFAF 85.0 billion at end-June 2017) stemmed from delays in validating sectorial ministries’ initiatives and other administrative hurdles. The authorities indicated that, as of September 21, spending on these sectors represented 88 percent of the target for end-September and that significant progress is being made to meet the indicative target for end-December (Table 1).

B. Economic Program for 2018

34. The main objectives of the ECF-supported arrangement are to reduce the fiscal deficit and preserve debt sustainability, accelerate domestic revenue mobilization, improve the quality of spending, and strengthen institutions for private sector development. Achievements of the program objectives are being supported by reforms to: (i) increase domestic revenue and make public spending more efficient, (ii) further strengthen debt management, and (iii) improve the business environment

35. The program envisages an acceleration of economic growth with inflation also accelerating modestly. Real GDP growth is expected to accelerate to 6 percent in 2018, reaching 6.6 percent on average in 2019–22 (MEFP ¶15). The improvement in growth in the medium term is due to: (i) continuous improvement in agricultural production; (ii) the impact of private investments in the context of the GAP and; (iii) the recovery of the Nigerian economy. Inflation is expected to average 2 percent in 2018 and 2.2 percent in 2019–22, accelerating on an increase in food prices and the appreciation of Naira given the recovery in Nigerian economy. The external position is expected to strengthen gradually, driven by sustained growth in exports and a slowdown in imports due to slowing public investment. The current account balance is expected to improve to average 8.3 percent of GDP and 6.6 percent in 2018–22. The improvement of Benin’s external position should enable it to contribute to the growth of the WAEMU region’s international reserves.

36. The draft budget for 2018 is consistent with the ECF-supported program with higher improved government revenues (MEFP ¶21). Based on better-than-programmed revenue performance in 2017 (1.2 percentage points of GDP higher), the draft budget envisions higher domestic revenue and a slightly higher public investment (MEFP ¶22). As a result, the overall fiscal deficit (including grants) will decline to 4.5 percent of GDP compared to 6.4 percent of GDP. The Council of Ministers approved it on September 27 for submission to parliament (MEFP ¶15). The authorities reaffirmed their commitment to the medium-term fiscal consolidation path, which ensures alignment with the WAEMU’s convergence criterion of 3 percent of GDP by 2019. They have identified measures to underpin the revenue projections (Text Table 2), including: (i) a strengthened fiscal control based on a better risk assessment and monitoring of big firms; (ii) implementation of penalties for tax delays; (iii) acceleration of tax litigation cases, (iv) improved tax compliance, (v) the cancellation of many VAT exemptions, and (vi) a reinforced coordination between tax and customs administration (MEFP ¶17 and 18). The increase in non-tax revenues stems from the non-renewal of tax exemptions benefiting cell phone companies; the collection of arrears; and other special taxes (electronic communications, road fees). Reaching understanding on a draft budget for 2018 consistent with the ECF-supported program was a prior action for completion of this review and it has been met.

Text Table 2.

Benin: Impact of Revenue Measures, 20181

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Sources: Beninese authorities and IMF staff calculations.

Revenue gains compared to the original program for 2018.

37. The program’s emphasis on accelerating revenue mobilization and strengthening public financial management and governance and transparency will continue. Staff stressed the importance of a timely implementation of the structural reforms contemplated under the program to sustain the progress achieved so far (Appendix Table 2). Staff urged the authorities to accelerate reforms of key SOEs that could be a source of fiscal risks, due to their quasi-fiscal activities and contingent liabilities.

C. Financing Assurances, Capacity to Repay, and Safeguards

38. The program is fully financed with firm commitments for next 12 months and good prospects for remainder of program. Despite being originally hesitant, development partners—AfDB, European Union, and the World Bank—are encouraged by the prospects of the first review of the ECF-supported arrangement being completed. They have renewed their commitment to accelerate disbursement of budget support for 2017 and financial support for 2018–19 (grants and loans) enough to close the residual financing gap under the program, including support from China CFAF 26 billion). There are good prospects that there will be adequate financing for the remaining program period, given Benin’s continued access to regional bond markets as well as donor support.

39. A modification of the end-December 2017 PCs is proposed. Based on a better revenue performance at end-June 2017 expected to carry over for the full year, staff is proposing a modification of three performance criteria for end-December 2017, namely: (i) the ceiling on net domestic financing of the government, (ii) the floor on the basic primary balance (excluding grants), and (iii) the floor on total revenue (Table 1).

40. Capacity to repay the Fund is adequate. Credit outstanding from the Fund, once all disbursements under the ECF arrangement are made, will be 109.7 percent of quota (SDR 135.82 million). Benin’s capacity to repay the Fund remains sound (Table 10) as confirmed by its moderate risk of debt distress and favorable economic growth outlook.

41. Safeguards assessment. The 2013 assessment of the WAEMU regional central bank, BCEAO, found a continuing strong control environment. All recommendations from the assessment have been implemented. These included strengthening the external audit arrangements by appointment of an international firm with ISA experience for the audits of FY 2015–17, reinforcing the capacity of the audit committee with external expertise to oversee the audit and financial reporting processes, and adoption of IFRS starting with the financial year 2015. An update safeguards assessment is planned for 2017, in line with the four-year cycle for regional central banks.

Other Issues

42. Data Provision Data provision has some shortcomings due to lack of capacity, but is broadly adequate for surveillance. Plans are being implemented to improve the quality and timeliness of economic data and to address data gaps with the help of IMF technical assistance—in particular, regarding balance of payments, international investment position, employment, and social indicators—building on their recent participation in the Enhanced General Data Dissemination System (e-GDDS). Weaknesses in public finance will also be addressed with a view to finalize a framework to implement the Government Financial Statistics Manual (GFSM) 2001/2014.

43. Capacity Development. Staff and the authorities agreed on technical assistance priorities under the capacity building framework. The Beninese authorities are determined to continue to build capacity for a successful implementation of the ECF-supported program. The authorities have reached understandings with staff on a comprehensive capacity building strategy. To support the authorities’ policy priorities, IMF TA will put a special especial emphasis on revenue (tax and customs) administration and PFM, including management of public investment. TA will also aim at strengthening the authorities’ capacity to address data weaknesses and gaps. Support to improve real sector statistics will also be expanded to support the authorities quest for building up national account statistics (Annex V).

Staff Appraisal

44. The economy has been resilient. Benin’s economy weathered negative spillovers in 2016 and is poised to sustain high growth rates. Staff commends the authorities for their swift action in 2016 that cut recurrent spending, arrested the deteriorating fiscal position, and stabilized the macroeconomic situation. Prudent policies and sustained implementation of the authorities’ reform agenda set out in the Economic Development Document 2017–21 have been instrumental in helping Benin maintain a positive macroeconomic environment and set the stage for continued economic growth with low inflation. Going forward, macroeconomic and structural policies should continue to aim at preserving external sustainability, addressing financial sector vulnerabilities, and contributing to the stability of the WAEMU region.

45. However, the strong macroeconomic performance did not make a dent in poverty reduction. The increase in poverty despite solid macroeconomic performance growth clearly points to non-inclusiveness of growth and the limited efficiency of public spending. Rising poverty remains a major challenge that the authorities need to address to reduce inequality and broaden support for the reform agenda. The authorities’ commitment to prioritize spending and allocate more resources to priority social sectors are welcome steps that should improve social indicators. Government policies should ensure that economic diversification takes hold and the benefits of growth reach a large number of the population. To this end, the authorities are encouraged to pursue the implementation of well-targeted measures to protect the most vulnerable segments of the population.

46. The need to bolster domestic revenue mobilization cannot be overemphasized. This is paramount to the authorities’ goal to increase public investment and boost poverty-reducing spending to address demands for better-living conditions in Benin. Staff welcomes the improvement in domestic revenue collection, which is on pace to exceed the programmed objective. To be sustained, the ongoing tax and customs administration reforms should be implemented steadfastly to broaden the tax base and improve compliance. The draft 2018 budget reflects the stronger revenue performance of 2017 and calls for the timely implementation of the underpinning tax administration measures.

47. Adhering to the fiscal consolidation path is essential to ensure debt sustainability. Achieving the debt anchor requires sustained efforts to meet the WAEMU’s fiscal convergence criterion. Prudent debt management practices are needed to smooth the long-term debt service profile and safeguard Benin’s classification of moderate risk of debt distress. It is particularly important to seek long maturity obligations when tapping the regional financial market. Close monitoring the debt of SOEs and fiscal risks associated with PPP projects is also critical to better assess contingent liabilities and preserve public debt sustainability.

48. Improving the business environment is essential to support inclusive growth and the EDD’s development strategies. As private investment is being relied upon to finance the GAP, it is imperative to remove impediments that saddle the business environment; the more so given Benin’s participation in the G20 CWA Initiative. Staff urges the authorities to redouble their efforts aimed at fighting corruption and strengthening governance and transparency to level the playing field necessary for the private sector to strive.

49. Efforts to address financial sector vulnerabilities should continue. Staff is encouraged by the measures to remove key barriers to more efficient financial intermediation and the progress in implementing reforms to consolidate information on microfinance institutions. Sustained efforts are needed to lessen the stability risks stemming from the large number of unauthorized MFIs and address non-performing loans in the banking sector, which remain high despite a recent decline

50. Gaps in the quality and timeliness of economic statistics need to be addressed. Staff welcomes the authorities’ efforts to improve national account statistics and their recent participation in the e-GDDS. Staff encourages the authorities to continue their plans to address data gaps and further improve the quality and timeliness of economic data and upgrade the methodologies for data collection and dissemination processes, including the publication of the recently revised national accounts.

51. Staff supports the authorities’ request for completion of the first review of the program supported by the ECF, proposed modifications of performance criteria, and the authorities request to set performance criteria and structural benchmark for 2018. Completion of this review will release a disbursement equivalent to SDR 15.917 million. The attached Letter of Intent and Memorandum of Economic and Financial Policies set out appropriate policies to pursue the program’s objectives. The capacity to repay the Fund is adequate, and risks to program implementation are manageable.

52. It is expected that the next Article IV consultation with Benin will be held in accordance with the Executive Board decision on the consultation cycles for members with Fund arrangements.

Figure 1.
Figure 1.

Benin: Recent Developments, 2010–17

Citation: IMF Staff Country Reports 2018, 001; 10.5089/9781484336533.002.A001

Figure 2.
Figure 2.

Benin: Fiscal Developments and Projections, 2012–19

Citation: IMF Staff Country Reports 2018, 001; 10.5089/9781484336533.002.A001

Source: authorities data and staff estimates
Figure 3.
Figure 3.

Benin: Real and External Developments

Citation: IMF Staff Country Reports 2018, 001; 10.5089/9781484336533.002.A001

Annex I. Implementation of Past IMF Recommendations

Implementation of past policy recommendations was broadly satisfactory. At the conclusion of the 2015 Article IV Consultation, Directors welcomed the authorities’ plan to scale up infrastructure investment and stressed the need for gradual and prioritized approach, improved fiscal policy management to broaden the fiscal space, preserve debt sustainability, and reduce macro-financial risks. They also underscored the urgency to bolster the business environment and improve financial inclusion to foster inclusive growth.

Benin: Summary of Past Fund Advice

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Annex II. Risk Assessment Matrix1

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The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path (the scenario most likely to materialize in the view of IMF staff). The relative likelihood of risks listed is the staff’s subjective assessment of the risks surrounding the baseline (“low” is meant to indicate a probability below 10 percent, “medium” a probability between 10 and 30 percent, and “high” a probability between 30 and 50 percent). The RAM reflects staff views on the source of risks and overall level of concern as of the time of discussions with the authorities. Non-mutually exclusive risks may interact and materialize jointly.

Annex III. External Sector Assessment

The external sector assessment does not raise immediate concerns, but highlights the need to boost competitiveness. It found that the real effective exchange rate is broadly consistent with fundamentals although competitiveness remains weak. Benin’s current account deficit has improved in 2016 indicating significant export growth. However, this latter is projected to widen in 2017, reflecting scaling-up of investment. A gradual improvement of the current account deficit is expected from 2018 as investment and import growth stabilize.

A. Recent Developments of the Balance of Payments

1. The current account deficit excluding grants has improved in 2016. However, a widening of the current account is expected in 2017 due to the investment scaling up. From 2015 to 2016, the deficit of the current account narrowed from 8.2 percent of GDP to 7.5 percent of GDP. However, in 2017 the deficit is expected to widen and reach 9.4 percent of GDP. This evolution is mainly explained by higher imports of capital goods related to new investments. A gradual improvement of the current account deficit is expected from 2018 onwards as investment and import growth stabilize. By 2021, when the scaling-up of investment comes to an end, the current account deficit would narrow to 6.9 percent of GDP.

2. The external financing is mainly comprised of concessional financing and foreign direct investment (FDI). External financing of the current account deficit remained relatively stable over recent years. Short-term capital flows and medium- and long-term private loans were equivalent to 1 percent of GDP. Foreign direct investment inflows were equivalent to 1.5 of GDP in 2016 and are expected to reach 1.9 percent of GDP during 2017–21. Other capital flows, such as project loans, remained on average at 2.3 percent of GDP over the period 2014–2016 and are expected at 3 percent, on average during 2017–21.

3. Gross international reserve coverage in the WAEMU dropped sharply in 2016 and debt risks remain contained despite an increase in public debt led by high fiscal deficits. Gross international reserves coverage in WAEMU system declined substantially since 2010 when it stood at 6.6 month of imports, reserve coverage stabilized at around 4 ½ months of imports in 2013–14 In 2016, regional reserves in the WAEMU declined significantly by CFAF 1000 billion (about $2 billion) to stabilize at 3.7 months of imports. At end 2016, gross reserves covered about 55 percent of narrow money and 74 percent of short-term debt. International reserves increased by $2.7 billion in 2017, reaching 4.2 months of imports at end-September. Benin’s gross external debt is at 22.5 percent of GDP in 2016 (below the average WEAMU countries).

B. Exchange Rate Assessment

1. The present external assessment of Benin has been undertaken using the EBA-lite methodology.1 The EBA-lite exchange rate assessment includes three approaches. The current account (CA) model and the index of the real exchange rate (IRER) are panel regression-based analyses of the CA and real exchange rate, while the third method, external sustainability (ES), is model-free and focused on sustainability analysis. The EBA makes distinction between descriptive understanding of the current accounts and real exchange rates and making normative evaluations:

  • Actual CA= CA Gap+ (Fitted CA-Policy Gap)

The term in parentheses is the current account norm and the CA Gap is the deviation of the actual current from the norm, i.e., the misalignment. The term Policy Gap is the change in the current account that results from a deviation of Benin’s policies from its optimal level and also on account of the average policy misalignment to the rest of the world.

Benin’s REER is broadly consistent with fundamentals and desirable policy settings. Driven mainly by its tight fiscal stance over the past years, Benin’s policy gap is positive and the current account norm is set at −7.4 percent of GDP. The current account gap of 0.2 percent of GDP is broadly consistent with the REER—which is overvalued by 0.5 percent2 The current account gap of 0.2 percent is comprised within the interval of [-1 percent, 1 percent] while the REER gap of −0.5 percent is comprised within the interval of [−2 percent, 2 percent]. Therefore, the bottom line assessment is that the external position is broadly consistent with fundamentals and desirable policy settings. The current account (CA) model is the most reliable among the three. Its results are broadly consistent with those of the External Sector Assessment for the WAEMU made during the 2017 Article IV regional consultation. The IRER approach shows an overvaluation at 12 percent, while the ES approach indicates an undervaluation of 4.8 percent (Table 1).

Table 1.

Benin: Exchange Rate Assessment (EBA-Lite)

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Source: IMF staff estimates
Figure 1:
Figure 1:

Current Account Balance Estimates

Citation: IMF Staff Country Reports 2018, 001; 10.5089/9781484336533.002.A001

Sources: Beninese authorities and IMF staff estimates and calculations

C. Structural Competitiveness

2. The deterioration of survey-based competitiveness indicators—measuring institutional and policy factors—underlined the challenges on external competitiveness. Ranked 122 out of 140 countries in the World Economic Forum’s (WEF) Global Competitiveness Report 2015–16, Benin is lagging other WAEMU countries such as Senegal and Ivory Coast (Table 2). Benin shows weakness in all subcategories, most notably macroeconomic environment, labor market efficiency, and financial sector development In most categories, Benin scored below the sub-Saharan African average.3 In the WEF Enabling Trade Index, Benin’s ranking deteriorated by 12 places compared to the previous assessment (Table 3). Survey participants list access to trade finance, difficulties in meeting requirements of buyers, and identification of markets for buyers as the most problematic factors for exporting (Figure 2). Burdensome procedures, tariff and non-tariff barriers and corruption at the border as listed as most severe obstacles to importing (Figure 4).

Figure 2.
Figure 2.

Most Problematics Factors for Exporting

(Percent of responses)

Citation: IMF Staff Country Reports 2018, 001; 10.5089/9781484336533.002.A001

Source: World Economic Forum. Global Enabling Trade Report, 2016.
Figure 3.
Figure 3.

Most Problematic Factors for Importing

(Percent of responses)

Citation: IMF Staff Country Reports 2018, 001; 10.5089/9781484336533.002.A001

Source: World Economic Forum. Global Enabling Trade Report, 2016.
Figure 4.
Figure 4.

Most Problematic Factors for Doing Business

(Percent of responses)

Citation: IMF Staff Country Reports 2018, 001; 10.5089/9781484336533.002.A001

Source: World Economic Forum. Global Competitiveness Report, 2013–14
Table 2.

Benin: Global Competitiveness Index 2016–17

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Source: World Economic Forum, The Global Competitiveness Report, 2016–17.
Table 3.

Benin: Enabling Trade Index, 2016

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Source: World Economic Forum. The Global Enabling Trade Report, 2016.

3. The business climate has improved in Benin, but remains challenging. Benin’s ranking increased by 4 places in the latest ranking of Doing Business indicators 2018 (151th position). This improvement reflects progress in trading across borders by a full dematerialization of all pre-clearance documents through an electronic platform at the port of Cotonou, in starting a business through introduction of a one-stop shop, and in issuing construction permits. Paying taxes, inefficient bureaucracy, corruption, and resolving disputes remain the main bottlenecks.

Annex IV. Capacity Development Strategy for FY 2017

The election in March 2016 of a new president determined to tackle long-standing problems with new vigor offers an opportunity for an enhanced technical assistance (TA) program with Benin. The authorities have agreed on an ECF-supported program with the Fund and, hence, they would like to successfully implement economic and financial programs discussed with the IMF for which TA could be critical. The capacity building program in Benin and the associated technical assistance delivery are intrinsically interweaved with surveillance priorities.

Overall Assessment of Capacity Development

1. As a low income country, Benin faces capacity and institution building challenges, which are being addressed with tailored technical assistance. Enhancing domestic revenue mobilization (revenue administration and tax policy) and improving budget preparation and execution will be essential to preserve debt sustainability in the longer term. These key priorities will also require reforms to strengthen economic governance (public finance management systems) and improve real sector statistics, government, and external sector statistics, including, oversight of public enterprises and other public entities.

2. Program engagement has contributed in the past to build capacity in Benin. However, there have been highs and lows regarding TA implementation. Key achievements include the following:

  • Created a unique account for the treasury (2015), not yet fully implemented and operational

  • Increased capacity to formulate economic and financial policies under the ECF program, including macroeconomic forecasts (2015—16)

  • Enhanced production of budget execution data and reports (2015–16)

  • Started reforms on customs administration, including risk management (2015–16)

3. Current economic developments, including spillovers from Nigeria, are hampering the implementation of TA advise. Furthermore, TA implementation is being compromised by data gaps (lack of relevant and timely indicators), including poor data management and data analysis.

Forward Looking Priorities

4. The TA strategy for Benin should focus on revenue and customs administration, PFM—focusing on budget execution—debt management, national accounts, tax policy, and enhancing the quality of macroeconomic data. In particular,

  • Public Investment Management (PIM), currently split into separate administrative units, needs to be streamlined to ensure capacity building and efficiency/transparency in investment project selections and monitoring.

  • State-Owned Enterprises (SOEs) unit was recently created but oversight remains weak and still need to be strengthened and consolidated.

  • Related to budget execution control and external audit including full implementation of the Court of Accounts, the internal audit and control methods need also to be strengthened by using professional standards and systematic risk-based approach.

5. The turnover of senior officials and technical-level staff has compromised absorption capacity and TA delivery. In addition, lack of appropriate infrastructure and institutional coordination—in particular, at customs and tax administrations—has impeded an effective technical delivery. For FY 2017, key priorities and objectives include:

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The main risk to capacity development is weak absorptive capacity, which could be mitigated by carefully selecting and designing the TA programs to tailor to the local audience’s need.

Authorities’ Views

6. The authorities agree with the thrust of the capacity development strategy. In particular, they consider that the strategy and objectives are appropriately formulated for the country and in line with the strategic orientations of the 2016–21 Government’s Action Plan, announced by the authorities in 2016. Furthermore, considering the current absorption capacity of technical assistance, the authorities have recommended to adjust its volume and mid-term priorities appropriately to attain an efficient delivery.

Annex V. Technical Assistance, 2015-17 Assessment

Benin faces capacity and institution building challenges, which are being addressed with tailored technical assistance. The technical assistance being provided aims to increase domestic resource mobilization, strengthen public financial management, improve statistics, and, the national accounts. Moreover, technical assistance is focused on strengthening capacity building in the field. Benin’s technical assistance from the Fund has been strategically focused on achieving structural reforms. Implementation of past TA recommendations was broadly satisfactory, while key structural reforms continued to lag due to low capacity to implement and business obstacles.

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Annex VI. External and Public Debt Sustainability

The rapid increase in domestic debt in recent years calls for strict adherence to the programmed fiscal consolidation path to preserve long-term debt sustainability. The September 2017 DSA confirms a moderate risk of debt distress for Benin.

A. Underlying Assumptions in the DSA

1. The assumptions in the baseline scenario are consistent with the medium-term macroeconomic framework underlying the program envisaged under the ECF arrangement Key macroeconomic assumptions are as follows:

  • Global environment. The nominal exchange rate (FCFA/USD) is assumed to appreciate slightly by about 3 percent over the baseline horizon and stabilize in the medium and long term. The external demand from Benin’s trading partners is projected to be stable.

  • Growth impact. Growth assumptions have remained roughly stable relative to the March 2017 DSA. Real GDP is expected to grow, on average, by 6.0 percent over the horizon 2017–19, supported by a a good performance of the agricultural sector, the ongoing recovery of the Nigerian economy, the scale up in public investment, the resilience of the tertiary sector (transport and telecommunications, trade), and an uptake in private investment in response to expected improvement in infrastructure. Growth is expected to stabilize at 6.6 percent in 2020–2022.

  • Inflation. Capital goods will be partly imported, and the effect on non-tradable would be muted by high unemployment and labor mobility in WAEMU. Inflation is projected to average 2.8 percent on average in 2018–22, below the WAEMU convergence threshold of 3 percent.

  • Fiscal impact. Tax revenue is projected to increase from 12.6 percent of GDP in 2016 to 14.8 percent of GDP in 2019 as the expected reforms in tax policy and administration mature. The primary deficit rises temporarily with higher capital spending and then turn into a surplus in 2021.

  • Current account impact. As assumed in the March 2017 DSA, the current account deficit (including grants) is projected to peak in 2017, and would decline to 8.2 percent of GDP in 2018 and average 6.4 percent of GDP for 2019–22 as investment and import growth.

  • Financing. The increase of central government investments of 9 percent of GDP is financed by concessional resources but also domestic financing. Non-concessional PPG debt financing is also included. Also, the recent rise of FDI in construction, manufacturing, and services are projected to continue, in line with Benin’s recent achievements in improving its Doing Business indicators (ranking increased by 4 places from 155th ranking in 2017 to 151th ranking in 2018).

B. External Debt Sustainability Analysis

2. The results of the external DSA show that Benin’s debt dynamics are sustainable under the baseline scenario, facing a moderate risk of debt distress (Tables A1, A2 and Figure A1). In the baseline, all debt indicators remain below their relevant policy-dependent thresholds. The present value (PV) of debt-to-GDP ratio, debt-to-exports ratio, debt-to-revenue ratio and debt service-to-exports ratio remain safely under the debt distress threshold under the baseline. The PV of total PPG external debt is expected to rise from about 14.9 percent of GDP in 2017 to 15.8 percent of GDP on average for 2019–21, surging to 18.1 percent of GDP in 2037. The ratio would remain below the corresponding threshold of 40 percent of GDP throughout the projection period. Nonetheless, one indicator—the ratio of the PV of external debt to exports—exceeds its threshold in the case of an extreme shock to exports, while the debt-to-GDP ratio and all debt service indicators remain below thresholds. In the historical scenario, the ratios of the PV of debt-to-GDP plus remittances, PV of debt-to-exports plus remittances, and PV of debt-to-revenue show breaches to the thresholds. Thus, overall, Benin’s risk of external debt distress is assessed to be moderate.

Table A1.

Benin: External Debt Sustainability Framework, 2014–37 1/

(In percent of GDP, unless otherwise indicated)

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Sources: Country authorities; and staff estimates and projections.

Includes both public and private sector external debt.

Derived as [r – g – ρ(1+g)]/(1+g+ρ+gρ) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, and ρ = growth rate of GDP deflator in U.S. dollar terms.

Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes.

Assumes that PV of private sector debt is equivalent to its face value.

Current-year interest payments divided by previous period debt stock.

Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability.

Defined as grants, concessional loans, and debt relief.

Grant-equivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the PV of new debt).

Table A2.

Benin: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2017–37

(In percent)

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Sources: Country authorities; and staff estimates and projections.

Variables include real GDP growth, growth of GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows.

Assumes that the interest rate on new borrowing is by 2 percentage points higher than in the baseline., while grace and maturity periods are the same as in the baseline.

Exports values are assumed to remain permanently at the lower level, but the current account as a share of GDP is assumed to return to its baseline level after the shock (implicitly assuming an offsetting adjustment in import levels).

Includes official and private transfers and FDI.

Depreciation is defined as percentage decline in dollar/local currency rate, such that it never exceeds 100 percent.

Figure A1.
Figure A1.

Benin: Indicators of Public and Publicly Guaranteed External Debt, 2017–37 1/

Citation: IMF Staff Country Reports 2018, 001; 10.5089/9781484336533.002.A001

Sources: Country authorities; and staff estimates and projections.1/ The most extreme stress test is the test that yields the highest ratio on or before 2027. In figure b. it corresponds to a Combination shock; in c. to a Exports shock; in d. to a Combination shock; in e. to a Exports shock and in figure f. to a Combination shock

C. Public Debt Sustainability Analysis

3. Total public (external and domestic) debt is projected to rise during the scaling up of public investment and decline afterwards (Tables, A3 and Figure A2). The government’s increased reliance on the regional financial market to finance public investment projects has increased the present value (PV) of public debt to 48.4 percent of GDP in 2017 (against 46.7 percent in the march 2017 DSA). Domestic public debt increased from about 8.6 percent of GDP to 33.6 percent of GDP between 2013 and 2017 to account for 60 percent of the total debt. Staff urged the authorities to remain steadfast in the implementation of the fiscal reforms to ensure that the programmed fiscal consolidation path is achieved to support the public debt anchor and preserve long-term debt sustainability. The PV of debt-to-GDP ratio is projected to rise from 41.9 percent in 2016 to 48.3 percent in 2017 with the surge in investment and then decline steadily. The ratio remains consistently below the indicative benchmark of 56 percent, a level that research has linked to increased probability of debt distress. The debt level also remains below the WAEMU convergence criteria of 70 percent of GDP. In the most extreme shock scenario (Figure A2), the peak PV of debt-to-GDP ratio exceeds 50 percent but remains below the 56 percent threshold. Overall, the dynamics in total public debt are consistent with a moderate risk of debt distress.

Figure A2.
Figure A2.

Benin: Indicators of Public Debt Under Alternative Scenarios, 2017–37 1/

Citation: IMF Staff Country Reports 2018, 001; 10.5089/9781484336533.002.A001

Sources: Country authorities; and staff estimates and projections.1/ The most extreme stress test is the test that yields the highest ratio on or before 2027. 2/ Revenues are defined inclusive of grants.
Table A3.

Benin: Public Sector Debt Sustainability Framework, 2014–37

(In percent of GDP, unless otherwise indicated)

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Sources: Country authorities; and staff estimates and projections.

[Indicate coverage of public sector, e.g., general government or nonfinancial public sector. Also whether net or gross debt is used.]

Gross financing need is defined as the primary deficit plus debt service plus the stock of short-term debt at the end of the last period.

Revenues excluding grants.

Debt service is defined as the sum of interest and amortization of medium and long-term debt.

Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability.

Table A4.

Benin: Sensitivity Analysis for Key Indicators of Public Debt 2017–37

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Sources: Country authorities; and staff estimates and projections.

Assumes that real GDP growth is at baseline minus one standard deviation divided by the square root of the length of the projection period.

Revenues are defined inclusive of grants.

Appendix I. Letter of Intent

REPUBLIQUE DU BENIN

Fraternité-Justice-Travail

---------------

MINISTRY OF THE ECONOMY AND FINANCE

THE MINISTER

Cotonou, November 14, 2017

Madame Christine Lagarde

Managing Director

International Monetary Fund

700 19th Street, N.W.

Washington, D.C. 20431

USA

Dear Madame Managing Director:

Benin is returning to the strong and steady growth it had experienced during 2012–14 with an annual average rate of 6.1 percent in a stable macroeconomic environment before it dipped in 2015. In that year, the growth rate fell to 2,1 percent, reflecting essentially the negative impact of the Nigerian’s recession. However, in 2016, the economy recovered strongly, growing by 4 percent in real terms. The depreciation of the naira (mainly on the parallel market), coupled with the good performance of the agricultural sector led to a fall in the general level of prices with the consumer price index (average) estimated at −0.8 percent in 2016 versus 0.3 percent in 2015. The execution of the Government’s Action Program (GAP) for 2016–21, combined with the implementation of comprehensive structural reforms under our economic and financial program (2016–19) with the International Monetary Fund is helping to sustain this pace of growth in economic activity. Improvement in the international environment, particularly in Nigeria also contributed to the recovery, which has come with moderate inflation, a fiscal position that is under control, and a favorable trend in the balance of current transactions.

Based on preliminary available as of end of July 2017, we are projecting GDP growth rate at 5.6 percent in 2017. Because domestic prices accelerated in July, inflation is forecasted to turn positive, but remain below 1 percent at 0.6 percent. Reflecting essentially our better-than-programmed revenue performance, the budget deficit (including grants) is expected to be contained at 6.4 percent of GDP in 2017, lower than programmed (7.9 percent of GDP) and fall further to 4 percent in 2018. The external current account deficit (including grants) will peak at 9.1 percent of GDP in 2017, reflecting investment-related imports but will decline to 8.4 percent in 2018 as investments stabilize.

The supplementary Memorandum of Economic and Financial Policies (MEFP), attached hereto, describes the progress made under the economic and financial program supported by the ECF arrangement, and presents the key objectives for 2018 and the medium term. The MEFP remains consistent and in line with the Economic Development Document 2017–21 submitted separately for information. Generally, our economic and financial program is off to a good start. As of end-June 2017, all performance criteria were met. All the structural benchmarks for end-June were implemented and those for the second half of 2017 are well ahead of schedule. In addition, several other key structural reforms have already been started.

We, therefore, request the completion of the first review under the ECF arrangement and the availability of the associated disbursement, we proposed modifications of performance criteria, and we request to set performance criteria and structural benchmarks for 2018. We also request modifications of the end-December 2017 performance criteria pertaining to: (i) the floor on total government revenues; (ii) the ceiling on net domestic financing; and (iii) the floor on the basic primary balance. These modifications became necessary to reflect the better domestic revenue performance expected for the full year.

The government believes that the policies contained in the attached MEFP are adequate to achieve the objectives of the ECF-supported program. To this end, it will take any further measures that may become appropriate for this purpose. The Government will consult the IMF on the adoption of these measures, and in advance of revisions to the policies contained in the MEFP, in accordance with Fund policies on such consultations. The Government will provide the Fund with any information that may be necessary for monitoring the implementation of the program and the achievement of program objectives, as set out in the attached Technical Memorandum of Understanding. The government authorizes the IMF to publish and post this letter and its attachments on its website, along with the IMF staff report after completion of the Article IV consultation and the first review under the ECF arrangement by the IMF Executive Board.

Very truly yours,

_/s/_

Mr. Romuald Wadagni

Minister of the Economy and Finance

Attachments (2):

I. Memorandum of Economic and Financial Policies

II. Technical Memorandum of Understanding

Attachment I. Supplementary Memorandum of Economic and Financial Policies (MEFP) 2017–19

1. This memorandum updates the MEFP of March 2017, which supports the request of the Beninese Government for an Extended Credit Facility (ECF) program. The document reviews recent economic developments and describes policies that the government plans to implement for the remainder of 2017 and in 2018. These policies should allow Benin to build on the good macroeconomic performances and the fiscal consolidation undertook since their arrival of the new government in April 2016.

Recent Economic Developments

2. Benin has achieved a satisfactory economic growth in recent years, driven mainly by the stability of the domestic environment. The favorable international context combined with the stable domestic environment allowed the economic activity to grow at the pace of 6 percent on average over the period 2012–14; in a context of weak inflation. In 2015, the growth rate fell to 2,1 percent, reflecting essentially the negative impact of the Nigerian’s recession. In 2016, the recovery of the Beninese economy is perceived through the strong GDP growth that was estimated at 4 percent. This performance was mainly driven by the exceptional harvests due to favorable weather conditions and better access to agricultural inputs. The activity of the secondary sector remained with the shy with a growth of its added-value assessed at 2.6 percent in 2016 against 10.1 percent in 2015; while the tertiary sector was resilient with a growth of its added-value established at 3.4 percent against an initial forecast of 2.7 percent. The figures available as of end of July 2017 allowed to project GDP growth rate at 5.6 percent in 2017. The depreciation of the naira (mainly on the parallel market), coupled with the good performance of the agricultural sector had involved a fall in the general level of prices. The consumer price index (average) is estimated at −0.8 percent in 2016 versus 0.3 percent in 2015. In 2017, inflation should be positive but weak, estimated at 0.6 percent.

3. Economic growth of Benin has not been inclusive and did not result in a reduction of poverty. The rise of GDP is not reflected on the level of poverty indicators. The last report of the National Institute of the Statistics and the Economic Analysis (INSAE), showed an increase in the proportion of the population living below the poverty line, which increased from 36.2 percent of the population in 2011 to 40.1 percent in 2015. The structural reforms that the government is committed to implement in the context of the ECF supported program aim, primarily, to reduce the level of poverty.

4. Following the big rise of the public expenditure over the period 2014–15, the new government undertook significant adjustments to reduce the budget deficit. The significant increase of public expenditure between 2014 and 2015—primarily due to the organization of the presidential elections in March 2016—induced the new government to submit a revised budget to the National Assembly (NA) in July 2016. This revised budget incorporated significant reductions of the current expenditure, lowering significantly the overall fiscal deficit (excluding grants) to 6.7 percent of GDP against 8.6 percent in 2015. In 2017, the improved mobilization of domestic resources combined with a contraction of the current expenditure should allow to reach an overall fiscal deficit (excluding grants) of 7.8 percent, lower than the rate that of 9.3 percent, initially programmed.

5. Domestic public debt increased from about 8.6 percent of GDP to 33.6 percent of GDP between 2013 and 2017, to account for 60 percent of the total debt. The government’s increased reliance on the regional financial market to finance public investment projects has increased the present value of debt for 2017. Against March 2017, the share of concessional external financing declined while non-concessional domestic debt has increased with the present value of the debt rising from 46.7 percent in 2016 to 48.4 percent in 2017.

6. Banks still face some structural bottlenecks that prevent their participation to the financing of the private sector. The still high level of the non-performing loans, in a context of a rise of banks ‘capitalization (the BCEAO had fixed a minimum level of capital of CFAF 10 billion, that all the banks are required to meet by the end of June 2017) indicates the presence of structural difficulties and limit the role of commercial banks in the financing of the private sector. The implementation of reforms to improve the business climate and accelerate the diversification of the Beninese economy should make it possible to increase its competitiveness and remove structural obstacles.

The Government’s Action Program, 2016–21

7. Following its election, the government adopted the Government’s Action Program (GAP) for 2016–21. The GAP is centered around the consolidation of the democracy, the rule of law, and good governance; and the launch of the structural transformation of the economy to improve the living conditions of the population. The GAP is aimed at developing the potential for growth in value-added in agriculture and tourism (identified as the main potential sources of growth), while recognizing the importance of improving the quality of education and strengthening the basic social services and social protection. Furthermore, the Economic Development Document 2017–21, submitted separately for information, builds on the government’s long term economic and social programs incorporated in the GAP.

8. In April 2017, the National Assembly rejected the project of amendment of the constitution, which aimed at: (i) strengthening the institutions, (ii) promoting good governance and transparency, (iii) anchoring the accountability’s responsibility for officials and legislators. However, we are looking for alternative solutions that should accelerate the implementation of the reform program. In this regard, the creation in August 2017 of a new coalition at the National Assembly, aiming at supporting the reforms of the President, gives positive signals for the acceleration of the implementation of much needed reforms.

9. The participation of Benin in the G20 Compact with Africa (CWA) Initiative should bolster private sector financing of the GAP.

Implementation of The 2017 Program

10. The implementation of the program is broadly satisfactory. All quantitative performance criteria (QPC) at end of June 2017, as well as the continuous performance criteria (CPC) (including those related to the prefinancing) were respected. The same conclusion is valid for the structural benchmarks. At the end of June 2017, QPCs are established as follow:

  • Net Domestic Financing (FINE), definite as the sum of net bank credit to the government, and net nonbank financing of the government, was established to 113.7 billion CFAF for an adjusted ceiling of 131.1 billion CFAF.

  • The basic primary fiscal balance, defined as being equal to the difference between total fiscal revenue (tax and nontax) and basic primary fiscal expenditure (on a payment order basis), was estimated at 33.1 billion CFAF compared to a ceiling of 73.1 billion CFAF.

  • The total revenues that refers to total government revenue include tax and nontax revenue as shown in the TOFE, but it excludes external grants, revenue of autonomous agencies, and privatization receipts. They were estimated at 443.9 billion CFAF against a floor of 386.1 billion CFAF reached.

11. A request of change of the quantitative criteria of December 2017 will be submitted to the board of directors. Indeed, as of end of June 2017 the level of the total revenues is projected higher than initially programmed (907.5 billion CFAF against an initial objective of CFAF 843.9 billion) as well as a deficit of the basic primary fiscal balance lower than that initially programmed (142.6 billion CFAF against an objective of 171.3 billion CFAF).

12. The prior action for the current review has been met and structural benchmarks are consistent with the timeline agreed in the context of the ECF arrangement. These measures include: (i) improvement of the transparency as regards of procurement; (ii) implementation of the Strategic Unit of support located at the Minister of Finance in charge of, inter alia, evaluating the budgetary risks related to the PPP; and (iii) adoption of a framework of multiannual commitments for the investment projects.

13. The implementation of the program presents however some challenges that we are determined to take up. The rejection by the Parliament in April 2017, of the amendment of the constitution complicated the implementation of some key structural reforms related to the improvement of the business environment, the promotion of good governance and transparency in the management of public finances.

Structural reforms and policies

14. With regards to governance, important measures have been taken to reform the judicial system. These reforms are undertaken with the assistance of our technical and financial partners. A key step was the creation of commercial courts, provided for under Law No. 2001–37 of June 10, 2002, on the organization of the judicial system in the Republic of Benin, and the law containing amendments and additions to Law No. 2008–07 on the code of civil, commercial, social, and administrative procedure which was enacted in September 2016. These courts were operational in 2017 through: (i) the provision of buildings to house the Trade Court of Cotonou and the Trade Appeals Court of Porto Novo; (ii) the appointment of career and commercial court judges and the official installation of the courts in these two jurisdictions. The next steps being considered to improve economic governance relate to the preparation and submission to parliament a legislation that will strengthen the audit and control agencies (Corps de contrôle).

15. The government considers PPPs as essential for the financing of the GAP, 2016–21, given the constraints on budgetary resources. Indeed, 61% of the PAG is expected to be financed from the private sector. We recently established the legal framework for PPPs through the law No. 2016–24, which was adopted by the NA in October 2016. A revised Law was promulgated by the President of the Republic in June 2017, following a decision of the Constitutional Court that found the process leading to adoption by the NA as unconstitutional. Implementing decrees are being drafted. A PPP support unit (CAPPP) has been created and is attached to the Presidency of the Republic. The unit is responsible for providing technical support at all stages of the PPP project process, including the price-performance review. A unit in charge of assessing fiscal risks related to PPP projects is already created at the Ministry of Economic and Finance.

16. We are strengthening the framework for combating corruption and proceeding with a coherent implementation of the legislative and regulatory framework for AML/CFT. Consistent with the government’s commitment to implement a meaningful and enforceable asset declaration regime, the National Anti-Corruption Authority (ANLC) is working on adapting the law to (i) ensure sanctions for absence of asset declaration, (ii) require comprehensive declaration of assets owned and beneficially owned, in Benin and abroad, by the high-level official, their family members and close associates, and (iii) allow for online publication of the asset declarations. In addition, on November 2, 2017 the government approved for submission to the NA a bill on the fight against terrorism. The new law proceeds from the merger of the uniform law on the fight against money laundering with that on the fight against the financing of terrorism. The incoming law contains new measures such as: (i) the inclusion of specific measures to limit the use of cash in financial transactions; (ii) the inclusion of a component dealing with the fight against the financing of the proliferation of weapons of mass destruction, by taking into account the United Nations Security Council resolutions relating to the prevention, repression and interruption of the proliferation of weapons of mass destruction and its financing and (iii) the consistency of the measures relating to cross-border physical transport declarations of species with those of the Community Regulation on external financial relations, etc.

17. The Government undertook work to rebase the national accounts and to implement of the 2008 System of National Accounts (SNA 2008). This initiative will bring significant improvements in: (i) the updating of several basic data of national accounts that are decades old; (ii) the inclusion in the assessment of GDP of important activities that were not followed; (iii) a better consideration of currently poorly evaluated activities; and iv) the implementation of the recommendations of the 2008 National System of Accounts (SNA 2008). We expect to finalize the work with a mission from Afritac West at most by the end of 2017.

Debt management

18. Significant efforts have been made to improve the availability of information on public debt. The website of the debt agency (CAA) has gone online; a statistical bulletin on public debt is published on a quarterly basis; an annual report on public debt management has been prepared; and (iv) a medium-term debt management strategy document was appended to the 2017 budget law. The next steps will be the strengthening of the medium-term debt management strategy document through the adding of a public debt ceiling as recommended by the Organic Law on Budget Laws. In addition, the monitoring of public debt aims to cover all the guarantees granted by the government and the debt of public enterprises. Therefore, a collect of comprehensive data on the debt of state-owned and the contingent liabilities enterprises is being undertaken. The next step will consist of finalizing the data collection; adopting a monitoring mechanism and extending the coverage, under the medium-term debt strategy, to the debt of state-owned enterprises.

Financial inclusion

19. Together with the BCEAO, the government has a major role to play in order to ensure the stability and soundness of the financial system. We are therefore carrying out a number of structural reforms to this end. The Law on Credit Information Offices (BIC) was adopted by the National Assembly and promulgated by the President of the Republic on January 23, 2017. The adoption of this law means that Benin has established the legal framework required to launch BIC activities. Now, we are aiming at finalizing the establishment of a credit bureau and a policy framework for time-bound bank resolution. We are taking measures to facilitate the use of collateral to obtain bank loans. We will also work to promote the electronic registration of land titles, extending it to cover the entire country. The initiative contained in the amended 2016 budget law to eliminate registration fees has had the expected result and the number of land titles registered has increased. We believe that the microfinance sector is essential to promote access to the financial system for small business. With the aim of maintaining their viability and credibility, we will adopt a new regulatory framework for microfinance institutions strengthening their supervision.

Program For 2018

20. The program aims at providing the foundations for an accelerated and inclusive growth in a frame of low inflation. In the same way, the acceleration of implementation’s pace of the reforms should allow to: (i) mobilize more resources, (ii) increase the efficiency of the public expenditure particularly investments, (iii) rise the part of the resources allocated to the social programs and (iv) improve the business environment Macroeconomic framework envisages an acceleration of the real GDP growth in 2018, which should reach 6 percent, and 6.6 percent on average in 2019–22. The economic growth in the medium term will be primarily drawn by the good performance of the agricultural sector, the rise of the private sector investment and the positive effects resulting from the recovery of the Nigerian’s economy. Inflation became positive and is accelerating since the end of July 2017 under the rise of foods ‘prices and the appreciation of the Naira caused by the recovery of Nigeria. Inflation is therefore projected to 2.5 percent on average in 2018 and 2.8 percent in 2019–22. The current account deficit should be reduced gradually, thanks to a sustained high growth of exports and a compression of the imports generated by the decrease of the public investments. The current account deficit should therefore reach 8.4 percent from the GDP in 2018 and 6.9 percent of the GDP on average over the period 2018–22. This reinforcement of the external position, should allow Benin to participate in the building of the international reserves within the WAEMU.

A. Macro-budgetary framework for 2018

21. The Council of Ministers approved on September 27th the 2018 draft budget 2018 for submission to the Parliament. The budget deficit, excluding grants, is projected to improve, marginally, to 6.1 percent of GDP in 2018 compared with 7.8 percent expected for 2017. This improvement will be the result of the improved domestic revenues, building on the gains achieved in 2017 coupled with a slight increase in public investments compared to the program.1 Government revenues would reach 17.5 percent of GDP in 2018 compared to 16 percent of GDP initially programmed. The pursuit of the fiscal consolidation should allow reducing the budget deficit, below the WAEMU convergence criteria of 3 percent of the GDP, in 2019. This macro-budgetary framework presents, however, some risks which could be mitigated by the acceleration of the structural transformation of the economy, the strengthening of the effectiveness of the management of the public investments, the improvement of the business climate, the promotion of the concessional borrowing compared to the domestic financing that is more expensive, the reinforcement of the fiscal gains through an better mobilization of domestic resources and a careful implementation of the public investment plans.

B. Tax Policy

22. In order to mobilize more revenues, the 2018 budget law relies on the adoption of some measures such as the cancellation of some VAT exemptions which, coupled with the implementation of tax administration and customs reforms, should allow to garner additional resources. The measures being implemented include: (i) a strengthened fiscal control based on a better risk assessment and monitoring of big firms; (ii) implementation of penalties for tax delays; (iii) acceleration of tax litigation cases, (iv) improved tax compliance, (v) the cancellation of some VAT exemptions, and (v) a reinforced coordination between tax and customs administration to broaden the tax base. The increase in non-tax revenues stems from the non-renewal of tax exemptions benefiting cellphone companies; the collection of arrears; and other special taxes (electronic communications, road fees). The implementation of the measures will have a tangible impact on total revenues, which are expected to increase by 1.5 percent of GDP compared to the program.

23. Going forward, the government intends to reduce tax expenditure, by identifying and removing those that are no longer justified from an economic and social standpoint, or that do not have a legal basis. The 2018 budget law lays on the non-renewal of the exemptions enjoyed by the telecommunications companies with regard to GSM licensing. Moreover, a complete analysis of the tax expenditures is planned to take place before the end of the year 2017. That will allow to elaborate a strategy aiming at containing and rationalizing them.

C. Quantitative performance Criteria and structural benchmarks

24. Quantitative performance criteria are proposed for end-June and end-December 2018 and indicative targets are proposed for end-March and end-September 2018 (Table 1) for the monitoring of the program agreed with the IMF. The prior action and the structural benchmarks, as well as their macroeconomic rationale, are described in Table 2. The prior action has been met. The second, third, and fourth program reviews are expected to be completed on or after April 30, 2018, October 31, 2018, and April 30, 2019, respectively.

Table 1.

Benin: Proposed Quantitative Performance Criteria and Indicative Targets, 20181

(Billions of CFA francs)

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Sources: Beninese authorities; IMF staff estimates and projections.

The terms in this table are defined in the Technical Memorandum of Understanding (TMU).

The performance criteria and indicative targets are cumulative from the beginning of the calendar year.

The performance criterion on net domestic financing is automatically adjusted as indicated in the TMU.

The performance criteria and indicative targets are cumulative from the beginning of the calendar year.

If the amount of disbursed external budgetary assistance net of external debt service obligations falls short of the program forecast, the ceiling on net domestic financing will be adjusted pro-tanto, subject to limits specified in the TMU.

If the amount of disbursed external budgetary assistance net of external debt service obligations exceeds the program forecast, the ceiling will be adjusted downward by the excess disbursement unless it is used to reduce domestic payment arrears.

Gross disbursements, not adjusted for debt service obligations.

Table 2.

Benin: Proposed Structural Benchmarks and Macroeconomic Rationale for 2018

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Attachment II. Technical Memorandum of Understanding

1. This Technical Memorandum of Understanding (“the Memorandum”) defines the quantitative performance criteria and benchmarks, and structural benchmarks, for the Republic of Benin’s program supported by the Extended Credit Facility (ECF). It also sets out the frequency and deadlines for data reporting to the staff of the International Monetary Fund (IMF) for program monitoring purposes.

Program Assumptions

2. Exchange rates under the program. For the purposes of this Memorandum, the value of transactions denominated in foreign currencies shall be converted into the national currency of Benin (the CFA franc, or CFAF), on the basis of the exchange rates agreed upon for the program projections. The key exchange rates are presented below.1

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Definitions

3. Unless otherwise indicated, “government” is understood to mean the central government of the Republic of Benin and does not include any political subdivisions (such as local governments), the central bank, or any other public or government-owned entity with autonomous legal personality not included in the government’s flow-of-funds table (TOFE).

4. The definitions of “debt” for the purposes of this Memorandum is set out in point 8 of IMF Executive Board Decision No. 6230-(79/140), as amended on December 5, 2014, by Executive Board Decision No. 15688-(14/107):

(a) Debt is understood to mean a current, that is, not contingent, liability, created under a contractual agreement through the provision of value in the form of assets (including currency) or services, which requires the obligor to make one or more payments in the form of assets (including currency) or services at some future point(s) in time, and these payments will discharge the principal and/or interest liabilities incurred under the contract. Debts can take a number of forms; the primary ones being as follows:

  • i) loans, that is, advances of money to the obligor by the lender made on the basis of an undertaking that the obligor will repay the funds in the future (including deposits, bonds, debentures, commercial loans, and buyers’ credits) and temporary exchanges of assets that are equivalent to fully collateralized loans under which the obligor is required to repay the funds, and usually pay interest, by repurchasing the collateral from the buyer in the future (such as repurchase agreements and official swap arrangements);

  • ii) suppliers’ credits, that is, contracts where the supplier permits the obligor to defer payments until sometime after the date on which the goods are delivered or services are provided;

  • iii) leases, that is, arrangements under which property is provided which the lessee has the right to use for one or more specified period(s) of time that are usually shorter than the total expected service life of the property, while the lessor retains title to the property. For the purpose of this guideline, the debt is the present value (at the inception of the lease) of all lease payments expected to be made during the period of the agreement excluding those payments that cover the operation, repair or maintenance of the property; and

  • iv) Treasury bills and bonds issued in Communauté Financière Africaine (CFA) francs on the West African Economic and Monetary Union’s (WAEMU) regional market, which are included in public debt for the purpose of this Memorandum.

Under the definition of debt set out above, arrears, penalties, and judicially awarded damages arising from failure to make payment under a contractual obligation that constitutes debt are debt. Failure to make payment on an obligation that is not considered debt under this definition (for example, payment on delivery) will not give rise to debt.

(b) The present value of the loan will be calculated by discounting future payments of interest and principal using the commercial interest reference rates (CIRRs) established by the Organization for Economic Cooperation and Development (OECD). Specifically, the 10-year average of CIRRs reported by the OECD will be used for loans with maturities longer than 15 years, while the six-month average of CIRRs will be used for loans with shorter maturities. To both the 10-year and 6-month averages of the reference rate, the margin for different repayment periods will be added, as established by the OECD (0.75 percent for repayment periods of less than 15 years, 1.00 percent for repayment periods of 15–19 years, 1.15 percent for repayment periods of 20–29 years, and 1.25 percent for repayment periods of 30 years or more).

(c) Domestic debt is defined as debt denominated or serviced in CFA francs, unless it is contracted with another member state;

(d) External debt is defined as debt denominated in any currency other than the CFA franc and debt in CFA francs contracted with another member state.

Quantitative Performance Criteria

A. Ceiling on Net Domestic Financing of the Government
Definitions

5. Net domestic financing (NDF) of the government is defined as the sum of (i) net bank credit to the government, defined below; and (ii) net nonbank financing of the government, including the proceeds of the sale of government assets, which includes proceeds from the divestiture of parts of public enterprises, that is, privatizations, Treasury bills, and other securitized obligations issued by the government and listed in CFA francs on the WAEMU regional financial market, and any BCEAO credit to the government, including any drawings on the CFA franc counterpart of the allocation of Special Drawing Rights (SDRs).

6. Net bank credit to the government is defined as the balance between the debts and claims of the government vis-à-vis the central bank and the national commercial banks. The scope of net credit to the government is that used by the BCEAO and is in keeping with general IMF practice in this area. It implies a definition of government that is broader than the one indicated in paragraph 2. Government claims include the CFA franc cash balance, postal checking accounts, subordinated debt (obligations cautionnées), and all deposits with the BCEAO and commercial banks of government owned entities, with the exception of industrial or commercial public agencies (EPIC) and government corporations, which are excluded from the calculation. Government debt to the banking system includes all debt to the central bank and the national commercial banks, including Treasury bills and other securitized debt.

7. The figures deemed valid within the framework of the program will be the figures for net bank credit to the government and for the net amount of Treasury bills and bonds issued in CFA francs on the WAEMU regional financial market calculated by the BCEAO and the figures for nonbank financing calculated by the Treasury of Benin.

8. Gross external budgetary assistance is defined as grants, loans, and non-earmarked debt relief operations (excluding project-related loans and grants, use of IMF resources, and debt relief under the Heavily Indebted Poor Countries (HIPC) and Multilateral Debt Relief Initiatives). Net external budgetary assistance is defined as the difference between gross external budgetary assistance and the sum of total debt service obligations on all external debt (defined, in turn, as the sum of interest payments and amortizations on all external loans, including interest payments and other charges to the IMF and on project-related loans, but excluding repayment obligations to the IMF), and all payments of external payments arrears.

Performance Criteria and Indicative Targets

9. The ceiling on net domestic financing of the government (cumulative since January 1 of the same year) is set as follows: CFAF 70.1 billion at End-March 2017; CFAF 116.1 billion at end-June 2017; CFAF 183.9 billion at end-September 2017; and CFAF 183.7 billion at end-December 2017. The ceiling is a performance criterion for End-June and End-December 2017, and an indicative target for End-September 2017.

Also, the ceiling on net domestic financing of the government (cumulative since January 1 of the same year) is set as follows: CFAF 22 billion at End-March 2018; CFAF 190.9 billion at end-June 2018; CFAF 103.0 billion at end-September 2018; and CFAF 118.8 billion at end-December 2018. The ceiling is a performance criterion for End-June and End-December 2018, and an indicative target for End-September 2018.

Adjustments

10. Net domestic financing of the government will be adjusted if net external budgetary assistance exceeds or falls short of the program projections indicated in paragraph 10:

  • If, at the end of a quarter, net external budgetary assistance exceeds the total projected amounts (cumulative since January 1 of the same year) by over CFAF 5 billion, the NDF ceiling will be lowered by an amount equivalent to this excess minus CFAF 5 billion.

  • If at the end of a quarter, net external budgetary assistance falls short of the projected amounts (cumulative since January 1 of the same year), the NDF ceiling will be increased by an amount equivalent to this shortfall, within the following limits: the increase may not exceed CFAF 15 billion at End-June 2017 and CFAF 25 billion at End-December 2017. The same rule applies for 2018.

11. For the purposes of calculating the adjustment to the NDF ceiling, the following amounts are projected in the program:

  • The amounts of gross external budgetary assistance (cumulative since January 1 of the same year) projected in the program are CFAF 16.2 billion at End-March 2017; CFAF 16.2 billion at End-June 2017; CFAF 39.2 billion at End-September 2017; and CFAF 55.0 billion at End-December 2017.

  • The amounts of gross external budgetary assistance (cumulative since January 1 of the same year) projected in the program are CFAF 22.6 billion at End-March 2018; CFAF 22.6 billion at End-June 2018; CFAF 39.6 billion at End-September 2018; and CFAF 55.4 billion at End-December 2018.

  • The amounts of external debt service obligations (cumulative since January 1 of the same year) projected in the program are CFAF 8.8 billion at End-March 2017; CFAF 24.8 billion at End-June 2017; CFAF 32.4 billion at End-September 2017; and CFAF 70.6 billion at End-December 2017.

  • The amounts of external debt service obligations (cumulative since January 1 of the same year) projected in the program are CFAF 9.7 billion at End-March 2018; CFAF 29.3 billion at End-June 2018; CFAF 38.9 billion at End-September 2018; and CFAF 60.6 billion at End-December 2018.

B. Floor for Basic Primary Fiscal Balance
Definition

12. The basic primary fiscal balance is defined as being equal to the difference between total fiscal revenue (tax and nontax) and basic primary fiscal expenditure (on a payment order basis). Basic primary fiscal expenditure is defined as fiscal (current plus capital) expenditure minus (a) the payments of interest on domestic and external debt; and (b) capital expenditure financed by external grants and loans. Grants are excluded from revenue and net government lending is excluded from fiscal expenditure.

Performance Criteria and Indicative Targets

13. The floor on the basic primary fiscal balance (cumulative since January 1 of the same year) is a balance of not less than CFAF −64.7 billion at End-March 2017; CFAF −73.1 billion at End-June 2017; CFAF −139.0 billion at End-September 2017; and CFAF −142.6 billion at End-December 2017. The floor is a performance criterion for End-June and End-December 2017, and an indicative target for End-September 2017.

The floor on the basic primary fiscal balance (cumulative since January 1 of the same year) is a balance of not less than CFAF −69.7 billion at End-March 2018; CFAF −47.5 billion at End-June 2018; CFAF −20.3 billion at End-September 2018; and CFAF 3.9 billion at End-December 2018. The floor is a performance criterion for End-June and End-December 2018, and an indicative target for End-September 2018.

C. Floor for Total Government Revenue
Definition

14. Total government revenue includes tax and nontax revenue as shown in the TOFE, but it excludes external grants, revenue of autonomous agencies, and privatization receipts.

Performance Criteria and Indicative Targets

15. The floor on total government revenue (cumulative since January 1 of the same year) is set at an amount that is not less than CFAF 182.9 billion at End-March 2017; CFAF 386.1 billion at End-June 2017; CFAF 602.9 billion at End-September 2017; and CFAF 907.5 billion at End-December 2017. The floor is a performance criterion for End-June and End-December 2017, and an indicative target for End-September 2017.

Also, the floor on total government revenue (cumulative since January 1 of the same year) is set at an amount that is not less than CFAF 204.8 billion at End-March 2018; CFAF 445.5 billion at End-June 2018; CFAF 707.1 billion at End-September 2018; and CFAF 1021.6 billion at End-December 2018. The floor is a performance criterion for End-June and End-December 2018, and an indicative target for End-September 2018.

D. Non-Accumulation of New Domestic Payments Arrears by the Government
Definition

16. Domestic payments arrears are defined as domestic payments due but not paid after a 90-day grace period, unless the obligation specifies a longer grace period. The National Amortization Fund (CAA) and the Treasury record and update the data on the accumulation of domestic payments arrears, as well as their settlement.

Continuous Performance Criterion

17. The government undertakes not to accumulate any new domestic payments arrears. The non-accumulation of new domestic payments arrears will be continuously monitored throughout the program.

E. Non-Accumulation of External Payments Arrears by the Government
Definition

18. External public payments arrears are defined as the sum of payments due, but not paid, by the government at the due date specified in the contract, taking into account any applicable grace period, on external debt of, or guaranteed by, the government.

19. The government undertakes not to accumulate any external public payments arrears, with the exception of arrears relating to debt that is the subject of renegotiation or rescheduling. The performance criterion on the non-accumulation of external public payments arrears will be continuously monitored throughout the program.

F. Present Value of New External Debt Contracted or Guaranteed
Definition

20. This performance criterion applies not only to debt as defined in paragraph 4a, but also to commitments contracted or guaranteed by the government (including lease-purchase contracts) for which no value has been received. This criterion also applies to private sector debt guaranteed by the government, which constitutes a contingent liability of the government. As indicated in paragraph 4c, external debt excludes Treasury bills and bonds issued in CFA francs on the WAEMU regional market.

21. The concept of “government” used for this performance criterion and for the performance criterion on the contracting or guaranteeing by the government of new external debt, includes the government, as defined in paragraph 2, local governments, and all public enterprises, including administrative public agencies (EPA), scientific and technical public agencies, professional public agencies, and enterprises jointly owned by the Beninese government with the governments of other countries.

22. Changes to the ceiling may be made (subject to approval by the IMF Executive Board) based on the results of the debt sustainability analysis prepared jointly by the staffs of the World Bank and the IMF. The performance criterion on the ceiling on the contracting or guaranteeing by the government of new external debt maturing in one year or more will be continuously monitored throughout the program.

G. Ceiling on Pre-Financing Contracts for Public Investments
Definition

23. Pre-financing contracts are defined as contracts pursuant to which the following steps are taken, normally concurrently: (i) the government entrusts a private entity with the responsibility for executing public works, financed by a loan to the entity from a commercial bank or group of commercial banks; (ii) the government, including, for the avoidance of doubt, the Minister of Finance, guarantees this loan and signs an unconditional and irrevocable agreement to replace the private entity to honor the full amount of principal and interest of the loan.

Continuous Performance Criterion

24. The government undertakes to refrain from entering into any pre-financing contracts during the life of the program. This performance criterion with respect to pre-financing contracts for public investment will be continuously monitored throughout the program.

Indicative Targets
A. Floor for Priority Social Expenditures

25. Priority social expenditures are determined in relation to the priority programs identified in the GAP. These expenditures consist of selected (nonwage) expenditures inter alia in the following sectors: health; energy, water, and mines; agriculture; livestock and fisheries; social affairs; education, and living standards. The execution of these expenditures is monitored on a payment order basis during the program through the Integrated Government Finance Management System (SIGFiP).

Definition

26. The indicative target for priority social expenditures is defined as the total amount (cumulative since January 1 of the same year) of the payment orders issued under the budget lines indicated in Table 1 below.

Table 1.

Benin: Priority Social Expenditure Categories

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Information for Program Monitoring
B. Data on Performance Criteria and Indicative Targets

27. To facilitate effective program monitoring, the government will provide IMF staff with the following data:

Every month:

  • data on any loan (terms and creditors) contracted or guaranteed by the government, in the first week after the end of the month;

  • monthly consumer price index, within two weeks of the end of the month;

  • the TOFE, including revenue, detailed data on net domestic financing of the government (bank and nonbank domestic financing, including the claims held by the nonbank private sector); and data on the basic primary fiscal balance, including data generated by the integrated fiscal management system (SIGFiP), within six weeks of the end of the month;

  • data on the balance, accumulation, amount (stock), and repayment of public domestic and external payments arrears, including in the event that these arrears amount to zero, within six weeks of the end of the month; and

  • the monetary survey, within eight weeks of the end of the month.

Every quarter:

  • data pertaining to the amount of exceptional payment procedures or other exceptional measures, within six weeks of the end of the quarter; and

  • data pertaining to priority social expenditures, within six weeks of the end of the quarter.

C. Other Information

28. The government will provide IMF staff with the following data:

Every month:

  • banking supervision indicators for bank and nonbank financial institutions within eight weeks of the end of the month.

Every quarter:

  • data on the implementation of the public investment program, including detailed information on sources of financing, within four weeks of the end of the quarter; and

  • data on the stock of external debt, external debt service, the signing of external loans and disbursements of external loans, within twelve weeks of the end of the quarter.

On an ad hoc basis:

  • in the quarter when they become available: a copy of the budget law and its supplementary documents; a copy of the most recent budget execution law; as well as any decree or law pertaining to the budget or implementation of the IMF-supported program.
1

Nga Thi Viet Nguyen and Felipe F. Dizon’s The Geography of Welfare in Benin, Burkina Faso, Côte d’Ivoire, and Togo shows that urban localities in Benin are concentrated mainly in the south, coinciding with the most favorable agroecological zone as well as coastal areas while the north remains poor with limited access to market.

2

The GAP expects 61 percent of total financing to come from the private sector (about $9.3 billion over 5 years).

3

This assessment is in line with the DSA conducted in April 2017.

4

On September 6, 2017, the Monetary Policy Committee of the BCEAO kept unchanged its two key policy rates—the minimum rate for bids at liquidity auctions and the standing lending facility—at 2.5 and 4.5 percent, respectively.

5

The anchor is defined as limiting the PV of NFPS debt to no more than 50 percent of GDP, consistent with a total NFPS debt ratio peaking at 56.2 percent of GDP in 2018. This ratio is below the estimated PV threshold of 56 percent of GDP, beyond which the risk of public debt distress is heightened for countries with moderate capacity like Benin.

6

For this indicator, Benin is above the average of its comparators.

8

The team has cooperated with the Commitment to Equity Institute to improve the understanding of how changes in fiscal policy would affect poverty and inequality.

9

The 2016 Mo Ibrahim Index report for Benin shows a slight improvement in overall governance in 2015 with the country placing 16th out of 54 countries, essentially, due to high scores in “Participation & Human Rights” and “Safety & Rule of Law.”

1

For technical background, please see the SPR/RES May 2, 2017.

2

Benin’s trade elasticity is estimated at −0.483.

3

Exceptions are the indicators for health and primary education, higher education and training, and the composite subcategory “basic requirements”.

1

This increase reflects a carry-over of projects slated for 2017.

1

Exchange rates are average for 2018 as of August 2017.

Other IMF Content

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Cover IMF Staff Country Reports
Benin: 2017 Article IV Consultation and First Review Under the Extended Credit Facility Arrangement and Request for Modifications of Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for Benin
Author:
International Monetary Fund. African Dept.
Volume/Issue:
Volume 2018: Issue 001
Publisher:
International Monetary Fund
ISBN:
9781484336533
ISSN:
1934-7685
Pages:
104
DOI:
https://doi.org/10.5089/9781484336533.002
  • Text Figure 1.
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    Text Figure 1.

    Benin: Poverty Rate, 2011–15

    (percent of population)

  • Text Figure 2.
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    Text Figure 2.

    Benin: Real GDP Growth and Economic Activity

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    Benin: Selected Qualitative Indicators of Infrastructure, 2015

  • Text Figure 3.
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    Text Figure 3.

    Benin: Indicators of efficiency of public investment

  • Text Figure 4.
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    Text Figure 4.

    Benin: Total non-financial public sector debt 2010–2017

    (in percent of GDP)

  • Text Figure 5.
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    Text Figure 5.

    Sub-Saharan Africa and Comparator Countries: Depth of Integration in Global Value Chains, Average 2008–12

  • View in gallery

    Benin: Gini Coefficient and Poverty Headcount

  • Figure 1.
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    Figure 1.

    Benin: Recent Developments, 2010–17

  • Figure 2.
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    Figure 2.

    Benin: Fiscal Developments and Projections, 2012–19

  • Figure 3.
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    Figure 3.

    Benin: Real and External Developments

  • Figure 1:
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    Figure 1:

    Current Account Balance Estimates

  • Figure 2.
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    Figure 2.

    Most Problematics Factors for Exporting

    (Percent of responses)

  • Figure 3.
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    Figure 3.

    Most Problematic Factors for Importing

    (Percent of responses)

  • Figure 4.
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    Figure 4.

    Most Problematic Factors for Doing Business

    (Percent of responses)

  • Figure A1.
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    Figure A1.

    Benin: Indicators of Public and Publicly Guaranteed External Debt, 2017–37 1/

  • Figure A2.
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    Figure A2.

    Benin: Indicators of Public Debt Under Alternative Scenarios, 2017–37 1/

Text Figure 1.

Benin: Poverty Rate, 2011–15

(percent of population)
Text Figure 2.

Benin: Real GDP Growth and Economic Activity

Benin: Selected Qualitative Indicators of Infrastructure, 2015
Text Figure 3.

Benin: Indicators of efficiency of public investment
Text Figure 4.

Benin: Total non-financial public sector debt 2010–2017

(in percent of GDP)
Text Figure 5.

Sub-Saharan Africa and Comparator Countries: Depth of Integration in Global Value Chains, Average 2008–12

Benin: Gini Coefficient and Poverty Headcount
Figure 1.

Benin: Recent Developments, 2010–17
Figure 2.

Benin: Fiscal Developments and Projections, 2012–19
Figure 3.

Benin: Real and External Developments
Figure 1:

Current Account Balance Estimates
Figure 2.

Most Problematics Factors for Exporting

(Percent of responses)
Figure 3.

Most Problematic Factors for Importing

(Percent of responses)
Figure 4.

Most Problematic Factors for Doing Business

(Percent of responses)
Figure A1.

Benin: Indicators of Public and Publicly Guaranteed External Debt, 2017–37 1/
Figure A2.

Benin: Indicators of Public Debt Under Alternative Scenarios, 2017–37 1/