Benin: Second Review under the Extended Credit Facility and Request for Modification of Performance Criteria—Press Release; and Staff Report
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International Monetary Fund. African Dept.
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Publication Date:
11 Jul 2018
eISBN:
9781484367285
Language:
English
Keywords:
ISCR; CR; programmed fiscal consolidation path; WAEMU convergence criterion; Benin; revenue; financing; cash flow; ECF-supported program; buttress Benin's participation; Benin's participation; Benin's economy
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Economic growth remains strong, driven by cotton production, increased public investment and a vibrant tertiary sector that benefited from the economic recovery

Abstract

Economic growth remains strong, driven by cotton production, increased public investment and a vibrant tertiary sector that benefited from the economic recovery

Background

1. Performance under the ECF-supported program is satisfactory. The underlying factors are (i) strong ownership since the start of the program in April 2017; (ii) close monitoring; and (iii) alignment of the program with the Government’s Action Program (GAP), 2016–21. On December 1, 2017, the Executive Board completed the first review and, as detailed in ¶25, program performance has remained strong since then.

2. Benin’s participation in two major initiatives is supporting the reform agenda. Benin became a full participant in the G20 Compact with Africa (CWA) initiative in October 2017, in line with the authorities’ broader strategy to boost the role of the private sector in the economy and attract private sector financing for the GAP. The authorities submitted a policy matrix to the CWA Secretariat that lists a set of concrete actions they will take to improve the environment for private investment (Annex III). Staff initiated in late March 2018 a costing of spending required to meet the UN Sustainable Development Goals (SDGs) for education, water, sanitation, and health by 2030 as part of a group that includes four other countries.

3. The political environment remains calm, but social tensions are on the rise. Benin continues to rank among the stable democracies in sub-Saharan Africa (SSA) with an aggregate score of 82 out of 100 on the Freedom House 2018 Country Scores.1 The 2017 Democracy Index compiled by the Economist Intelligence Unit also ranks Benin among the top 10 SSA countries. However, a law passed by Parliament in late December 2017 banning strike action by public servants providing essential services (military, police, customs, firefighters, health, and the judiciary) has been stoking social tensions. These tensions could escalate and lead to demand for pay increases.

Recent Developments

Economic activity remains strong with low inflation and better-than-programmed budget outcomes in 2017. Financial vulnerabilities are emerging.

4. Economic activity expanded and inflation stayed low. Economic growth for 2017 is estimated at 5.6 percent, buoyed by record cotton production and processing, and the recovery of the Nigerian economy (Table 1 and Figures 1–3).2 Inflation turned positive for the year and averaged 0.1 percent, driven by food and petroleum prices. The current account deficit is estimated to have widened in 2017, due to an increase in goods imports, reflecting a scaling-up of investment and higher food imports.

Table 1.

Benin: Selected Economic and Financial Indicators, 2015–22

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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 and SOEs debt (starting 2018).

Figure 1.
Figure 1.

Benin: Recent Developments, 2010–17

Citation: IMF Staff Country Reports 2018, 217; 10.5089/9781484367285.002.A001

Sources: Beninese authorities and IMF staff calculations.
Figure 2.
Figure 2.

Benin: Fiscal Developments and Projections, 2010–19

Citation: IMF Staff Country Reports 2018, 217; 10.5089/9781484367285.002.A001

Sources: Beninese authorities and IMF staff calculations.
Figure 3.
Figure 3.

Benin: Real and External Sector Developments, 2011–18

Citation: IMF Staff Country Reports 2018, 217; 10.5089/9781484367285.002.A001

Sources: Beninese authorities and IMF staff calculations.

5. Fiscal consolidation is taking hold. Budget execution in 2017 was better than initially programmed with the overall fiscal deficit (excluding grants) lower by 2.3 percentage points of GDP, thanks essentially to a stronger domestic revenue performance. Public spending was contained to the programmed level. As a result, public debt accumulation was slower than programmed. First quarter data for 2018 portend a similar performance (¶26).

6. Structural reforms in some areas are lagging. While all end-December 2017 structural benchmarks and other reforms were implemented on schedule, progress in strengthening audit institutions, governance, and transparency, has been lagging after the parliament rejected amendments to the constitution in April 2017. During discussions on the second review, the authorities committed to accelerate these reforms to buttress Benin’s participation in the CWA (MEFP ¶14–16).

7. The financial sector has been resilient but vulnerabilities are emerging. Financial stability indicators are adequate, but the quality of banks’ loan portfolio remains a concern and has constrained credit to the private sector. Also, vulnerabilities arise from: (i) exposure to volatile demand from Nigeria; (ii) unresolved non-performing loans; and (iii) lack of economic diversification.

  • Bank capitalization has been increasing since 2016 when the ratio of capital to risk-weighted assets reached 12,4 percent. Nonetheless, the elevated level of non-performing loans (19.5 percent of total loans at end-2017) points to the persistence of structural problems (Table 9).

  • The liquidity ratio (total loans/total deposits) stands at 73 percent, but high loan concentration remains a concern. Lending to the government is still a major source of profits for banks, because of the interest differential between one-year government bonds and the regional central bank (BCEAO) refinancing rate.

  • One small bank facing operational difficulties needs resolution and the authorities decided on buying it at the value of its equity (MEFP ¶30).

Table 2.

Benin: Consolidated Government Operations, 2015–22

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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.

Table 3.

Benin: Consolidated Central Government Operations, 2017–18

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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 4.

Benin: Consolidated Central Government Operations, 2015–22

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Sources: Beninese authorities; IMF staff estim ates 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.

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

Table 5.

Benin: Balance of Payments, 2015–22

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Table 6.

Benin: Monetary Survey, 2015–19

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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 7.

Benin: Schedule of Disbursements Under the ECF Arrangement

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Source: International Monetary Fund.
Table 8.

Benin: Indicators of Capacity to Repay the Fund, 2018–321

(In millions of SDRs; Reporting Year: January to December)

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Sources: IMF staff estimates and projections.

Data are projections

On October 3, 2016 the IMF Executive Board approved a modified interest rate setting mechanism which effectively sets interest rates to zero on ECF and SCF through December 31, 2018 and possibly longer. The Board also decided to extend zero interest rate on ESF until end 2018 while interest rate on RCF was set to zero in July 2015. Based on these decisions and current projections of SDR rate, the following interest rates are assumed beyond 2018: projected interest charges between 2019 and 2020 are based on 0/0/0/0.25 percent per annum for the ECF, SCF, RCF and ESF, respectively, and beyond 2020 0/0.25/0/0.25 percent per annum. The Executive Board will review the interest rates on concessional lending by end-2018 and every two years thereafter.

Total debt service includes IMF repurchases and repayments.

Table 9.

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

8. The medium-term outlook remains favorable. The outlook is broadly unchanged from the staff report for the first review under the ECF arrangement (EBS/17/109, November 17, 2017). It assumes an acceleration of real GDP growth to an average of 6.6 percent in 2019–22, driven by policy-induced increase in agricultural production and rising private investment. Inflation is forecast to remain below the WAEMU convergence rate of 3 percent over the medium term. The programmed fiscal consolidation path is expected to bring down the budget deficit (including grants) to below the WAEMU convergence criterion of 3 percent of GDP by 2019. Strong export growth would drive an improvement in the external current account position—albeit marginally—to an average deficit of 8.6 percent of GDP in 2019–22. Sustained capital inflows driven by foreign direct and portfolio investments would enable Benin to contribute modestly to the build-up of WAEMU’s international reserves. Because of the delayed enactment of the public-private partnership (PPP) Law and limited impact so far of the CWA, FDI inflows were revised down. However, increased WAEMU banks’ interest in Benin’s debt issuance would increase portfolio investment (Text Table 1).

Text Table 1.

Benin: Comparative Key BOP Indicators, 2017–19

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Source: IMF staff estimates and projections.

9. Risks to the outlook. The risks to the outlook described in the staff report for the first review (EBS/17/109) remain unchanged (Annex I, Risk Assessment Matrix). However, given the faster recovery in Nigeria (growth is to accelerate form 0.8 percent in 2017 to 2.1 percent this year) and stronger positive response of key agricultural sectors to the reforms, there is an upside potential.

Policy Discussions

With the program on track and given the slow progress on some of the structural reforms, discussions focused on measures needed to sustain the fiscal efforts and improve governance, transparency, and accountability, as well as the business environment.

A. Sustaining Revenue Mobilization Efforts and Improving the Efficiency of Public Spending

10. Domestic revenue performance remains strong driven by non-tax revenues (Text Table 2). Non-tax revenue overperformed in 2017 thanks to (i) efforts to collect tax arrears and special taxes on electronic communications and road fees; (ii) the non-renewal of tax exemptions for cellphone companies; and (iii) royalty payment by a cellular-phone company. Nevertheless, low tax compliance coupled with substantial tax expenditures (2.4 percent of GDP) leaves Benin with a low tax collection efficiency compared to other WAEMU countries (Annex II.I).

Text Table 2.

Benin: Developments in Domestic Revenue, 2017–18

(Percent of GDP)

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Estimates for 2017 include payment in December of the first tranche (0.65% of GDP) of a royalty fee amounting to (1.3% of GDP) levied on a cell phone company.

Sources: Beninese authorities and IMF staff calculations.

11. The mobilization of tax revenue should be accelerated. While welcoming the strong performance of nontax revenue, staff underscored the need to increase tax revenues by implementing the TA recommendations aimed at strengthening revenue administration. To help sustain and broaden the improvement in domestic revenue mobilization (DRM) over the medium term, the authorities are complementing the revenue administration measures with tax policy reforms (Box 1, (MEFP ¶20–21). These measures have started to yield encouraging results, with the 2018 first quarter target being met, despite tax revenue shortfalls.

12. Public investment management is being strengthened. The authorities fully endorsed the recommendations of the October 2017 Public Investment Management Assessment (PIMA) mission, which provided a roadmap for their efforts to improve public investment management during the various phases of project implementation (MEFP ¶22). Measures to improve absorptive capacity, drawing on an action plan recommended by the PIMA mission, are also being implemented. Specific measures to improve public investment management are described in Box 2.

B. Pursuing Fiscal Consolidation to Preserve Long-Term Public Debt Sustainability

13. Adhering to the fiscal consolidation path is critical to put public debt on a downward path. Sustaining the strong fiscal performance under the program is required to reduce the overall fiscal deficit to the WAEMU’s convergence criterion of 3 percent of GDP by 2019. Thereafter, the primary fiscal balance is expected to shift into surplus in 2021, allowing a steady decline in the public debt ratio. The authorities committed to this fiscal consolidation path and indicated that they will accelerate the needed fiscal reforms to bring debt down.

14. Benin’s updated debt sustainability analysis, conducted in December 2017, confirmed the moderate risk of debt distress (Annex IV). The rapid increase in domestic debt needs careful monitoring to contain the burden of the domestic debt service. Liquidity pressures that emerged in September 2017 on the regional debt market eased somewhat in the second quarter of 2018, enabling Benin to successfully tap the market. Since end-March 2018, Benin’s debt issuances have been oversubscribed whereas they were significantly undersubscribed earlier this year. Staff emphasized the importance of pursuing fiscal efforts to generate a primary fiscal balance necessary to reduce the public debt-to-GDP ratio and preserve public debt sustainability in the long run.

Sustaining Domestic Resource Mobilization

This box highlights developments in DRM to date and explores avenues to sustain the improvement in revenue collection (See Annex II.I).

Recent improvements in DRM came mainly from nontax revenue. The strong revenue performance to date under the ECF is due to increase in nontax revenues, which by definition, are less predictable than tax revenues. Benin therefore needs to boost tax revenue collection to further increase fiscal space to finance the GAP, meet the WAEMU deficit target, and preserve debt sustainability.

Improving tax revenue collection.

With a tax-to-GDP ratio of 13.3 percent in 2017, Benin has the lowest tax collection ratio among WAEMU’s countries, despite comparable tax rates. An analysis of the main category of taxes points to collection inefficiencies. Under the ECF arrangement, the government has embarked on critical reforms which, if fully implemented, would improve the efficiency of tax collection.

Developments in Tax Revenues, 2015–18

(Billions of CFA francs)

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Sources: Beninese authorities and IMF staff calculations.

Measures being implemented to increase tax revenue include:

• Continued modernization of the tax administration. One of the factors underlying the underperformance of the tax administration was its inability to support basic tax administration functions, such as allowing effective control over the tax population or reversing the high noncompliance rate. Therefore, under the Strategic Orientation Plan of the tax administration (POSAF), the authorities introduced new reforms aimed at (i) developing an internal audit strategy; (ii) developing the tax management I.T. system (SIGTAS); and (iii) updating the taxpayer file with a view to improving compliance (MEFP ¶10–11). They are also strengthening cooperation between the tax and the custom administrations. Several I.T. initiatives were launched to facilitate information exchange between I.T. systems. Some tax policy reforms, in addition to those envisioned in the 2018 Budget Law, are also being implemented.

• Setting up a fiscal reference system. At 2.4 percent of GDP in 2016, tax expenditures in Benin remain high and under-estimated. Adopting a fiscal reference system will facilitate full assessment and rationalization of tax expenditures, enable the authorities to better estimate tax expenditures, and offer the opportunity to eliminate the inefficient and costly ones.

• Reducing tax expenditures. Given that tax expenditures have doubled between 2013 and 2016, the authorities have started rationalizing them by not granting any new exemptions. In addition, in 2018, they did not renew tax exemptions that were granted GSM mobile phone companies. Rationalizing other tax expenditures such as those given to public tenders financed externally could raise additional revenue (MEFP ¶21).

15. Extending the maturity of domestic public debt will help preserve its long-term sustainability. Staff welcomes the authorities’ plan to buy back costly domestic debt owed to domestic creditors, including the regional development bank with support from the World Bank (MEFP ¶23).3 This operation will help reduce the cost of domestic debt and extend the average maturity of total public debt over the medium term. Nevertheless, staff urged the authorities to ensure that the reprofiling is voluntary and market-based. Seeking longer maturity obligations when tapping the regional financial market will address roll-over risks.

16. Continued efforts are needed to strengthen public debt management. Recent public debt developments and the envisaged reprofiling operation have reinforced the case for strengthening the Autonomous Amortization Fund (CAA—the public debt agency). Implementation of the Treasury Single Account (TSA) is needed to improve cash flow management and match short-term debt instruments with liquidity needs. Building on the progress made in improving availability of data on public debt (MEFP ¶13), the CAA should strengthen its capacity to improve debt monitoring, including risk assessment and monitoring of contingent liabilities from state-owned enterprises (SOEs) and PPPs.4

C. Inclusive Growth and Poverty Reduction

17. Fostering inclusive growth remains a priority. The authorities are fully committed to promoting inclusive growth and reducing poverty. Building on one of the key pillars of the GAP, they are pursuing policies to improve the living conditions of the population, including the implementation of the flagship reform program for protecting the poorest segments of the population (Insurance for Strengthening Human Capital—ARCH), which is expected to become operational in 2018.5 The authorities are committed to prioritizing investment in rural areas and focusing on policies aimed at developing high value-added commercial crops and providing extension services. Staff suggested to consider the possibility of devoting a percentage of total public investment to rural areas in the 2019 budget and encouraged the authorities to accelerate the operationalization of the ARCH to make meaningful progress in reducing poverty.

18. The authorities are working closely with the Fund on the SDG initiative. The mission made progress on the SDG costing exercise as the authorities had already prioritized the SDG targets in line with national and sectoral strategies. The outcome of this exercise will help focus the authorities’ poverty reduction efforts.

Making Public Investment More Efficient

The authorities are addressing inefficiencies in public investment, drawing on the recommendations of the PIMA mission (See Annex II.II).

A clear roadmap to follow. The report of the PIMA mission, finalized in January 2018 proposed 48 measures that will help to improve the efficiency of public investment in Benin. These are organized under 4 pillars: (i) improving the institutional framework; (ii) ensuring the availability and sustainability of funding; (iii) upgrading of the preparation and implementation of investment projects; and (iv) considering the sustainability of investments.

Authorities fully endorsed the PIMA recommendations. They proposed a timeline for the implementation of the needed reforms (MEFP ¶22) with the following measures expected by end-2019:

• Improving the institutional framework by (i) enacting a comprehensive legal framework through the finalization and adoption of a high-level regulatory text that encompasses all phases of the public investment management cycle, (ii) developing the information system and their interfaces including in line ministries and integrating a module that allows an ex-ante prioritization of projects, and (iii) ensuring comprehensive publication and transparency of information;

• Ensuring the sustainability of domestic financing by strengthening the tools of the sectoral distribution of the public investment envelop;

• Upgrading the preparation and implementation of investment projects by (i) conditioning their inclusion to the public investment program to the existence of a preliminary feasibility study to strengthen the ex-ante selection of projects, (ii) revising and harmonizing existing methodological evaluation manuals, both at the Ministry of Planning and in line ministries, (iii) for projects with a cost above a certain threshold, define a standard mandatory evaluation file including a cost-benefit analysis with a specific requirement for large-scale projects to have an external evaluation, and (iv) developing a culture of review and ex-post evaluations; and

• Improving the sustainability of investments by (i) systematically evaluating the recurrent costs associated with investment projects, and (ii) including in the budgets of eligible line ministries a specific allocation for infrastructure maintenance.

It is expected that a follow-up TA mission in early 2019 will take stock of the progress made on the implementation of recommendations of the PIMA report.

19. Several governance indicators point to progress in fighting corruption in Benin. Benin scored 39 points out of 100, on Transparency International’s 2017 Corruption Perception Index (CPI).6

This was 3 points higher than the 2016 score and well above the SSA average score of 32.9. The World Bank Worldwide Governance Indicators (WGI) also indicate progress in the “Control of Corruption” in 2016 (Text Figure 1). However, the perception on the ground is that governance needs to be strengthened further and the judiciary made more independent to effectively fight corruption. Also, efforts to reform audit institutions, improve transparency, and foster accountability, have been lagging (116). While recognizing the limitations of the CPI, the authorities welcomed the recent improvement and committed to pursue reforms aimed at further improving governance and reducing corruption.

Text Figure 1.
Text Figure 1.

Benin: Governance Indicators, 2016

(re-scaled: 0=weak, 5=strong)

Citation: IMF Staff Country Reports 2018, 217; 10.5089/9781484367285.002.A001

20. Implementation of anti-corruption and AML/CFT frameworks should not be delayed. Staff urged the authorities to strengthen the anti-corruption agencies,7 and discussed with the relevant agencies measures needed to enable them to effectively carry out their responsibilities. The authorities took steps in 2017 to strengthen internal audit bodies with the aim of improving governance and combatting impunity, and intend to further strengthen internal control systems in 2018 (MEFP 1114). Also, consistent with their commitment to strengthen the AML/CFT and anti-corruption frameworks, they are in the process of implementing an action plan for the implementation of the recommendations made following the 2016 assessment of the National Integrity System carried out by Transparency International with the support of the European Union (MEFP 1116). The National Anti-Corruption Authority (ANLC) is finalizing a Handbook of Procedures and a Users’ Guide to raise awareness to fight corruption. Considering Benin’s upcoming AML/CFT assessment in January 2019, staff also called for the passing of the AML/CFT draft law proposal sent to Parliament in January 2018.

21. Strengthening audit institutions will bring greater transparency in the public sector. Staff urged the authorities to complete the plan for reforming the government’s internal and external audits and create an independent and transparent audit system. They noted that commercial courts were created and made operational in 2017 (MEFP ¶15).

D. Improving the Business Environment

22. The weak business environment is a major impediment to private sector development.8 Despite some recent improvement, the business environment remains challenging and Benin’s participation in the CWA initiative has heightened the importance of accelerating reforms to promote private sector development. These include:

  • Facilitating paying taxes and enforcing contracts, which were identified as major constraints in the business environment;

  • Improving access to electricity is another priority;

  • Adopting policies to improve competitiveness, drawing on the findings of the most recent Global Competitiveness Report. Such policies include boosting education and productivity improving labor market efficiency, and promoting production diversification;

  • Addressing cases of conflict of interest by enforcing existing laws on public officials’ participation in private sector activity; and

  • Enforcing contract enforcement and reducing bureaucratic inefficiency and corruption would also help spur private sector activity.

More generally, the authorities should accelerate the reforms identified in the CWA policy matrix (¶2) aimed at improving the framework conditions for private investment. The new investment promotion agency established in 2017 and the institutional framework for implementating Doing Business reforms are expected to become fully operational in 2018 (MEFP ¶27–28) and contribute to improving the business environment.

Other Issues

23. Measures are being taken to promote financial inclusion and strengthen supervision. The authorities are promoting the mobilization of resources by microfinance institutions (MFIs or decentralized financial systems) that cater to the poor (MEFP ¶31–33). In January 2018, they launched a five-year plan to transition to Basel II/III standards. Furthermore, they are strengthening supervision of MFIs, including through tightened licensing requirements. The WAEMU Banking Commission (BC) is expected to reinforce the supervision of the top ten MFIs. Judicial capacity is being strengthened by providing training on commercial regulation and creating commercial courts and arbitration mechanisms. While announcement by the government to buy the ailing bank has prevented a run on it, a de facto bail out of current equity holders would be undesirable. In this context, the mission urged the authorities to prepare a credible plan to recapitalize or restructure the bank in connection with the BC’s authorization, and ensure that costs to the Treasury are minimized.

24. Capacity development. Staff and the authorities agreed that the TA priorities under the capacity building framework for 2018–19 will be tax and customs administration and PFM, including public investment management. Support to improve real sector statistics will target the strengthening of national account statistics (Annex V).

25. Data Issues. The rebasing of the national accounts initiated in 2017 is yet to be completed (MEFP ¶34). Also, despite Benin’s participation in the Enhanced General Data Dissemination System (e-GDDS), data dissemination has been untimely. Staff encourages the authorities to provide more resources to the national statistics office, expedite work on the rebasing, implement their plans to address data gaps, and adopt measures to improve the quality and timeliness of economic data.

Program Conditionality, Financing Assurances and Safeguards Assessment

26. Performance under the program remains strong. All continuous and end-December 2017 QPCs have been met (MEFP, ¶8 and Table 1), as were all the SBs (MEFP, Table 2). Two SBs related to public investment management are proposed. It is notable that the under-execution of social spending at end-June 2017 was reversed by September and the indicative target (IT) for end-December 2017 was exceeded. Budget execution through end-March 2018 is better than programmed with a slight overperformance of total revenue and a significant under-execution of total spending, particularly capital outlays. As a result, the programmed budget deficit was halved and all the ITs for March 2018 appear to have been met (Table 3). Based on tax revenue performance through end-April 2018, the total revenue target for the year is within reach. Nevertheless, the authorities stand ready to adjust non-priority spending in case of any shortfall.

27. Program implementation risks are manageable. These include: (i) possible tightening of financing conditions in regional and international markets; (ii) removal of oil subsidies by Nigeria in response to rising international oil prices; and (iii) growing social tensions (¶3). An increase of 200 basis points in interest rates in the regional market in 2018 could add about CFAF 3.1 billion (0.3 percent of government revenue) that year9 and on average CFAF 4.7 billion annually over the next two years (Text Table 3). The authorities indicated they stand ready to take measures should these risks materialize to preserve the program fiscal targets.

Text Table 3.

Benin: Impact of a 200 bps Increase in Domestic Interest Rates on Debt Service, 2017–201

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Sources: Beninese authorities and IMF staff calculations.

Assuming the rate increase takes effect on July 1st, 2018.

28. The program is consistent with regional policies. The policies being pursued under Benin’s ECF-supported program and the economic policies at the WAEMU level are mutually reinforcing and are aimed at maintaining fiscal sustainability and contributing to regional external viability.10 In the case of Benin, the programmed fiscal consolidation path envisages a fiscal deficit below the WAEMU norm of 3 percent of GDP by 2019, thereby contributing to regional stability. Compared to earlier projections, external and regional developments have somewhat attenuated Benin’s contribution to the build-up of WAEMU’s international reserves. Also, the authorities are working closely with the BC to prepare a resolution plan with a divestment strategy for the bank facing operational difficulties (MEFP ¶30).

29. Financing assurances are adequate for the second review. The program is fully financed through June 2019, and there are good prospects of external support to cover the residual financing needs for the remainder of the ECF arrangement (Text Table 4).

Text Table 4.

Benin: Closing of the Financing Gap, 2019–20

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Sources: Beninese authorities and IMF staff calculations.

30. Capacity to repay the Fund. The capacity to repay the Fund is assessed to be adequate (Table 8). Benin has a track record of meeting its obligations to the Fund, debt service payments to the Fund remain manageable, and the risk of debt distress is moderate.

31. Safeguards assessment. An updated safeguards assessment of the BCEAO, completed in April 2018, found that the central bank has maintained a strong control environment since the last assessment in 2013 and its governance arrangements are broadly appropriate. In addition, audit arrangements have been strengthened, International Financial Reporting Standards were adopted as the accounting framework beginning with the 2015 financial statements, and a 2016 external quality review of the internal audit function found broad conformity with international standards. The BCEAO’s risk management framework established in 2014 is also progressing well with implementation of its work across the bank.

Staff Appraisal

32. Benin’s economy grew robustly in 2017 and is poised for continued growth. The macroeconomic environment benefited from prudent policies since mid-2016 and sustained implementation of the authorities’ reform agenda. Staff commends the authorities for steadfastly implementing such policies and structural reforms. The macroeconomic and structural policies, going forward, should be geared toward (i) creating more fiscal space for growth-enhancing and priority social sector spending; (ii) adhering to the fiscal consolidation path to contribute to the stability of the WAEMU region; and (iii) reinvigorating reforms needed to promote private sector activity.

33. Adherence to the programmed fiscal consolidation path is essential. The authorities’ commitment to reduce the overall fiscal deficit below the WAEMU’s convergence criterion of 3 percent of GDP by 2019 is welcome as is their readiness to reduce nonpriority spending should revenue performance fall short of program targets. It is also essential to adhere to the programmed medium-term fiscal consolidation path to preserve debt sustainably. This will require persevering in efforts to keep improving the primary fiscal balance to bring down the public debt.

34. The strong revenue performance under the program needs to be sustained. Despite shortfalls in tax revenues, domestic revenue mobilization remained strong, thanks to renewed efforts to collect tax arrears and special taxes. For the improvement in DRM to be long-lasting, the authorities need to focus attention on tax and customs administration reforms aimed at broadening the tax base, including reducing tax expenditures, and improving compliance.

35. Public debt needs to be carefully managed. While liquidity pressures in the regional market have eased, borrowing conditions could tighten rapidly and burden the public debt service. It is of paramount importance that the CAA strengthen its debt management capacity and monitor closely developments in the public debt. The authorities’ plan to reprofile the public debt with World Bank assistance is a positive step. Care should be taken to ensure the reprofiling operation is conducted on a voluntary basis and is market-based.

36. Growth needs to be more inclusive with determined efforts to reduce poverty. Staff welcomes the authorities’ commitment to prioritizing public rural investment and focusing on policies to increase agricultural value added. Staff commends the authorities for increasing spending in the priority social sectors and for taking the necessary steps to ensure that the ARCH becomes operational this year. The authorities are encouraged to continue to devote more resources to priority social sectors as domestic resource mobilization improves.

37. Further progress in improving the business environment is needed. Staff commends the authorities for the recent improvements, which are reflected in third-party indicators. However, more needs to be done to address remaining weaknesses in the business environment and improve public perception of corruption by decisively combatting impunity in the public sector and reducing bureaucratic inefficiencies. Sustained progress in these areas will enable Benin to leverage its participation in the CWA and attract private sector financing for the GAP.

38. Promoting financial inclusion will support broad-based inclusive growth. Staff welcomes the transition move to Basel II/III standards as it would help address vulnerabilities in the financial sector. Staff also welcomes the focus on strengthening MFIs to promote financial inclusion. That said, measures to remove key barriers to efficient financial intermediation and consolidate information on MFIs are needed. As to the ailing bank, staff urges the authorities to resolve it based on a credible plan that avoids bailing out equity holders and minimizes cost to the Treasury.

39. Staff supports the authorities’ request for completion of the second review under the ECF arrangement, modification of a PC, and addition of two SBs. Performance under the program is satisfactory and the macroeconomic policies and structural reforms outlined in the MEFP are adequate to pursue the program’s objectives. Risks to program implementation are manageable.

Annex I. Risk Assessment Matrix1

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Annex II. Increasing Fiscal Space to Preserve Debt Sustainability

Under the Extended Credit Facility (ECF) arrangement (2017–20), the authorities committed to create more fiscal space to finance the ambitious Government’s Action Program (GAP), 2016–21 while preserving debt sustainability. This note draws on the recommendations of several TA missions to explore avenues to sustain the improvement in domestic revenue mobilization and enhance the efficiency of public spending.

Sustaining the Domestic Revenue Mobilization Effort

A. Closing the Gap with Benchmark Countries

1. Revenue mobilization improved under the ECF arrangement. Government revenue reached its lowest level in a decade in Benin, falling to 14.7 percent of GDP, in 2016. Against this background, domestic resource mobilization was made one of the key objectives under the ECF arrangement approved by the Executive Board in April 2017. The measures being implemented under the ECF arrangement are already bearing their fruits with the revenue-to-GDP ratio estimated to have reached 17.6 percent of GDP in 2017.

2. Despite this improvement, Benin still lags key comparators. Benin underperforms with respect to many WAEMU countries (Figure 1). Factors contributing to Benin’s underperformance include:

  • Heavy reliance on taxes on international trade. Taxes on international trade account for around half of the total tax revenue in Benin.

    This is at odd with respect to the trend seen elsewhere in sub-Saharan Africa (SSA) where taxes on international trade account for 17.3 percent of total taxes on average (excl. Benin). Given the decrease in taxes on international trade due to various waves of trade liberalization, low-income countries are switching to non-trade based taxes.

  • Non-trade tax mobilization is very low. Despite having a tax on international trade (in percent of GDP) that is twice the SSA average, Benin’s total tax-to-GDP ratio is much lower than the SSA average (17.8 percent of GDP in 2015, excl. Benin), partly explained by the poor performance of Benin’s non-trade revenue. Indeed, the analysis of the revenue mix in Benin (Figure 2) shows that direct taxes—personal and corporate income taxes—contribute little to government revenue while the contributions of taxes on good and services (mostly VAT) remained almost unchanged during the last decade.

Figure 1.
Figure 1.

Benin and Comparators: General Government Tax Revenue, 2005–2016

(percent of GDP)

Citation: IMF Staff Country Reports 2018, 217; 10.5089/9781484367285.002.A001

Sources: WAEMU authorities and IMF staff calculations.
Figure 2.
Figure 2.

Benin: General Government Revenue Mix, 2005–2016

(percent of GDP)

Citation: IMF Staff Country Reports 2018, 217; 10.5089/9781484367285.002.A001

B. Improving Non-Trade Tax Revenue

3. Pursuing reforms of tax administration. The authorities are implementing various reforms to modernize the tax administration to ensure a sustainable improvement in revenue collection. Notable progress has already been made in the implementation of the Strategic Orientation Plan of the Tax Administration (Plan d’orientation stratégique de l’administration—POSAF).1 The forthcoming adoption of a plan to strengthen tax compliance should also help the tax administration to mobilize more revenue.

4. Rationalizing and reducing tax exemptions. Some tax exemptions are desirable either for administrative reasons or equity reasons. The latter relates mainly to education, medical or social welfare services, and for basic goods consumed primarily by the poor. However, many tax exemptions are not justifiable and are costly.

  • Tax expenditures doubled in three years. In 2013, tax expenditures were estimated by authorities at CFAF 75.2 billion and by 2016, they reached CFAF 153.3 billion, or 23.9 percent of total tax revenues and 3 percent of GDP.2

  • There is ample room to reduce tax expenditures. GSM mobile phone companies benefited from tax exemptions starting in 2007 for a period of 3 years renewed twice and then extended for 5 years in 2013. Non-renewal of these exemptions when they expire in 2018 is expected to generate additional revenues. Total tax expenditures are estimated at CFAF 17.5 billion in 2016, indicating the potential to mobilize more revenue.

  • Develop a tax reference system to better estimate and reduce tax expenditures. Benin does not have yet a fiscal reference system. This implies that the estimate of tax expenditures remains approximate, making it difficult to develop a strategy to reduce them. The establishment of a fiscal reference system in 2018 should be the occasion for authorities to establish an action plan aimed at eliminating ineffective and/or inefficient tax expenditures. To enforce discipline in the issuance of tax exemptions, the authorities should also consider beginning to publish on the internet the names of beneficiaries (whether individual or corporation) of nonconventional beneficiaries of tax expenditures.

5. Increasing the productivity and the efficiency of the collection of non-trade taxes. For a given tax base and a given standard rate in the WAEMU, Benin collect less value added taxes and less corporate income taxes than many WAEMU countries (Annex II ¶ Table 1). This points out to inefficiencies in the collection of taxes. These inefficiencies could be due to tax erosion related to tax policies (for example the tax exemptions discussed above) or an imperfect enforcement (low tax compliance discussed). The adoption and enforcement of the plan to strengthen tax compliance in addition to the rationalization and reduction of tax exemptions could help Benin to improve the efficiency of the collection of its taxes.

Table 1.

Benin and Comparators: CIT Productivity and VAT C-Efficiency

(Latest Available Year of Actual Data)

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Sources: WAEMU authorities and IMF Staff calculations. Note: C-efficiency is defined as: (VAT revenue)/[(private consumption * (standard VAT rate)] and VAT productivity is defined as the share of GDP collected for each percentage point of the standard VAT rate: (VAT revenue)/[GDP * (standard VAT rate)]

Making Public Investment more Efficient in Benin

6. The Government’s Action Program (GAP) envisions a large scaling up of public investment, despite well documented relatively low efficiency of public investment. Against this background, the government benefited from IMF3 technical assistance that assessed Benin’s public investment management and made recommendations to address the weaknesses identified by the mission.

7. Benin devotes a significant share of its GDP to public investment but the quality of infrastructure is perceived as low. Between 1990 and 2015, average public investment was 6.5 percent of GDP slightly above the average of 6.1 percent of GDP (Figure 3) recorded in the West African Economic and Monetary Union (WAEMU). In addition, the share of investment expenditure in total budget expenditure is relatively high, averaging 31% over the same period. However, the perceived quality of infrastructure is below that of comparable countries and the situation has deteriorated sharply since 2012 (Figure 4), contrary to the WAEMU average.

Figure 3.
Figure 3.

Benin: Public Investment

Citation: IMF Staff Country Reports 2018, 217; 10.5089/9781484367285.002.A001

Sources: World Economic Outlook and IMF staff calculations.
Figure 4.
Figure 4.

Benin: Perception of the Quality of Public Investment

Citation: IMF Staff Country Reports 2018, 217; 10.5089/9781484367285.002.A001

8. The capital stock deteriorated steadily despite a high investment volume. Fixed capital stock dropped continuously from over 250 percent of GDP in 2000 to just 122 percent of GDP in 2015 (Figure 5). Since the stock of public capital reflects the availability of infrastructure in a country, the sharp erosion of the capital stock during this period indicates that either investments in new infrastructure were not made or the existing infrastructure was not well maintained. As a result, the coverage ratio of public debt by fixed capital has deteriorated.

Figure 5.
Figure 5.

Benin: Stock of Public Capital and Public Debt

Citation: IMF Staff Country Reports 2018, 217; 10.5089/9781484367285.002.A001

Sources: World Economic Outlook and IMF staff calculations.

9. The methodology developed by the IMF confirms that public investment efficiency is relatively weak in Benin. With a score of 0.5, Benin appears relatively inefficient in terms of public investment compared to comparable countries (Figure 6). Indeed, WAEMU, sub-Saharan Africa and low-income developing countries all have higher scores of 0.65; 0.64 and 0.61, respectively.

Figure 6.
Figure 6.

Benin: Indicator of Efficiency of Public Investment

Citation: IMF Staff Country Reports 2018, 217; 10.5089/9781484367285.002.A001

10. The PIMA found important weaknesses in several phases of the investment management chain. The selection of projects as well as the ex-ante and ex-post evaluation are not systematic and procedures applied to select projects deserve to be reorganized in depth. This situation hinders project execution and the overall quality of public investment, which, as a result, encounter significant difficulties in the execution phase. The various phases of implementation analyzed by the PIMA obtain low scores, particularly for the protection of investments, the availability of funding, and project management, and project appraisal (Figure 7). This situation should be compared with the low rate of execution of investment expenditure, which has been observed for several years. Weaknesses in terms of capacity and information systems as well as consideration of maintenance and maintenance costs complete this diagnosis.

Figure 7.
Figure 7.

Benin: Summary Assesment of the Efficiency of Public Investment

Citation: IMF Staff Country Reports 2018, 217; 10.5089/9781484367285.002.A001

Sources: January 2018 PIMA Report.

11. The PIMA mission proposed many measures to improve the efficiency of public investments. Four critical actions that can help structure an ambitious action plan for conducting the necessary reforms of the investment management framework in Benin are identified (Figure 8). They include: (i) improving the institutional framework, which includes capacity building; and the information system; (ii) the availability and sustainability of funding, which targets among other things the steering of Public-Private Partnerships (MEFP ¶26) and the development of the Treasury Single Account (TSA); (iii) upgrading of the preparation and implementation of investment projects; and finally (iv) considering the sustainability of investments. Specific action proposals detail these objectives (see the report for more details) and identify: (i) the implementation period; (ii) the responsible services and; (iii) the need for technical assistance.

Figure 8.
Figure 8.

Benin: Action Plan to Improve the Efficiency of Public Investment

Citation: IMF Staff Country Reports 2018, 217; 10.5089/9781484367285.002.A001

Source: January2018 PIMA Report.

Annex III. G20 Compact with Africa–Policy Matrix

Report to G20 Compact with Africa – Policy Matrix BENIN

Goal: Improve framework conditions for private investment (domestic and foreign)

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Report to G20 Compact with Africa – Policy Matrix BENIN

Goal: Improve framework conditions for private investment (domestic and foreign)

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Annex IV. 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 December 2017 DSA update 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 September 2017 DSA. Real GDP is expected to grow, on average, by 6.4 percent over the horizon 2018–20, supported by a good performance of the agricultural sector, the ongoing recovery of the Nigerian economy, the scale up in public investment, and an uptake in private investment in response to expected improvement in infrastructure. Growth is expected to stabilize at 6.6 percent in 2021–2022.

  • 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 an average of 2.2 percent in 2018–22, below the WAEMU convergence threshold of 3 percent.

  • Fiscal impact. Total government revenue is projected to increase from 14.7 percent of GDP in 2016 to 17.7 percent of GDP in 2020 as the expected reforms in tax policy and administration mature. The primary deficit remains below the levels initially programmed and turns into a surplus in 2021. The programmed fiscal consolidation path is expected to bring down the budget deficit (including grants) to below the WAEMU convergence criterion of 3 percent of GDP by 2019 and shift it to a surplus in 2022.

  • Current account impact. As assumed in the December 2017 DSA, the current account deficit (including grants) is projected to peak in 2017, and would decline to 10.8 percent of GDP in 2018 and average 9.4 percent of GDP for 2019–22 as investment and import growth.

  • Financing. Central government investment is expected to lower from 9.2 percent in 2017 to 8.6 percent in 2018 and average 5.8 percent over the period 2019–22. Such investment 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 13 percent of GDP in 2018 to 14 percent of GDP on average for 2019–23, surging to 17.3 percent of GDP in 2038. 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 temporarily, with a small margin (less than 10 percent) 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, PV of debt-to-exports, 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.

Figure A1.
Figure A1.

Benin: Indicators of Public and Publicly Guaranteed External Debt under the Program, 2018–38 1/

Citation: IMF Staff Country Reports 2018, 217; 10.5089/9781484367285.002.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 2028. 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 One-time depreciation shock
Figure A2.
Figure A2.

Benin: Indicators of Public Debt Under Alternative Scenarios, 2018–38 1/

Citation: IMF Staff Country Reports 2018, 217; 10.5089/9781484367285.002.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 2028.2/Revenues are defined inclusive of grants.

C. Public Debt Sustainability Analysis

3. Total public (external and domestic1) debt is projected to peak in 2018 and decline thereafter (Tables, A3 and Figure A2). This is predicated on the strict adherence to the fiscal consolidation path underlying the ECF-supported program. The government’s increased reliance on the regional financial market to finance public investment projects has increased the present value (PV) of public debt in 2016. However, liquidity pressures in the regional debt market in 2017 resulted in undersubscription of some of Benin’s debt issuances, helping to bring the ratio of the PV of total public debt to GDP to 45.4 percent in 2017. Domestic public debt increased from about 8.6 percent of GDP to 32.3 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 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 remains well below the 56 percent threshold. In the historical scenario, the ratio of the PV of debt-to-GDP shows a breach to the threshold. Overall, the dynamics in total public debt are consistent with a moderate risk of debt distress.

Table A1.

Benin: External Debt Sustainability Framework, Baseline Scenario, 2015–38 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 – p(1+g)]/(1+g+p+gp) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, and p = 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, 2018–38

(In percent)

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Table A3.

Benin: Public Sector Debt Sustainability Framework, Baseline Scenario, 2015–38

(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 2018–38

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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.

Annex V. Capacity Development Strategy for FY 2018

Overall Assessment of Capacity Development

Implementation of macroeconomic policies in Benin has generally been satisfactory. The authorities showed ownership of the program and underlying reform agenda. Nevertheless, progress is lagging in implementing governance, transparency, and accountability reforms due largely to lack of political support in parliament. Coordination issues and limited resources allocation weigh on the overall impact of capacity development (CD) activities. The CD program in Benin and the associated TA delivery are intrinsically interweaved with the ECF arrangements’ priorities.

As a fragile 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.

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:

  • Creation of a Single Treasury Account;

  • Increased capacity to formulate economic and financial policies under the ECF-supported program, including macroeconomic forecasts (2015–17);

  • Enhanced production of budget execution data and reports (2015–17); and

  • Better performance of the tax and customs administrations, resulting in stronger revenue mobilization outcomes.

Nonetheless, there is room to improve the impact of the CD activities with more efforts needed to increase the efficiency of public expenditures and strengthen further public debt management. 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

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), needs to be improved to ensure efficiency and transparency in investment project selection, and monitoring.

  • An SOEs unit was created in 2017, but oversight is weak and still need to be strengthened and consolidated.

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

  • To promote financial stability, the authorities should continue strengthening the risk-based supervision of banks and micro finance institutions and reinforce the crisis resolution framework.

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 2018, 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

The authorities approve the orientation of the capacity building strategy. They consider that the strategy and objectives are formulated in an appropriate manner for the country and are consistent with the strategic orientations of the GAP, 2016–21, presented by the authorities in December 2016. Given the current absorptive capacity of technical assistance, the authorities have recommended that volumes and medium-term priorities be adjusted appropriately to achieve effective delivery.

Appendix I. Letter of Intent

REPUBLIC OF BENIN

Fraternity-Justice-Labor

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

MINISTRY OF ECONOMY AND FINANCE

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

The Minister

To:

Ms. Christine LAGARDE

Managing Director

International Monetary Fund

Washington, DC 20431, USA

Cotonou, June 15, 2018

Dear Ms. Lagarde:

Benin has experienced satisfactory economic growth in recent years, owing to the stability of the domestic environment. The data for end-December 2017 support the 5.6 percent growth forecast for 2017. Agricultural production remained strong, albeit below the initial projections, thanks to the robust performance of the cotton sector. Public Works and Civil Engineering (BTPs) made considerable progress in 2017 as a corollary of the growth of public investment. Signs of recovery in Nigeria also had a positive spillover effect on Benin’s foreign trade in 2017. The average annual rate of inflation in 2017 was 0.1 percent, with an initially negative value during the first half of the year, which then accelerated at the end of the period, driven by the appreciation of the naira.

The implementation of the Government’s Action Program (GAP), together with the launch of major structural reforms included in the implementation of the economic and financial program (2016–19) concluded with the International Monetary Fund (IMF), made it possible to sustain the pace of economic growth. Improvement in the international environment, particularly in Nigeria, also contributed to the recovery of economic activity, which occurred in a context of low inflation, control of the fiscal deficit, and a favorable trend of the current account balance.

The fiscal deficit (including grants) was contained at 5.9 percent of GDP in 2017, well below the programmed level (7.9 percent of GDP), due mainly to the mobilization of more resources than initially programmed. This deficit is expected to shrink further in 2018 to 4.7 percent of GDP. The current account deficit (including grants) is expected to peak at 11.1 percent of GDP in 2017, reflecting the increase in investment-related imports.

The supplementary Memorandum of Economic and Financial Policies (MEFP) attached to this letter describes the progress made in implementing the economic and financial program supported by the Extended Credit Facility (ECF) and sets out the additional measures we are taking to underpin the objectives of the 2018 program. In this regard, we are proposing two new structural benchmarks related to public investment management. The results of the economic and financial program are satisfactory. All the end-2017 quantitative performance criteria, as well as all the continuous performance criteria, were met. Likewise, all the structural benchmarks for end-December 2017 were met by that time.

The government is convinced that the measures and policies outlined in the attached MEFP are adequate to achieve the objectives of the ECF-supported program. It will undertake all additional measures that may be necessary to this end and will consult the IMF on the adoption of such measures prior to any revision of the policies outlined in the attached MEFP, in accordance with the Fund’s policies concerning such consultations. The government will provide IMF staff with any information that may be needed to monitor implementation of the program and achievement of the program objectives, as set out in the attached Technical Memorandum of Understanding (TMU). The government authorizes the IMF to publish this letter and its attachments on its external website, as well as the IMF staff report, following approval by the IMF Executive Board of the second review under the ECF arrangement. We would like to request the conclusion of the second review under the ECF arrangement, a modification of a performance criterion, and the disbursement of SDR 15.917 million.

Sincerely yours,

/s/

Mr. Romuald Wadagni

Minister of Economy and Finance

Attachments (2):

1. Memorandum of Economic and Financial Policies

2. Technical Memorandum of Understanding

Attachment I. Memorandum of Economic and Financial Policies for 2018–19

1. This report is an update of the Memorandum of Economic and Financial Policies (MEFP) of November 2017 attached to the Staff Report for the first review of the ECF-supported program and the Article IV consultation. The document describes recent economic development and sets out the policies that the government intends to implement in the 2018–19 period. The latter are expected to enable the authorities to capitalize on the country’s good economic performance and the fiscal consolidation efforts of the new government since it took office in April 2016. The MEFP will also outline the structural objectives and benchmarks for 2018, after describing those for 2017.

Recent Economic Developments

2. Benin has experienced satisfactory economic growth in recent years, owing to the stability of the domestic environment. The data for end-December 2017 support the 5.6 percent growth forecast for 2017. Agricultural production remained strong, albeit below the initial projections, thanks to the robust performance of the cotton sector.1 In contrast, food production increased less than expected. As a result, the primary sector grew 3.7 percent in 2017 instead of the forecast 5.6 percent. The secondary sector grew significantly in 2017, thanks in large part to the BTP sector, which posted an added-value growth rate in the range of 18 percent. Similarly, manufacturing benefited from the effects of the end of the crisis in Nigeria and the solid performance of the ginning industries. Nigeria’s recovery also had a positive impact on Benin’s foreign trade in 2017. Compared to 2016, exports increased by 57.9 percent in value terms in the third quarter of 2017. Imports grew 18.6 percent in value terms during the same period. The average rate of inflation was 0.1 percent in 2017, owing to an end-period acceleration caused by the rise in food prices and expenditures related to the use of vehicles brought about by the appreciation of the naira.

3. In response to the sharp increase in public expenditure in the 2014–15 period, the new government made significant adjustments to reduce the fiscal deficit. The sizable increase in public expenditure between 2014 and 2015, chiefly attributable to the holding of presidential elections in March 2016, led the new government to submit a revised budget to the National Assembly (NA) in July 2016. The revised budget included major reductions in recurrent expenditure and made it possible to substantially lower the overall fiscal deficit (including grants) to 6.0 percent of GDP, compared to 8.0 percent in 2015. In 2017, the improvement in domestic resource mobilization, together with the containment of current expenditure, led to an overall fiscal deficit (including grants) of 5.9 percent of GDP, well below the program projection (7.9 percent). The mobilized resources amounted to CFAF 944.4 billion at end-December 2917, up from the initial program target of CFAF 843.9 billion. This strong revenue performance is explained by the very good performance of nontax revenue, which made up for the shortfall in customs revenue (approximately CFAF 20 billion), while tax revenue nearly reached the set target (CFAF 396.8 billion, compared to a target of CFAF 402.5 billion). Nontax revenue totaled CFAF 231.6 billion, as opposed to an initial target of CFAF 104.6 billion. The end-December 2017 indicative target for priority social expenditure (CFAF 160 billion on a payment order basis) was met (CFAF 168.3 billion on a payment order basis), representing an achievement rate of 105 percent.

4. The debt sustainability analysis for Benin, carried out in September 2017, indicated a moderate risk of debt distress. However, because of delays in the disbursements of foreign commitments, the government’s increased reliance on the domestic and regional financial market offering less concessional terms to finance public investment projects under the Government’s Action Program (GAP) increased the present value of the debt, which rose from 42.7 percent of GDP in 2016 to 45.4 percent in 2017. Moreover, the short maturity of issues on the regional market increases the risk of domestic debt refinancing in the short term, necessitating the active management and rescheduling of such debt. The average coverage rate of the initial issues of government securities in 2018 is approximately 64 percent, which raises the question of the refinancing of domestic debt maturing that year.

5. The country’s external position deteriorated in 2017. Despite a sharp increase in exports as a result of the strong performance of the cotton sector, the current account deficit (including grants) widened from 9.4 percent of GDP in 2016 to 11.1 percent in 2017, essentially because of a significant rise in imports brought about by the increase in investments related to the start of implementation of the GAP projects. The external position is expected to strengthen gradually in 2018 and to a greater extent in 2019, driven by the sustained growth of exports and a decline in imports caused by the slowing of public investment. This improvement in Benin’s external position is expected to contribute to the growth of the WAEMU’s international reserves.

6. The high level of nonperforming loans persists, although a slight improvement was noted in 2017. The ratio of nonperforming loans to total loans fell from 21.4 percent in 2016 to 19.5 percent in 2017. At the same time, the banking system’s capital ratio strengthened, going from 9.4 percent at end-December 2016 to 12.4 percent at end-December 2017 thanks to the ambitious reforms undertaken by the regional central bank (BCEAO) to modernize the financial sector in accordance with the Basel II/III principles. These reforms include a gradual increase in the minimum capital requirement, as well as the entry into force of a new prudential arrangement and a new chart of accounts on January 1, 2018. The liquidity ratio (total loans/total deposits) stood at 73.4 percent. The heavy concentration of the bank loan portfolio (loans to the 5 largest borrowers/net worth) remains a source of concern. Moreover, Benin’s banking sector now includes a new bank named Sonibank, Benin Branch. This brings the total number of banks to 15.

7. As in the case of banks, the level of nonperforming loans in the microfinance sector remains high, in a context of rapidly growing loans and deposits. Progress was made in closing unauthorized microfinance institutions (MFIs). A new regional supervision plan is also being adopted and the regional financial inclusion strategy is being implemented. Steps were also taken to rehabilitate the microfinance sector, particularly by improving the quality of financial and accounting information through the implementation in 2016 of the centralized I.T. solution for monitoring of decentralized financial systems (SICS-SFD).

Implementation of the 2017 Program

8. Program implementation is satisfactory overall. The available data and information show that all the quantitative performance criteria (QPC) at end-December 2017, as well as all the continuous performance criteria (CPC) were met. The same is true of all the structural benchmarks. The status of the QPCs at end-December 2017 is as follows:

  • Net domestic financing (NDF) of the government, defined as the sum of net bank credit to the government and net nonbank financing of the government, amounted to CFAF 185.9 billion under an adjusted ceiling of CFAF 187.0 billion.

  • The basic primary fiscal balance, defined as the difference between total fiscal revenue and basic primary fiscal expenditures amounted to CFAF 82.4 billion under a ceiling of CFAF 142.6 billion.

  • Total government revenue, which includes tax and nontax revenue – but excludes foreign grants, the revenue of autonomous entities, and privatization proceeds – amounted to CFAF 944.4 billion compared to a floor of CFAF 907.5 billion.

9. Strict monitoring of the implementation of reforms led to the expeditious implementation of all prior actions (for the ECF approval and completion of the first ECF review) and structural benchmarks in keeping with the timetable indicated in the three-year ECF arrangement. These measures pertain to: (i) the effectiveness of the revenue agencies; (ii) improvement of the management of public finances and debt; (iii) the strengthening of governance and transparency; and (iv) the promotion of financial stability and inclusion.

10. Concerning the revenue agencies, the implementation of reforms aimed at modernizing the tax administration to ensure lasting improvement in revenue collection continues. More specifically, considerable progress has been made in implementing the strategic directions plan for the tax administration (POSAF),2 and we have also adopted a plan to improve tax compliance in fulfillment of the agreement with the IMF. With regard to customs, we have: (i) put in place a goods tracking system to improve electronic cargo monitoring; (ii) increased the volume of scanned goods by instituting scanning at the Port of Cotonou in November 2017 in order to expand the tax base; and (iii) implemented transaction value.

11. We also strengthened cooperation between the two administrations. Several I.T. developments were launched to facilitate information exchanges between customs and taxes. They include: the establishment of a shared platform for tax-customs data exchanges; (ii) the development of several integrated interfaces in the shared platform. The key capabilities integrated into the platform are: (i) keeping the comprehensive taxpayer directory up to date vis-à-vis the tax administration; (ii) automatic integration of the new Single Taxpayer Identification (IFU) numbers generated by SIGTAX; (iii) recognition by ASYCUDA of the activation/deactivation of taxpayers; (iv) automatic integration into ASYCUDA of all paid customs declarations and (v) experimentation with the launch of a system of electronic VAT invoicing machines.

12. Reforms have been undertaken to ensure that public expenditure is strictly monitored. They mainly concern: (i) census-payment operations focused on active and retired government employees, carried out with the aid of biometrics; (ii) direct deposit of university scholarships and aid; (iii) systematic direct deposit of the periodic benefits of active employees and of pensions of CFAF 50,000 or more; (iv) a new policy on the provision of public services, which emphasizes the construction and completion of administrative buildings to significantly reduce rents and internal and external building occupancy expenses; and (v) establishment of the Official Travel Unit (CVO) for improved foreign travel planning and better tracking and rationalization of the related travel funds.

13. Significant efforts were made to improve the availability of the data on public debt. The CAA website is now online; a statistical bulletin on public debt is published quarterly; an annual report on public debt management was prepared; and a medium-term strategy document was appended to the 2017 Budget Law. The next steps will include improvement of the medium-term debt strategy document through the incorporation of a public debt ceiling, as recommended by the LOLF (budget framework law). The aim of public debt monitoring is to cover all guarantees granted by the government as well as the debt of public enterprises. Accordingly, a thorough inventory of the data on the debt of public enterprises as well as their contingent liabilities was carried out. The next steps will be to implement the adopted monitoring system and to include public enterprise debt guaranteed by the government in the medium-term debt strategy.

14. Significant measures were taken to improve governance and combat impunity. In December 2017, a committee for reform of the government’s administrative control bodies was appointed, which proposed measures aimed at improving the institutional and regulatory framework of the government’s internal audit bodies. This committee also proposed an arrangement giving the managers of sectoral ministries primary responsibillity for the analysis of operational risks and the proposal of corrective measures. Overall, the government is working to strengthen the internal control systems in all sectors with a view to improving operational effectiveness and minimizing the possibility of fraud or the misuse of public funds. The aim of the reform is to specialize the audit bodies, professionalize auditors, and sustainably address the shortage of human and material resources that affects auditor performance. The proposed measures will be adopted by the government by end-June 2018 and will be implemented in the latter half of 2018. They will enable improvement of the quality of reporting at the general government, public enterprise, and government agency levels, including through the publication each year of a report on the follow-up of the various audit missions.

15. Major justice reforms were undertaken. Commercial courts were created and then inaugurated in 2017 following (i) the identification of buildings to house the Commercial Court of Cotonou and the Court of Commercial Appeals of Porto Novo, (ii) the appointment of professional and consular judges, and (iii) the official installation of the courts in these two jurisdictions.

16. Anti-corruption efforts are being strengthened with the National Anti-Corruption Authority (ANLC) plans to further implement the asset declaration regime laid out in the 2011 Anticorruption Law. In particular, the ANLC is aiming, among others, at (i) ensuring that there are penalties if the assets of individuals covered by the Law are not declared; and (ii) permitting the online declaration of assets. It should also be noted that Benin ratified the United Nations Convention against Corruption on July 11, 2005, followed by the African Union Convention Against Corruption and the ECOWAS anti-corruption protocol. We are also in the process of implementing an action plan for the implementation of the recommendations made following the 2016 assessment of the National Integrity System carried out by Transparency International with the support of the European Union. In addition, implementation of the legal and regulatory framework for combating money laundering and the financing of terrorism is being vigorously pursued.

17. Together with the BCEAO, the government has a key role to play in ensuring the stability and soundness of the financial system. To that end, we are pursuing a number of structural reforms. The law on Credit Information Bureaus (CIB) was adopted by the National Assembly and promulgated on January 23, 2017 by the President of the Republic. The adoption of this law formalizes the establishment by Benin of the necessary legal framework for the launch of CIB activities. In addition, the ministerial decree authorizing the opening of a branch office of “CREDITINFO-VOLO” in Benin was signed on February 1, 2018. Regarding the policy framework for bank resolution, the Annex to the agreement governing the WAMU Banking Commission (BC) was amended by Decision No. 10 of 29/09/2017/CM/UMOA of the WAMU Council of Ministers. As a result, the BC is now responsible for the resolution of credit institutions. The general framework for the resolution of institutions has been defined and the BC has a Resolution College. The government’s objective going forward is to finalize the establishment of a credit bureau and a regulatory framework for timely bank resolution. We are taking steps to facilitate the use of collateral to obtain bank loans. We will also work to advance the electronic recording of land titles by extending the process to the entire country. The initiative included in the 2016 Supplementary Budget Law to eliminate recording fees was successful, and the number of land titles recorded has grown. We believe that the microfinance sector is key to promoting small enterprises’ access to the financial system. To preserve its viability and credibility, we will adopt a new regulatory framework for MFIs aimed at strengthening their supervision.

Program for 2018

18. The program objective is to lay the foundation for accelerated and inclusive growth in a context of inflation control. In addition, the acceleration of the pace of reforms is expected to make it possible to (i) mobilize more resources, (ii) enhance the efficiency of public expenditure, particularly investments, (iii) increase the share of resources allocated to social programs, and (iii) improve the business environment. The macroeconomic framework envisages the acceleration of real GDP growth in 2018 to a projected 6 percent, supported essentially by the strong performance of the agricultural sector and, more particularly, by the cotton sector, increased private investment, and the positive effects of Nigeria’s economic recovery. Following the jump in food and oil prices in the last quarter of 2017, inflation is projected at 2.3 percent on average in 2018. The external current account deficit is expected to narrow, thanks to the sustained growth of exports. As a result, the external current account deficit (including grants) is projected to shrink to 0.3 of a percentage point in 2018. This improvement in the external position should enable Benin to contribute to the rebuilding of the WAEMU’s international reserves.

Macro-fiscal Framework for 2018

19. In December 2017, the NA passed the 2018 Budget Law in accordance with the draft submitted by the government. The fiscal deficit, including grants, is expected to narrow from 5.9 percent of GDP in 2017 to 4.7 percent in 2018. Government revenue is expected to stabilize at 17.6 percent of GDP, while total expenditure would be contained at 23.7 percent of GDP, down from 24.5 percent in 2017.

Fiscal Policy

20. For 2018, the program envisages the mobilization of CFAF 1,021.6 billion in government revenue, or 17.6 percent of GDP. Revenue performance during the first quarter of the year is encouraging. Nevertheless, the government intends to vigorously pursue reforms aimed at modernizing the tax and customs administrations, as well as the fiscal policies set out in the Budget Law, to ensure the attainment of that target. The key measures pertaining to imports are: (i) the adoption of a standard declaration form; (ii) the monitoring of the declarations required for all taxes; (iii) the launch of a campaign to control VAT credits; (iv) the mandatory use of the I.T. tool; and (v) the appointment and training of personnel as investigators to combat fraud. With regard to customs, we will: (i) promote synergies between customs, Webb Fontaine, and Benin Controls SA; (ii) step up transit oversight and IFU control; and (iii) facilitate trade by improving customs clearance times and service standards, and by increasing the availability of information.

21. The 2018 Budget Law provides for the adoption of a number of measures such as: (i) the 50 percent increase in the departure fee included in the price of business class tickets; (ii) the 10–20 percent increase in the rate of withholding at source on monthly rentals of CFAF 50,000 or more by tenants other than individuals; (iii) the creation of the taxe professionnelle synthetique (TPS) for all firms with a turnover less than CFAF 50 million; and (iv) the elimination of certain VAT exemptions. These measures, together with the pursuit of tax and customs administration reforms, are expected to increase tax revenue by 1.3 percent of GDP compared to 2017 (excluding exceptional non-tax revenue). We are aware of the rapid rise in tax expenditure over the last three years and have decided not to renew the tax exemptions of GSM telecommunications enterprises, which will expire in June 2018. In 2018, we will prepare a strategy aimed at further reducing tax expenditure following the establishment of a reference tax system with technical assistance from the IMF. This new strategy will also consider the revision of certain tax treaties concluded with a number of countries and international organizations.

Public Expenditure Efficiency

22. We realize that boosting the investment efficiency is essential for achieving strong, sustained economic growth while at the same time ensuring the sustainability of public debt. To be sure, growth has returned to Benin, but because public investment is financed by government borrowing, public debt is also growing. Consequently, one of the top priorities of Benin, an economy in which public investment efficiency is relatively weak, is to improve the quality of public investment. To that end, we undertook a public investment management assessment (PIMA) in October 2017, with IMF technical assistance. We agreed with the diagnoses and findings of the report of that mission and have already begun implementing the recommendations contained in the report. The implementation plan developed by staff involved in the investment process is based on the following four actions: (i) strengthen the institutional framework: (ii) ensure the availability and sustainability of financing; (iii) better prepare and better implement projects; and (iv) ensure sustainable investments. We are awaiting the World Bank’s response to our request for a public expenditure review.

Public Debt Management

23. Owing to the drying up of financing on the regional market and in view of the risk associated with the short-term refinancing of domestic debt, we initiated a program to optimize the portfolio of short-term debt through a reprofiling operation. This arrangement will consist of repurchasing some short-term loans contracted with local creditors at high costs with the proceeds of more long-term loans contracted with international commercial creditors at a lower interest rates. Without affecting the existing debt stock, the objectives of this operation include: (i) extending the maturity of the portfolio and obtaining external liquidity to alleviate pressure on the local market; (ii) reducing overall debt service thanks to the lower interest rate negotiated for new loans; and (iii) improving debt monitoring. We are receiving World Bank assistance for this operation. Moreover, given the unpredictability of the disbursement of foreign borrowings,3 we have adopted measures to promote the implementation of various projects. Among these measures are: (i) better incorporation of data on the implementation of these projects in SIGFIP, and (ii) systematic reviews every three (3) months of projects financed by development partners.

Public Enterprise Reforms

24. As agreed with the IMF under the program, we collected and analyzed data on public enterprise debt to improve the monitoring and governance of contingent liabilities. The results show that the debt of state-owned companies to commercial banks amounted to CFAF 50.9 billion (1 percent of GDP) in 2017. Public enterprises continue to weigh on the government budget. During the last four years, they contributed – taxes, fees, and dividends – 0.3 percent of GDP to the national budget and in return received 1.5 percent of GDP in grants and subsidies. A number of factors explain the reliance of these enterprises on public resources: ad hoc cross-debt offsetting settlements between the government and these enterprises, and the poor economic and financial performances of most of these enterprises. In addition, few enterprises submit their budgets and financial statements to the government as required by law.

25. The government also intends to strengthen the financial position of public enterprises and improve their management. In this connection, it has begun auditing key enterprises such as the Benin National Council of Shippers (CNCB), the National Maritime Navigation Company (COBENAM), the Post Office of Benin, and the Autonomous Port of Cotonou. These audits basically have two objectives, consisting on the one hand of conducting surveys to better orient reforms and, on the other, to put an end to the management failures that undermine the efficiency of enterprises. This effort also included the recruitment of firms and experts to map the risks of public enterprises. To improve financial reporting and ensure better monitoring, the government plans to expedite the appointment of auditors for the 189 public enterprises and government offices. We also plan to remind them, as forcefully as possible, of the legal obligation of submitting their budgets and financial statements to the Ministry of Economy and Finance within the period specified by law. To limit the impact of public enterprises on the budget, the government plans to define a dividend policy tailored to each enterprise to promote responsibility and accountability for the achievement of results while at the same time ensuring financial management consistent with their development. The government has decided to conclude performance contracts with the key public enterprises by end- 2018 (structural benchmark). This is already the case with the Autonomous Port of Cotonou and soon will be with Société Béninoise d’Energie Electrique (SBEE), thanks to support from the Millennium Challenge Account. We plan to apply this measure to all public enterprises by end-2019.

Monitoring Public-Private Partnerships

26. Following the establishment of the legal and regulatory framework for public-private partnerships (PPP) by Law (No 2016–24 of June 28, 2017), the government adopted implementing decrees that take account of the new institutional framework for investment promotion in Benin. The institutional framework will enter into force in 2018, thanks to World Bank TA. Analysis of the options for financing GAP projects is under way and is expected to lead to the compilation of a catalog of PPP projects. The GAP projects are being prioritized with a view to identifying those that will generate revenue. The idea is to select projects that fulfill that requirement and to which the government can grant usage rights and revenue from users.

Business Environment

27. To make Benin an especially attractive destination for investors, a new investment promotion mechanism was put in place in 2017, formalizing rationalization of the institutional and regulatory framework of investment promotion in Benin. The strategy included the creation of an inter-ministerial committee for investment promotion to improve government coordination on issues related to the business environment and to respond in like manner to the needs and expectations expressed by investors. In operational terms, the Agency for the Promotion of Investment and Exports (APIEX) was restructured to make it the sole means of access for investors and the showcase of investment and export promotion in Benin. The APIEX thus becomes: (i) the one-stop window for business creation; (ii) the technical body responsible for reviewing applications for approval under the Investment Code; (iii) the Executive Secretariat of the PPP Support Unit; (iv) the focal point for the implementation of Doing Business reforms; (v) the administrative authority for Special Economic Zones; and (vi) the export information and facilitation center.

28. The new mechanism includes a specific institutional framework for the implementation of Doing Business reforms as well as a matrix of annual actions. Two draft laws designed to facilitate private investment are being prepared, one amending the investment code and the other focused on the promotion and development of micro-, small, and medium-sized enterprises in Benin. The innovations introduced by the new Investment Code notably include:

  • Simplification of the approval mechanisms (three mechanisms with clear and precise incentives during the start-up and operating periods, two variant mechanisms to further encourage investors interested in the priority sectors of the national economy);

  • Professionalization of the processing of applications for approval and limitation of the technical decision period;

  • Improvement of the investment monitoring system;

  • Incorporation of international best practices for the preparation of investment codes and, in particular, the comments of UNCTAD on the existing code; and

  • Structuring of incentives in such a way as to make Benin more competitive than other countries in the sub-region and to ensure the consistency of its investment code provisions with the series of exemptions granted investors in special economic zones, as well as with the specific government assistance initiatives designed to promote national entrepreneurship.

29. The aim of the Law on Micro-, Small, and Medium-Sized Enterprises (MPME) is to formalize the transposition of the provisions of the WAEMU community charter for MPMEs, adopted in December 2015, into the national legislation. The key innovations in this case involve the following aspects:

  • the establishment of a system for the identification and categorization of MPMEs eligible for specific government assistance measures;

  • the creation by law of an agency responsible for implementing the national policy on the promotion of MPMEs;

  • measures to provide MPMEs with assistance and support, including market access facilities, protection against government payment delays, and the incentive to co-contract with large enterprises;

  • tax facilities and incentives (for the creation and maintenance of MPMEs, for MPMEs that process local raw materials, and – for business incubators – the compensation of prepayments of corporate income tax at the customs frontier);

  • measures to promote and finance MPMEs (technical assistance, facilities for access to land and developed sites, specific financing and guarantee mechanisms or institutions); and

  • measures to support troubled MPMEs.

Financial System

30. The African Bank for Industry and Commerce (BAIC) is dealing with operational difficulties that could lead to the closing of its doors and the revocation of its license by the WAEMU Banking Commission (BC). In view of this situation, the government decided to purchase the bank at its equity value, estimated at CFAF 10 billion. However, this rescue operation requires the support of the BC and, subject to its approval, the government will prepare a restructuring plan with a divestment strategy and a timetable that could be discussed during the third review.

31. To promote financial inclusion in Benin, the government intends, inter alia, to create permanent mechanisms for the mobilization of resources by DFSs (decentralized financial systems) and to step up the promotion and coordination of the microfinance sector. Consequently, strengthening the surveillance of DFSs and money laundering is considered a priority action.

32. In operational terms and with regard to supervision of the sector, in 2018 the National Decentralized Financial Systems Surveillance Agency (ANSSFD) will continue implementing the strategy document on microfinance sector rehabilitation, which is based on the following three pillars: (i) application of the law to all authorized DFSs; (ii) application of the law to all entities operating illegally; and (iii) continued strengthening of the stability and balanced operation of the decentralized finance sector with a view to its long-term sustainability. Thus, a national census of microfinance initiatives will be carried out to update the list of institutions operating on the fringes of regulation.

33. To promote the sector, the National Microfinance Fund (FNM) has prepared a new strategic plan for 2017–21, founded on the following three strategic pillars: (i) facilitating DFS access to appropriate financial resources; (ii) building operational capacity and promoting social and technological interventions; and (iii) strengthening the governance and sustainability of FNM actions. In addition, the government, through the Ministry responsible for social affairs and microfinance (MASM), has begun preparing for the FinScope survey, the first stage in the Making Access to Financial Service Possible (MAP) process, which culminates in the preparation of a national financial inclusion strategy in line with the regional financial inclusion strategy developed by the BCEAO. Finally, financial inclusion will be strengthened with the implementation in the coming months of the ARCH (assurance, human capital building) project.

Rebasing of the National Accounts

34. The government has undertaken to update the national accounts and implement the 2008 System of National Accounts (SNA 2008). This initiative will lead to significant improvements in: (i) the updating of a series of decades-old core national accounts data; and (ii) the inclusion in the GDP estimate of major activities that have not been monitored or insufficiently assessed. We expect to finalize the work with the approval of an AFRITAC West mission that was originally planned for end-2017 at the latest, but was unable to visit Cotonou until March 2018 because of scheduling problems. The delay was also due to the late approval of a number of completed studies.

Quantitative Performance Criteria and Structural Benchmarks

35. Quantitative performance criteria have been set for end-June and end-December 2018 and indicative targets for end-March and end-September 2018 (Table 1). The structural benchmarks for 2018, as well as their macroeconomic justifications, are described in Table 3. The third and fourth program reviews are expected to be completed on or after October 31, 2018 and April 30, 3019, respectively.

Table 1.

Benin: Status of Quantitative Performance Criteria and Indicative Targets, 2017–191

(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: Status of Structural Benchmarks for 2017

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Table 3.

Benin: Structural Benchmarks for 2018 and Macroeconomic Rationale

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Attachment II. Technical Memorandum of Understanding

1. This Technical Memorandum of Understanding (the “Memorandum”) defines the performance criteria, quantitative benchmarks, and structural benchmarks of the Republic of Benin’s program supported by the Extended Credit Facility (ECF). It also specifies 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 will be converted into the domestic currency of Benin (the CFA franc, or CFAF), based on 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 (Tableau des opérations financières de l’État, TOFE).

4. The definitions of “debt” and borrowing for the purposes of this Memorandum are set out in point 8 of IMF Executive Board Decision No. 6230-(79/140), as subsequently amended on December

5. 2014 by Executive Board Decision No. 15688-(14/107):

  • (a) Debt is understood to mean a current – as opposed to a contingent – liability, created under a contractual agreement for 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. Debt 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 seller 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 also 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) Except as provided for under 2(d) below, the present value of the loan will be calculated using a single discount rate set at 5 percent.

  • (c) “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;

  • (d) For debts carrying a variable interest rate in the form of a benchmark interest rate plus a fixed spread, the PV of the debt would be calculated using a program reference rate plus the fixed spread (in basis points) specified in the debt contract. The program reference rate for the six-month USD LIBOR is 2.63 percent and will remain fixed for the duration of the program. The spread of six-month Euro LIBOR over six-month USD LIBOR is -294 basis points. The spread of six-month JPY LIBOR over six-month USD LIBOR is -260 basis points. The spread of six-month GBP LIBOR over six-month USD LIBOR is -197 basis points. For interest rates on currencies other than Euro, JPY, and GDP, the spread over six-month USD LIBOR is -200 basis points.2 Where the variable rate is linked to a benchmark interest rate other than the six-month USD LIBOR, a spread reflecting the difference between the benchmark rate and the six-month USD LIBOR (rounded to the nearest 50 bps) will be added; and

  • (e) Domestic debt is defined as debt denominated in CFA francs, unless it is 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 shares 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 Special Drawing Rights (SDR) allocation.

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 local 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, customs duty bills, and all deposits with the BCEAO and commercial banks of government-owned entities, except for 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 local commercial banks, including Treasury bills and other securitized debt.

7. The data 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 (MDRI) 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 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 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.

The ceiling on net domestic financing of the government (cumulative since January 1 of the same year) is set as follows: CFAF 22.0 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 ceilings are performance criteria 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 more than CFAF 5 billion, the NDF ceiling will be lowered by an amount equivalent to that 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 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 of the Basic Primary Fiscal Balance

Definition

12. The basic primary fiscal balance is defined as 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) interest payments 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 of 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 floors for end-June and end-December 2017 are performance criteria and the floor for end-September 2017 is an indicative target.

14. The floor of the basic primary fiscal balance (cumulative since January 1 of the same year) is a balance of not less than minus CFAF 69.7 billion at end-March 2018; minus CFAF 47.5 billion at end-June 2018; minus CFAF 20.3 billion at end-September 2018; and CFAF 3.9 billion at end-December 2018. The floors for end-June and end-December 2018 are performance criteria and the floor for end-September 2018 is an indicative target.

C. Floor of Total Government Revenue

Definition

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

Performance Criteria and Indicative Targets

16. 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 floors for end-June and end-December 2017 are performance criteria and the floor for end-September 2017 is an indicative target.

17. 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 1,021.6 billion at end-December 2018. The floors for end-June and end-December 2018 are performance criteria and the floor for end-September 2018 is an indicative target.

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

Definition

18. Domestic payments arrears are defined as domestic payments due but not paid by the government after a 90-day grace period, unless the payment arrangements specify a longer repayment period. The Autonomous Amortization Fund (CAA) and the Treasury record and update the data on the accumulation and reduction of domestic payments arrears. The definitions of debt given in paragraph 4a, of domestic debt in paragraph 4e, and of the government in paragraph 3 apply here.

Continuous Performance Criteria

19. 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

20. External public payments arrears are defined as payments due but not paid by the government as of the due date specified in the contract, taking into account any applicable grace periods, on the external debt of the government or external debt guaranteed by the government. The definitions of debt given in paragraph 4a, of external debt in paragraph 4c, and of the government in paragraph 3 apply here.

Continuous Performance Criterion

21. The government undertakes not to accumulate any external public payments arrears, with the exception of arrears related 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. Ceiling on the Amount of New External Debt Contracted or Guaranteed by the Government with a Maturity of One Year or more

Definition

22. This performance criterion applies not only to debt as defined in paragraph 4a, but also to commitments contracted or guaranteed by the government (as defined in paragraph 18) (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.

23. The term “government” used for this performance criterion and for the performance criterion on the contracting or guaranteeing by the government of new short-term external debt, includes the government, as defined in paragraph 3, 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.

Continuous Performance Criterion

24. The present value of new external borrowing contracted or guaranteed by the government in 2018 will not exceed a cumulative amount of CFAF 468.9 billion. Changes to this ceiling may be made (subject to approval by the IMF Executive Board) based on the results of the public debt sustainability analysis prepared jointly by the staffs of the World Bank and the IMF.

G. Ceiling on Pre-financing Contracts for Public Investments

Definition

25. Pre-financing contracts are defined as contracts pursuant to which the following steps are taken concurrently: (i) the government entrusts a private entity with the responsibility for executing public works, financed by a loan to the entity from a domestic commercial bank or group of commercial banks; (ii) 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, which are automatically paid from the Treasury’s account at the BCEAO. The concept of government used for this performance criterion is the one defined in paragraph 3.

Continuous Performance Criterion

26. The government undertakes not to enter into any pre-financing contracts during the program. This performance criterion on pre-financing contracts for public investments will be continuously monitored throughout the program.

Indicative Targets

H. Floor for Priority Social Expenditures

27. Priority social expenditures are determined in line with the priority programs identified in the GAP. These expenditures consist of selected (nonwage) expenditures in the following sectors, inter alia: 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

28. 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.

Priority Social Expenditure Categories

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Indicative Target

29. The indicative target for priority social expenditures (cumulative since January 1 of the same year) is set as follows: CFAF 36.3 billion at end-March, CFAF 85.0 billion at end-June; CFAF 125.0 billion at end-September 2017; and CFAF 160.0 billion at end-December 2017. For 2018, the indicative targets are set as follow: CFAF 15.0 billion at end-March, CFAF 50.0 billion at end-June; CFAF 101.0 billion at end-September; and CFAF 167.0 billion at end-December.

Information for Program Monitoring

I. Data on Performance Criteria and Indicative Targets

30. To facilitate effective program monitoring, the authorities 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 claims held by the nonbank private sector); and data on the basic primary fiscal balance, including data generated by 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;

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

Every quarter:

Data pertaining to the amount of exceptional payment orders 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.

J. Other Information

29. The authorities will provide IMF staff with the following data:

Every month:

  • Bank 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 loan agreements 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 review law; as well as any decree or law pertaining to the budget or the implementation
1

Benin scored “2” both for “Political Rights” and “Civil Liberties”, out of a range of 1.0 and 7.0. A country is classified as Free (1.0 to 2.5), Partly Free (3.0 to 5.0), or Not Free (5.5 to 7.0). Caution is needed when interpreting the results as they may be affected by perceptions, recording errors, availability of information and small sample.

2

Spillovers from Nigeria impact Benin essentially through informal trade, including fuel prices and subsidies, and remittances.

3

World Bank’s consideration of the Second Fiscal Reform and Growth Development Policy Financing is scheduled for July 2018 after which, details of the reprofiling operation will be known.

4

SOEs’ debt is now included in total public debt.

5

The ARCH includes universal medical coverage for the targeted population, food care, clean water and sanitation, and health care during early childhood years.

6

The indicators used in this report such as the WGI, the Doing Business Index (DBI), the Global Competitiveness Index, and CPI are subject to uncertainty around the point estimate. Estimates reflect the relative, not the absolute, performance of the country. These indicators should be interpreted with caution since their methodology generates margins of error for each governance estimate and they are based on a survey of perceptions by business people and country experts of the level of corruption in the public sector, using diverse sources. The surveys combine views of enterprises, citizen, and expert survey respondents. The surveys’ margins of error need to be considered when making comparisons over time. The indicators should be mainly used for evaluating broad trends over time, not formulating specific governance reforms.

7

Several agencies are involved in the fight against corruption, including the Public Procurement Regulatory Authority, the ANLC, and the National Bureau for Financial Information Processing, which were established following passage of the anti-corruption law in October 2011.

8

Benin moved up from 155th in 2017 to 151st in 2018 in the World Bank’s DBI.

9

Assuming the rate increase takes effect on July 1st, 2018.

10

West African Economic and Monetary Union: Common Policies for Member Countries. IMF Country Report No. 18/106.

1

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 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. “Short term (ST)” and “medium term (MT)” are meant to indicate that the risk could materialize within 1 year and 3 years, respectively.

1

Of the actions planned in the POSAF, 53.2 percent are in progress, about 30 percent fully implemented and 15 percent not yet started.

2

The IMF assesses tax expenditures at 2.4 percent against 3 percent by the authorities. The difference between the two estimates stems from the IMF’s reprocessing of certain exemptions that are not considered as tax expenditures by the WAEMU directive.

3

Evaluation de la Gestion des Investissements Publics au Bénin by B. Imbert et al. (2018), IMF Fiscal Affairs Department, Technical Assistant Report; January 2018.

1

Consistent with the Technical Memorandum of Understanding, all debt contracted in the WAEMU regional financial market is treated as domestic.

1

Cotton production of 530,000 tons is expected, compared to an initial forecast of 500,000 tons, plus an estimated 451,120 tons from the preceding crop years, representing an increase of 17.5 percent between 2016 and 2017.

2

Thus, 53.2 percent of the actions included in the POSAF action plan are currently being carried out, 29.8 percent have been fully accomplished, and 14.9 percent have not yet been started.

3

It should be noted that the government deliberately chose in 2016 to put a number of foreign borrowing disbursements on hold to review them and make reallocations.

1

2018 exchange rates as at August 18, 2017.

2

The program reference rate and spreads are based on the “average projected rate” for the six-month USD LIBOR over the following 10 years from the Spring 2018 World Economic Outlook (WEO).

1

The Executive Board takes decisions under its lapse-of-time procedure when it agrees that a proposal can be considered and approved without convening a formal discussion.

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Cover IMF Staff Country Reports
Benin: Second Review under the Extended Credit Facility and Request for Modification of Performance Criteria – Press Release; and Staff Report
Author:
International Monetary Fund. African Dept.
Volume/Issue:
Volume 2018: Issue 217
Publisher:
International Monetary Fund
ISBN:
9781484367285
ISSN:
1934-7685
Pages:
78
DOI:
https://doi.org/10.5089/9781484367285.002
  • 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, 2010–19

  • Figure 3.
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    Figure 3.

    Benin: Real and External Sector Developments, 2011–18

  • Text Figure 1.
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    Text Figure 1.

    Benin: Governance Indicators, 2016

    (re-scaled: 0=weak, 5=strong)

  • Figure 1.
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    Figure 1.

    Benin and Comparators: General Government Tax Revenue, 2005–2016

    (percent of GDP)

  • Figure 2.
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    Figure 2.

    Benin: General Government Revenue Mix, 2005–2016

    (percent of GDP)

  • Figure 3.
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    Figure 3.

    Benin: Public Investment

  • Figure 4.
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    Figure 4.

    Benin: Perception of the Quality of Public Investment

  • Figure 5.
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    Figure 5.

    Benin: Stock of Public Capital and Public Debt

  • Figure 6.
    View in gallery
    Figure 6.

    Benin: Indicator of Efficiency of Public Investment

  • Figure 7.
    View in gallery
    Figure 7.

    Benin: Summary Assesment of the Efficiency of Public Investment

  • Figure 8.
    View in gallery
    Figure 8.

    Benin: Action Plan to Improve the Efficiency of Public Investment

  • Figure A1.
    View in gallery
    Figure A1.

    Benin: Indicators of Public and Publicly Guaranteed External Debt under the Program, 2018–38 1/

  • Figure A2.
    View in gallery
    Figure A2.

    Benin: Indicators of Public Debt Under Alternative Scenarios, 2018–38 1/

Figure 1.

Benin: Recent Developments, 2010–17
Figure 2.

Benin: Fiscal Developments and Projections, 2010–19
Figure 3.

Benin: Real and External Sector Developments, 2011–18
Text Figure 1.

Benin: Governance Indicators, 2016

(re-scaled: 0=weak, 5=strong)
Figure 1.

Benin and Comparators: General Government Tax Revenue, 2005–2016

(percent of GDP)
Figure 2.

Benin: General Government Revenue Mix, 2005–2016

(percent of GDP)
Figure 3.

Benin: Public Investment
Figure 4.

Benin: Perception of the Quality of Public Investment
Figure 5.

Benin: Stock of Public Capital and Public Debt
Figure 6.

Benin: Indicator of Efficiency of Public Investment
Figure 7.

Benin: Summary Assesment of the Efficiency of Public Investment
Figure 8.

Benin: Action Plan to Improve the Efficiency of Public Investment
Figure A1.

Benin: Indicators of Public and Publicly Guaranteed External Debt under the Program, 2018–38 1/
Figure A2.

Benin: Indicators of Public Debt Under Alternative Scenarios, 2018–38 1/