Benin: 2022 Article IV Consultation and Requests for an Extended Arrangement under the Extended Fund Facility and an Arrangement under the Extended Credit Facility-Press Release; Staff Report; Staff Statement; and Statement by the Executive Director for Benin
Author:
International Monetary Fund. African Dept.
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Publication Date:
25 Jul 2022
eISBN:
9798400217777
Language:
English
Keywords:
government website; borrowing plan; terms of trade; reform program; fiscal consolidation effort; Current spending; Global; West Africa; financial support; Capital spending
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1. Benin made significant strides in macroeconomic management in the three years preceding the COVID-19 pandemic (Text Figure 1). The reforms were anchored by the Government Action Program (2016–21) and supported by an ECF arrangement (2017–20). The authorities consolidated public finances and enhanced public financial management while boosting public investment, with significant advances in public debt management and budget transparency. These achievements contributed to strengthening Benin's credibility, culminating in the country's first Eurobond issuance in 2019. Despite gaps in private sector development, recommendations from the 2019 Article IV were broadly implemented (Annex II).

Abstract

1. Benin made significant strides in macroeconomic management in the three years preceding the COVID-19 pandemic (Text Figure 1). The reforms were anchored by the Government Action Program (2016–21) and supported by an ECF arrangement (2017–20). The authorities consolidated public finances and enhanced public financial management while boosting public investment, with significant advances in public debt management and budget transparency. These achievements contributed to strengthening Benin's credibility, culminating in the country's first Eurobond issuance in 2019. Despite gaps in private sector development, recommendations from the 2019 Article IV were broadly implemented (Annex II).

Context

1. Benin made significant strides in macroeconomic management in the three years preceding the COVID-19 pandemic (Text Figure 1). The reforms were anchored by the Government Action Program (2016–21) and supported by an ECF arrangement (2017–20). The authorities consolidated public finances and enhanced public financial management while boosting public investment, with significant advances in public debt management and budget transparency. These achievements contributed to strengthening Benin's credibility, culminating in the country's first Eurobond issuance in 2019. Despite gaps in private sector development, recommendations from the 2019 Article IV were broadly implemented (Annex II).

Text Figure 1.
Text Figure 1.

Benin: Distribution of Selected Economic Indicators

(SSA, 2017-2019 average)

Citation: IMF Staff Country Reports 2022, 245; 10.5089/9798400217777.002.A001

Source: IMF staff calculations.The boxplots indicate, from top to bottom, the maximum, the 75th percentile, the median, the 25th percentile, and minimum values.

2. Pre-existing social challenges, pandemic scars, a fragile domestic security situation at Benin's northern borders and higher cost of living amidst the war in Ukraine risk further eroding hard-won macroeconomic gains. Even before COVID-19, Benin recorded one of the highest levels of income inequality in the region (Text Figure 3). Progress towards SDGs has been uneven— Benin ranked 155 out of 165 countries in the 2021 Sustainable Development Report. The pandemic and the impact of the war in Ukraine are exacerbating socio-economic challenges amid historically low social spending levels (Text Figure 2). Intensified terrorist threats from the Sahel region have spilled over to northern Benin, a region that has traditionally lagged in access to basic public services and social outcomes.

Text Figure 2.
Text Figure 2.

Benin: Social Spending

(percent of GDP)

Citation: IMF Staff Country Reports 2022, 245; 10.5089/9798400217777.002.A001

Source: World Economic Outlook, World Development Indicators.*Latest available data is used for social protection for the 2016–19 episode.
Text Figure 3.
Text Figure 3.

Benin: Recent Socio-Economic Developments

Citation: IMF Staff Country Reports 2022, 245; 10.5089/9798400217777.002.A001

Sources: World Economic Outlook, World Development Indicators, Human Development Index, and IMF staff calculations.

3. The authorities have requested a Fund-supported program to meet urgent financing needs and support the implementation of Benin's National Development Plan (PND; 2018–25) to pursue development with a “human face.” The PND puts emphasis on SDGs—Benin developed an innovative SDG bond framework (Annex VI) and issued the first-ever SDG bond by an African sovereign in July 2021 (€500 million). In addition to helping Benin meet pressing financing needs, and building on the updated Government Action Program (PAG; 2021–26), the new Fund-supported program seeks to help (1) boost revenue mobilization and improve spending efficiency; (2) enhance social protection and equitable access to basic public services; and (3) reinforce PFM, AML/CFT, governance and anti-corruption frameworks to lay the institutional foundations for sustained private sector-led growth that benefits all Beninese.

4. The proposed EFF-ECF arrangements are designed to mitigate risks to the program through inclusive policies. Risks can emanate from expenditure pressures, heavily frontloaded access, and social discontent amidst higher cost of living. The authorities' demonstrated (and continued) commitment to reform, including under the 2017–20 ECF, the premium associated with market signaling, and the strong involvement of the civil society in the budget process in Benin are important additional safeguards. The program also features a robust CD component to support reform implementation (Annex IX).

Recent Developments

5. COVID-19 infections have abated but the vaccination rate, while on the rise, remains relatively low. About 21 percent of the population (2.7million persons) were fully vaccinated as of end-April 2022, above WAEMU and SSA averages (Text Figure 4). Meeting the government's goal to vaccinate 60 percent of the targeted population (12-year-old and above) by end-2022 will require exceptional efforts to secure additional vaccine doses and alleviate hesitancy.

Text Figure 4.
Text Figure 4.

Benin: COVID-19 Developments in Perspective

Citation: IMF Staff Country Reports 2022, 245; 10.5089/9798400217777.002.A001

Sources: World Economic Outlook, University of Oxford, Google Mobility, Beninese Ministry of Health.

6. Benin has been increasingly subject to cross-border attacks along its northern borders in recent months. As feared, the intensification and expansion of activity of extremist armed groups in the region has spilled over to Benin. Poor access to basic public services and widespread poverty in Benin's northern region (Text Figure 5) could exacerbate the security situation.

Text Figure 5.
Text Figure 5.

Benin: Regional Disparities in Benin: Literacy Rate and Access to Health Services (as of 2019)

Citation: IMF Staff Country Reports 2022, 245; 10.5089/9798400217777.002.A001

Sources: Beninese authorities, World Health Organization, and IMF staff calculations.

7. While the Beninese economy continued to show resilience in 2021, the recovery has remained fragile and highly dependent on transit trade with Nigeria.

  • Real GDP growth is estimated at 7.2 percent (y/y) in 2021, driven by a ramp-up in public investment and booming Port activity as transit trade resumed with the re-opening of the Nigeria border (Text Figure 6). Continued scale-up of cotton production allowed Benin to consolidate its position as the lead cotton producer in West Africa.

    Text Figure 6.
    Text Figure 6.

    Nigeria Border Re-opening, Port Traffic and Economic Recovery in Benin (y/y)

    Citation: IMF Staff Country Reports 2022, 245; 10.5089/9798400217777.002.A001

    Sources: Beninese authorities and IMF staff calculations.

  • Inflation rebounded in the first quarter of 2022 to 4.1 percent (y/y) (from 1.7 percent in 2021), mainly driven by food prices (7.4 percent), reflecting pandemic-related supply chain disruptions, higher demand from neighboring countries, and soaring international food and energy prices amidst geopolitical tensions (Text Figure 7). The authorities recently adopted a set of measures to contain food and energy prices (Box 4).

    Text Figure 7.
    Text Figure 7.

    Benin: Evolution of Inflation

    (January 2019-March 2022, y/y)

    Citation: IMF Staff Country Reports 2022, 245; 10.5089/9798400217777.002.A001

    Sources: Beninese authorities and IMF staff calculations.

  • The current account deficit widened to an estimated 4.4 percent of GDP in 2021, due to increased imports, driven by higher oil and food prices and the pick-up in public investment, not offset by stronger cotton exports. The larger current account deficit was financed by a surge in portfolio inflows, reflecting Benin's large Eurobond issuances (Annex IV).

8. Moreover, the war in Ukraine is compounding pre-existing socio-economic challenges. Although Benin's direct trade exposure to Russia and Ukraine is relatively small, the spike in international oil, food and fertilizer prices and supply chain disruptions related to the war in Ukraine are widening the current account deficit. In addition, the deterioration in terms of trade is negatively affecting households' real income, contributing to food insecurity. Higher import prices have also exacerbated inflationary pressures, especially food-related, at the onset of the war (Text Figure 7). Meanwhile, normalization of monetary conditions in advanced economies is exerting pressure on bond spreads for frontier markets sovereigns.

9. Fiscal deficit and debit widened significantly in 2020 and 2021, consistently exceeding earlier expectations as the pandemic persisted (Text Figure 8). The overall deficit was 4.7 percent of GDP in 2020, an expansion of 2.9 ppts of GDP compared with the pre-pandemic forecast, driven mostly by COVID-19-related spending and a counter-cyclical infrastructure push (Text Table 1). Although domestic tax collection exceeded expectations, thanks to pre-pandemic revenue mobilization reforms and corporate income taxes based on the previous year's profits, international trade taxes were lower than expected due to the Nigeria border closure. Faced with a protracted pandemic in 2021, the authorities expanded the fiscal deficit further by 1.2 ppts of GDP to 5.7 percent of GDP (compared with an original target of 4.5 percent of GDP). The expansion helped extend pandemic-related spending and boost infrastructure further (CFAF 289 billion) (Text Table 1), along with new security-related outlays. Domestic taxes were buoyed by an extraordinary arrears collection (CFAF 14 billion or 0.15 percent of GDP) while the re-opening of the Nigeria border in December 2020 contained shortfalls in international trade taxes.

Text Figure 8.
Text Figure 8.

Benin: Overall Balance and Debt: Forecasts vs. Outturn

(2020–21)

Citation: IMF Staff Country Reports 2022, 245; 10.5089/9798400217777.002.A001

Sources: Beninese authorities and IMF staff calculations.
Text Table 1.

Benin: Tax and Spending: Pre-Pandemic Forecasts vs. Outturns (in billion CFAF)

article image
Source: Beninese Ministry of Economy and Finance and IMF staff calculation

10. The fiscal expansion in 2020-21 was supported by market and official financing (Text Table 2). Benin was the first SSA country to return to international capital markets since the onset of COVID-19, raising €1 billion in Eurobonds in January 2021, partly to retire more expensive and shorter maturity debt (Annex VI). The country also benefited from substantial support from the international community, including Fund emergency financing and the SDR allocation (Box 1).

Text Table 2.

Benin: Financing Sources

(in percent of GDP)

article image

BOAD treated as domestic financing before 2022.

Use of SDR Allocation

The IMF general SDR allocation of August 2021 was equivalent to around 1.0 percent of GDP for Benin (Text Table 1). The BCEAO, the fiscal agent of WAEMU member countries, on-lent the equivalent CFAF amount (95 billion) to Benin (recorded as domestic debt)1. The authorities reportedly channeled the funds to additional spending on security, health, and their flagship school feeding program in 2021 (Text Table 1).

Text Table 1.

Benin: SDR Allocation Use

article image
Source: Beninese authorities and staff calculations
1/ The on-lending was subject to a 20-year maturity (with possibility of rollover) at a fixed interest rate of 0.05 percent.

Outlook and Risks

The baseline macroeconomic outlook remains cautiously favorable (Text Table 3). The negative terms of trade shock and reduction in global demand amidst the war in Ukraine are expected to take a toll on growth in 2022, now forecasted at 5.7 percent. Over the medium-term, growth would converge to its potential of 6 percent (Box 2). Inflation is expected to rise to 5 percent in 2022, driven by the sharp increase in global food and oil prices, before stabilizing at 2 percent, consistent with the peg to the euro. The current account deficit would widen to 6.2 percent of GDP in 2022, driven by high-import content government spending to mitigate security-related risks and negative terms of trade shocks persisting through 2024; it is expected to hover around 4 percent of GDP over the medium term.

Text Table 3.

Benin: Key Macroeconomic Indicators

(Percent of GDP, unless otherwise indicated)

article image
Sources: Beninese authorities; and IMF staff estimates and projections.

Estimating Benin's Potential Growth1/

A growth accounting exercise reveals a sustained historical contribution of labor and capital to growth in Benin and a highly volatile contribution of Total Factor Productivity (TFP). Using historical data for output and production factors and assuming a Cobb Douglas production function, we computed the contribution to growth of changes in labor (augmented with education attainment) and the capital stock, with TFP's obtained as residuals (text Figure 1)./2 Computations suggest that growth in Benin over the past decade was mostly driven by production factors, with the contribution of human capital accumulation at 2.6 ppts on average per year, slightly lower than the contribution of physical capital accumulation—both from public and private investment flows—at 3 ppts.

uA001txfig01

Benin Growth Decomposition

(Percent, 2010-2021)

Citation: IMF Staff Country Reports 2022, 245; 10.5089/9798400217777.002.A001

Benin's potential growth is estimated at 6 percent for 2023–26. The estimation uses public and private investment dynamics envisaged under the program, and the historical average of human capital contribution to growth observed between 2015–2018. It also assumes the average TFP contribution observed during 2017–19 (0.4 ppt), which leads to a potential growth estimate of 6 percent. Estimates using alternative paths for future TFP growth (50th and 75th percentiles, and average TFP contribution recorded over 2009–19) fall in the 5.7–6.3 percent range. We further assume that growth will settle at 5.5 percent in the long run (2027 and beyond).

The potential growth estimate is in line with estimates obtained using the HP filter and the trend output approach. These methods place growth in the 5.5–6.4 percent range. They suggest that Benin is currently below potential, with the output gap closing only in 2023.

1/ Prepared by Hicham Bennouna (AFR). 2/ Y = AKα(LH)1-α where Y is real GDP, A is total factor productivity, K is the stock of physical capital computed using the perpetual inventory method, L is labor force, H = (1.07)s is human capital with s representing the average number of years of schooling from Barro and Lee (2010), and α is the income share of capital calibrated at 0.3 as is standard in the literature.

11. The balance of risks to the outlook is tilted to the downside.

• On the downside, heightened contagion of regional security risks could undermine investor confidence and instill a wait-and-see attitude. Further purchasing power erosion from increases in food, energy and transport costs as the risk of “geoeconomic fragmentation” rises could fuel social discontent. In addition, growth remains dependent on developments in Nigeria and the pace of deployment of vaccines and could also be impacted by unexpected shifts in the COVID-19 pandemic (Annex III and SIP-III). A sharp rise in global risk premia as monetary policy normalizes in advanced economies and as the war in Ukraine persists, could increase rollover risks in the medium term. Benin is also vulnerable to climate change shocks (Annex VIII).

• On the upside, a stronger-than-expected recovery in global merchandise trade would further boost activity at the Port of Cotonou. Completion of large infrastructure projects—amid greater private sector participation-could further unlock Benin's growth potential.

Authorities' Views

12. While concurring with staff's baseline growth forecasts, the authorities see a higher upside to medium-term growth. They expect higher efficiency in agriculture and dividends from ongoing industrial drive, considering their plans to i) enhance the yield of main staple food products through improved access to high-quality seeds and instilling best farming practices through the Conseil Agricole; ii) consolidate Benin's position as Africa's lead cotton producer; and iii) leverage the SEZ to accelerate the move up the value chain and promote export diversification. Furthermore, the authorities expect that the completion of ongoing and planned infrastructure projects would catalyze additional private investment and boost growth over the medium term beyond baseline forecasts. They are of the view that inflation could be potentially lower in 2022 owing to their anticipation of a favorable harvest and the government's recent policy measures to contain the surge in food and energy prices (Box 4).

Policy Discussions

Program discussions centered on addressing Benin's large human capital and infrastructure gaps in a fiscally sustainable manner. In the near-term, the program will help meet pressing financing needs, anchor the authorities' fiscal reform, and support their efforts towards an inclusive private sector-led economic recovery. Reforms envisaged under the program built on the discussions under the Article IV consultation, including the vulnerability of Benin's transit-centered “entrepot” growth model to economic developments in Nigeria.

A. Maintaining Macroeconomic Stability and Preserving Debt Sustainability

13. Fiscal policy under the program is calibrated flexibly to accommodate urgent spending needs in the near-term while emphasizing revenue-based consolidation over the medium term, with due account for Benin's debt carrying capacity. While providing room to accommodate urgent and unanticipated spending needs in 2022 (¶18-20), the fiscal program is calibrated to ensure convergence to an overall fiscal balance of 3 percent of GDP by 2024 (the current WAEMU convergence criterion), with an interest-to-tax revenue cap of 19 percent as a guide. This corresponds to a reduction in the overall fiscal balance of 2.8 ppts of GDP in the first 3 years of the program (2022–24), with a reduction of 2.1 ppts in the primary balance. The targeted reduction is deemed realistic based on Benin's fiscal performance pre-pandemic (Figure 2) and the unwinding of COVID-19-related spending as the pandemic wanes (Text Table 4). This would help contain public debt and distress levels and preserve debt sustainability. It would also maintain the interest-to-tax revenue ratio below the critical cut-off of 19 percent (Annex V) to provide enough room for borrowing while accounting for Benin's debt carrying capacity. Benin is assessed to be at moderate risk of external debt distress with limited space to absorb shocks (see DSA).

Text Table 4.

Benin: Contributions to Fiscal Consolidation, 2020–25

(Percent of GDP)

article image

Average annual adjustment and contributions for 2017-19.

Excludes below the line measures totaling 0.6 ppt of GDP over 2020-22.

For targeted policy measures in response to war in Ukraine, contingent on mobilizing additional external budget support.

Source: Beninese authorities and staff calculations.

Credible Medium-Term Fiscal Consolidation

14. Medium-Term fiscal consolidation will be tilted toward revenues to increase Benin's low tax-to-GDP ratio.

• The envisaged increase in tax revenues represents 1.9 out of the 2.8 ppts of GDP in total adjustment over the program, reflecting Benin's relatively low-tax-to GDP ratio (SIP-II on revenue mobilization) and large development needs (SIP–I on public spending for inclusive growth).

• Considering the findings in SIP–I, public expenditures increase above their pre-pandemic levels under the program. This will be achieved through stronger domestic revenue mobilization, spending reprioritization, including to create room for socio-economic spending under the authorities “civilian-based” security plan (Box 3), efficiency gains in public investment, and unwinding of COVID-19 spending (Text Table 4). Significant savings in the interest bill (0.7 ppt of GDP) are also expected over the medium-term, on account of the authorities' active debt management (Annex VI).

The Authorities’ Civilian Approach to Security Risks

The authorities have developed a strategy for mitigating security risks, centered on a civilian approach. The plan (CFAF 662.3 billion or about 6 percent of GDP over 2022–26) seeks to increase state presence (and effectiveness) in communities at risk and improve the living conditions of populations in those areas. This seeks to help prevent social-economic conditions that could lead to discontent among the vulnerable and/or youth recruitment by terrorist groups.

The plan is centered on three pillars: (i) identifying vulnerable areas; (ii) assessing and meeting the needs of populations in these areas; and (iii) promoting social cohesion between local communities. Initiatives under the plan include enhanced intelligence, acquisition of military equipment, rehabilitation of farm roads and support to farmers, construction of police stations, access to water and combating youth unemployment through microcredit schemes and the promotion of agriculture. Spending under the plan therefore covers three types of measures: security, economic, and social (Text Table 1), which are partially accommodated within the overall spending envelop under the EFF-ECF arrangements.

Text Table 1.

Authorities’ National Security-Risk Strategy 2022-261

(Billions of CFAF)

article image

Reflects spending under the authorities' medium-term security plan.

15. The fiscal adjustment will accommodate wage bill costs from hiring in health and security, and salary revaluation, while preserving sustainability.

• Salary and employment controls since 2016 have placed the wage bill on a downward trajectory and well-below peers in percent of national income (Text Figure 9). Acknowledging the unions' outcries over purchasing power erosion, the President announced earlier this year the government's intention to conduct a “revalorization” of public sector salaries and increase the national minimum wage (unchanged since 2014). While the government, unions, and the private sector have recently converged on a 30 percent increase in the minimum wage (to CFAF 52,000/month or about US$1,100/year), discussions on salary increases for public sector employees are still ongoing.

Text Figure 9.
Text Figure 9.

Benin: Wage Bill Compared with WAEMU and SSA Peers

(in percent of Gross National Income)

Citation: IMF Staff Country Reports 2022, 245; 10.5089/9798400217777.002.A001

Source: Beninese Authorities and IMF staff estimates

• In addition to the pending revaluation of salaries of public sector employees, new hiring in health (1,700 in 2023) and in security and armed forces (4,000 on average per year over 2022– 26) to meet personnel shortage will permanently increase the wage bill (by about 0.1 ppt of GDP from 2023 after personnel training this year). These costs are partly offset by permanent savings from the recent closure of 19 Beninese embassies and consulates around the world, continued wage bill control, including strict replacement rule for retirees, and ongoing efforts to clean-up the payroll.

• The authorities will evaluate their ongoing wage bill reform efforts, including with planned IMF technical assistance, to ensure that public compensation remains sustainable and identify measures to ensure equity over the medium term.

16. Benin will maintain a prudent borrowing strategy. The authorities' borrowing plan focuses on preserving debt sustainability, mitigating refinancing risks, and containing borrowing costs (MEFP ¶12). In this connection, they will prioritize concessional resources from multilateral donor partners to keep the interest-to-tax revenue ratio in check (Annex V).

Short-Term Flexibility: Delaying the Fiscal Consolidation to 2023 Amid Urgent Needs

17. The fiscal adjustment envisaged in the original 2022 budget will be paused to accommodate urgent spending needs, consistent with the program's overall fiscal strategy (¶14). The overall balance target of 4.5 percent of GDP in the original 2022 budget would have implied primary spending cuts to the tune of 1.1 ppt of GDP. However, several major events outside the authorities' control occurred since the budget was originally adopted by Parliament in December 2021, including spillovers from regional security risks, lingering COVID-19, and purchasing power erosion amid the war in Ukraine. These unanticipated developments call for some short-term flexibility, building on Benin's established track record in fiscal responsibility and the moderate risk of debt distress.

18. The envisaged fiscal deficit for 2022 is therefore close to its 2021 level. Considering new spending pressures, maintaining the fiscal deficit unchanged from 2021 to 2022 while meeting urgent expenditure needs and protecting priority social spending will require preserving the yields from the tax package that was part of the original budget (0.5 ppt of GDP) and important expenditure reprioritization compared to 2021 allocations (Text Table 4).

19. The authorities will issue a supplementary budget (MEFP ¶15) targeting an overall deficit of 5.5 percent of GDP to reflect new developments.

• The deviation from the original budget (Table 2–3) is mainly driven by an increase in expenditure to meet immediate needs, including mitigation of security risks, hiring in the health sector, and salary increases to partly offset cumulative purchasing power erosion in recent years (¶16).

• Security-related spending is based on the authorities' security plan (Box 3). The plan involves frontloaded outlays in 2022–23 (mostly to enhance state presence and effectiveness in vulnerable areas) and permanent hiring costs to fill the shortage of agents in police and armed forces.

Text Table 5.

Benin: Estimated Yields from the 2022 Tax Package

article image
Sources: Benin’s Tax Directorate and Customs Administration

20. Heightened uncertainty surrounding the scope and duration of the war in Ukraine has complicated the authorities' policy calibration.

• Faced with the urgency to act to limit hardship from high food and energy prices, the authorities adopted on March 23 a first wave of mostly non-targeted measures (initially applicable through June 2022), including a temporary freeze on fuel prices at the pump (Text Figure 10), a subsidy on basic food products (rice, flour, and vegetable oil), an export ban on selected agricultural products and a rebate on freight costs. Although fuel subsidies are untargeted, they can temporarily limit the impact of the price shock on vulnerable groups in the absence of well-developed safety nets.

Text Figure 10.
Text Figure 10.

Benin: International Oil Prices and Fuel Prices at the Pump (2012-2022)

Citation: IMF Staff Country Reports 2022, 245; 10.5089/9798400217777.002.A001

Source: Beninese Authorities and IMF staff estimates

• The authorities are now pivoting to more targeted and cost-effective support measures. In this context, they further increased diesel pump prices on April 20, bringing the cumulative hikes since the beginning of the year to 28 percent. Staff estimate the resulting fiscal savings (compared with a zero passthrough scenario) at about 0.4 percent of GDP (Box 4). The authorities plan to subsidize fertilizers for the 2022/23 agricultural campaign (about 0.3 ppt of GDP) to help curb the upward trend in food insecurity since the onset of COVID-19. The policy measures adopted in response to the war in Ukraine under the program will be unwound in 2023. Considering the pump price hikes so far this year (Box 4) and projected international oil price trend, the increase in fuel subsidies related to the war in Ukraine is expected to dissipate in 2023.

Partial Passthrough and Fuel Subsidies Associated with the War in Ukraine1/

As of end-April 2022, the Beninese authorities had passed more than half of the expected annual increase in international oil prices related to geo-political tensions onto consumers. While this partial passthrough generates an additional estimated fuel subsidy bill of 0.32 percent of GDP in 2022 (compared with a full passthrough scenario), it represents an estimated saving of 0.42 ppt of GDP to Benin compared with a scenario of zero passthrough.

A comparison of WEO oil price forecasts between January and March 2022 suggests that the war in Ukraine led to a spike in international oil prices by 50 percent in 2022:Q1, with an expected 38 percent upward revision in 2022 as a whole (Figure 1). A full passthrough of the oil price shock would have entailed a peak increase in the pump price of diesel and gasoline of 55 and 35 percent respectively in Q2, based on the current official pricing formula in Benin (Figure 2).2/ While fully passing through the shock onto consumers would have exacerbated inflationary pressures keeping pump prices unchanged would have entailed an estimated 0.74 percent of GDP cost to the budget in 2022 (with the cost persisting beyond 2022, given that subsidies tend to be hard-to-reverse).

Faced with this trade-off, the Beninese authorities adjusted diesel and gasoline prices in February and early March 2022 for a cumulative 14.3 percent and 15.4 percent respectively. They then announced, on March 23, a freeze of fuel pump prices until end-June 2022 as part of their first wave of measures to contain the socio-economic fallout from the war in Ukraine.3/ However, with subsequent increases in international prices, the government reversed its previous decision and hiked diesel pump prices by 11 percent on April 20. The latter decision took the cumulative diesel pump price adjustment to date in 2022 to about 28 percent, allowing Benin to absorb more than half of the international oil price shock in 2022 under current WEO assumptions—the partial passthrough implies fiscal savings to the tune of 0.42 ppt of GDP compared to a no passthrough scenario and entails a cost of 0.32 ppt of GDP to the budget compared to a full passthrough scenario (Table 1).

Table 1:

Estimated Cost of Fuel Subsidies Induced by Geopolitical Tensions

(CFAF, unless otherwise noted)

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1st wave: increase in February and March 2022 of diesel and gasoline prices by a cumulative 14.3 percent and 15.4 percent. 2nd wave: increase in April 2022 of diesel price by 11 percent.

Because of this partial passthrough and pre-existing fuel subsidies, fuel subsidies remain important (though still limited given that household gasoline consumption is mostly satisfied through smuggled gasoline from Nigeria). Mindful of their high budgetary cost, the authorities plan to modernize the fuel pricing mechanism going forward, with the view to reducing volatility in pump prices while safeguarding much-needed budgetary resources (MEFP ¶14). They will communicate such changes clearly and consider schemes for compensating the vulnerable.

1/ Prepared by Younes Zouhar and Joseph Houessou. 2/ By design, the prevailing pricing mechanism (dating back to 2004) would exacerbate volatility as monthly changes in international oil prices are passed to pump prices only when the pricing formula implies an adjustment above/below +/- 4 percent. 3/ The government also resorted to a reduction of the margins of oil distribution companies.

• Conditional on securing additional concessional budget support, the primary fiscal deficit target for end-December 2022 will be relaxed by up to an additional 0.5 ppt of GDP (for a resulting overall deficit of 6.0 ppt of GDP) to accommodate targeted policy measures in response to the war in Ukraine (TMU ¶7). Such a move would not jeopardize the medium-term fiscal strategy, as planned interventions would be one-off in nature and easily reversible. The additional spending would be supported by existing robust PFM practices.

Authorities' Views

21. The authorities agree with designing fiscal adjustment around meeting urgent needs in the near term and ensuring credible fiscal consolidation in the medium term. They remain committed to converging to WAEMU norms and maintaining debt sustainability. They've indicated that their policy response in relation to the war in Ukraine will be contingent on the scope and duration of the war, within the parameters of their Fund-supported program.

B. Boosting Revenue Mobilization, Strengthening PFM, and Improving Spending Efficiency

22. Financing Benin's large spending needs requires sustained efforts in domestic revenue mobilization.

• Staff's tax potential analysis suggests that Benin's tax gap vis-à-vis peer WAEMU countries rose to about 3 percent of GDP during 2015–19 (Text Figure 11; SIP–II). The authorities will develop a medium-term revenue mobilization strategy (MTRS) (proposed Structural Benchmark for end-September 2023) to improve tax collection. Evidence based on historical episodes of revenue mobilization reforms in Benin (1990–2021) suggests that revenue administration reforms are more effective when coupled with tax policy reforms. Increasing Benin's tax-to-GDP ratio would require expanding the tax base and streamlining tax expenditures that are not proxy-means tested, coupled with consistent improvements in revenue administration (SIP-II). The MTRS should also entail improved coordination between Tax Administration and Customs, including through better information sharing.

Text Figure 11.
Text Figure 11.

Benin: Relative Tax Performance

Citation: IMF Staff Country Reports 2022, 245; 10.5089/9798400217777.002.A001

Source: Beninese Authorities and IMF staff estimates

• A detailed report on 2021 tax expenditures will be annexed to the 2023 draft budget law submitted to Parliament, and a strategy for rationalizing them over 2023–25 will be developed (proposed Structural Benchmark for end-November 2022). Removing tax expenditures should take into account possible distributional implications, including mechanism to compensate the vulnerable.

23. A number of PFM improvements will be critical to strengthen transparency and spending efficiency.

• Notwithstanding strong performance in several areas under the IMF's 2021 Fiscal Transparency Evaluation (FTE), improvements are needed in fiscal risk management in Benin. The authorities will prepare a statement containing a quantitative analysis of fiscal risks in all key areas as part of the 2024 draft budget law documentation (proposed Structural Benchmark for end-October 2023). Close monitoring of contingent liabilities from credit guarantee schemes and enhancing information disclosure on PPPs will also be important for managing fiscal risks (MEFP ¶21).

• Improving public investment management will support the authorities' ongoing infrastructure push and generate efficiency savings. Despite progress noted in the 2019 PIMA, public investment efficiency still lags peers (Text Figure 12). The authorities will publish all the criteria for the appraisal and selection of major investment projects, along with feasibility studies (proposed Structural Benchmark for end-December 2023).

Text Figure 12.
Text Figure 12.

Benin: Efficiency in Public Expenditure vis-à-vis Peers

Citation: IMF Staff Country Reports 2022, 245; 10.5089/9798400217777.002.A001

Source: IMF’s Public Investment Management Assessment (PIMA; 2019)

• Getting energy prices right over time would generate efficiency savings, ensure the sustainability of the public electricity company, and limit fiscal risks. The government introduced in early 2020 a reform of the electricity tariff that entailed a cumulative 15 percent tariff hikes during 2020–21. However, the reform was paused due to the COVID-19 shock (with the related subsidies explicitly reported as COVID-19 supportive measures). Recognizing the regressive and inefficient nature of energy subsidies, the authorities will develop a timetable for aligning electricity prices with costs. They also intend to modernize their fuel pricing mechanism (MEFP ¶14).

24. Security spending will be supported by existing robust PFM practices, including budget formulation and execution, and control and oversight. Security spending will be subject to standard PFM processes, including public investment management practices. Spending under the authorities' security plan will be transparently reflected in the budget, programmed under the budget of the Ministries of the Interior and Public Security and Defense, in line with the authorities' move to program-based budgeting this year. Distinct procurement codes and exceptional procurement procedures are currently in place for selected security equipment such as small arms and IT. Military payroll is digitalized through payroll IT system, and security personnel is paid directly into their bank accounts. Security spending is subject to audits by the Audit Court; the Ministry of Defense also recently completed an internal audit report on small arms. The authorities will maintain and re-enforce existing PFM safeguards around security spending as needed.

Authorities' Views

25. The authorities consider revenue mobilization the cornerstone of their reform program. They are committed to implementing policies to rationalize tax expenditures and broaden the tax base. They emphasize their considerable progress in the areas of transparency and PFM in recent years and intend to continue improving the efficiency and targeting of expenditures. While the authorities acknowledge the budgetary cost of fuel subsidies, they point to the critical role of diesel in transport in Benin (and implications for inflation), especially given the country's heavy dependence on transit trade (SIP-III on formal and informal economic ties with Nigeria), and the positive socio-economic spillovers from trucks transport activity. They note that removing subsidies on diesel also put tax revenue at risk due to the potential shift to informal markets (smuggling has so far been limited to gasoline).

C. Promoting Inclusion

Supporting SDGs

26. Large gaps have persisted in Benin's human capital and basic infrastructure despite robust economic growth in recent years. Social spending has historically been low in Benin both in absolute and relative terms (Text Figure 2). As a result, social outcomes have been weak (SIP–I), as evidenced by low access to basic public services (such as drinking water, electricity, and sanitation) and above 40 percent of the population estimated to be facing food insecurity at end-April 2022 (WFP Heatmap1). IMF staff estimates (SDN 19/03 and WP/19/270) that financing needs to reach SDGs by 2030 in the selected areas of human capital development (health and education) and physical infrastructure (roads, electricity and water and sanitation) amount to 21 percent of GDP (Text Figure 13), in line with the authorities' own estimates.

Text Figure 13.
Text Figure 13.

Benin: Relative Performance Along Selected SDGs and Estimated Spending Gaps

Citation: IMF Staff Country Reports 2022, 245; 10.5089/9798400217777.002.A001

27. Adapting to climate change is also an imperative for Benin (Annex VIII). The country ranked as the 12th most vulnerable country to climate shocks and the 57th least ready to address their consequences in a sample of 192 countries according to the 2019 Notre Dame Global Adaptation Initiative (ND-GAIN). The authorities have developed a National Policy for the Management of Climatic Changes, including adaptation and mitigation.

28. Against this backdrop, a holistic, fiscally sustainable approach to development financing is needed. Given Benin's median age of 19 years and the ongoing demographic transition, spending efficiently on education and health today would help harness the demographic dividend. Alleviating existing regional disparities will also be critical for enhancing state effectiveness in vulnerable areas, in line with the authorities' “civilian approach” to tackling security risks. The recently developed IMF tool for analyzing SDGs financing (IMF 2021) illustrates socio-economic gains from more ambitious revenue mobilization and greater private sector participation. However, while those ambitious policies would mitigate the pandemic-induced scars, Benin, like many other developing countries, is unlikely to meet its SDG goals by 2030. Staff simulations suggest that raising the tax-to-GDP to 25 percent of GDP by 2029, combined with realistic spending reallocation to SDG-related programs, could help meet the SDG goals by 2040.

Strengthening Social Protection

29. Spending on social protection remains relatively low in Benin, reflecting a combination of limited social safety nets and the authorities' policy preferences.

• Spending on social protection programs averaged 1.1 percent of GDP per year during 2018–21, less than half the average level among LICs—Text Figure 2. Cash transfers were limited even during COVID-19, due to challenges in targeting vulnerable households and the authorities' concerns about the effectiveness of unconditional cash transfers (¶31).

• The authorities are gradually and concurrently implementing the four components of their flagship social protection program ARCH (Assurance pour le Renforcement du Capital Humain): health insurance, vocational training and entrepreneurship, microcredit, and retirement (Annex VII). They made health insurance compulsory in February 2021 and plan to subsidize it for 5.1 million poor and extremely poor (over 40 percent of total population) by end-2023. Nevertheless, further progress on targeting is needed. The authorities estimate the total cost of the program at CFAF 183.8 billion (about 1.8 percent of GDP) over 2021–26, of which 10 percent is planned to be covered by the budget and the remainder by development partners.

• The authorities are also in the process of expanding the coverage of the national school feeding program (administered jointly with the World Food Programme) to all primary schools across Benin. This would facilitate feeding nearly 1.3 million students by end-2023, a doubling from 2021.

30. Completing the social registry will support a more efficient targeting of social assistance. In this regard, the authorities will (1) finalize the community validations of vulnerable households identified during the first cycle of proxy-mean test surveys (mass registration) in at least 70 of the 77 communes, and (2) publish the aggregate social registry results at the commune level on an easily accessible government website (proposed Structural Benchmark for end-July 2022).

Authorities' Views

31. While the authorities are committed to inclusion and protecting the vulnerable (MEFP ¶23), they are concerned about the effectiveness of unconditional cash transfers. They cite possible leakages and the fact that they are not incentive-compatible. They favor schemes that facilitate the transition back to work, though they might take some time and have re-iterated that ensuring access to good-quality basic public services is a more modern way of fighting poverty.

D. Modernizing the Economy and Fostering Private Sector Development

Supporting Private Investment and Economic Transformation

32. Sustaining growth requires diversifying the Beninese economy towards higher value-added products and sectors. The Beninese economy relies significantly on cotton and low value-added transit trade with Nigeria, with re-exports accounting for more than 40 percent of Benin's imports. The recent border closure by Nigeria has further highlighted the limits of Benin's transit-centered 'entrepot' growth model (Text Figure 14; SIP-III). The planned improvements in logistics at the Port of Cotonou, including the construction of a new terminal and increased reliance on containerized transit, would limit congestion and enhance competitiveness. This, together with continued leveraging of digital solutions to modernize customs and tax administration procedures, will help harness the vast trade opportunities with Nigeria and reap the benefits of regional integration. Diversifying away from the Nigeria-dependent transit model overtime would require fostering a business environment that levels the playing field among market participants.

Text Figure 14.
Text Figure 14.

Benin: Dependence on Nigeria

Citation: IMF Staff Country Reports 2022, 245; 10.5089/9798400217777.002.A001

Source: Beninese authorities and staff calculation.

33. Promoting an enabling business environment will help attract FDI and accelerate the transition from public investment-driven to private sector-led growth. While staff assess Benin's external position to be broadly in line with the level implied by fundamentals and desirable policies, important structural bottlenecks remain (Annex IV). Promoting domestic investment and attracting FDI will require enhanced access to electricity, better access to finance, and continued digitalization of government services to strengthen the regulatory environment and promote the formalization of the economy. Diversification of the industrial sector—currently largely dominated by cotton ginning and processing of some food products—and improved productivity in services by leveraging logistics and ICT, would support growth over the medium term. Tapping private sector financing for development, including through a prudent use of PPPs and partake in the new SEZ would support economic activity. The development of the SEZ should carefully account for revenue leakage and guards against over-burdening tax administration.

Authorities' Views

34. The authorities broadly concur with staff's external sector assessment, though they underline a number of important qualifications. They note that (1) the application of EBA-Lite at individual country-level in the WAEMU monetary union could lead to biases as the policy variable related to changes in NFA misses assets that are not broken down by country (such as monetary gold); (2) heightened uncertainty surrounding the scope and duration of the war in Ukraine and COVID-19 scars would tend to weaken the link between prices and external adjustment as supply chain disruptions take hold; (3) forecasts of oil imports are limited by the scarcity of data on consumption volume of informally imported fuel. They also expect that about half of the cost of projects under the PAG (2021–26) can be financed via PPPs. They see the new SEZ as transformative for Benin, given the strong prospects for private investment and job creation.

Re-Enforcing Governance and Transparency and Strengthening the AML/CFT Framework

35. The systematic publication of beneficial ownership (BO) information for public procurement contracts and the audit of COVID spending will consolidate recent progress in public procurement. While BO information for COVID-19 related contracts (as well as the validation of delivery) is published,2 it is not yet supported by an adequate legal basis. The authorities will adopt into law a secondary regulation requiring procurement agencies to collect BO information for companies awarded public procurement contracts above CFAF 10 million (proposed Structural Benchmark for end-June 2022) and commence the regular publication of this information on a government website (proposed Structural Benchmark for end-September 2022). The Audit Court has undertaken an independent audit of COVID-19-related spending and published3 the results on an easily accessible government website, meeting the related Prior Action for the new program.4 Staff will follow up on the findings of the audit as needed.

36. Re-enforcing governance and the rule of law will foster trust in public institutions. These, including reducing vulnerabilities to corruption, are the first pillar of the authorities' 2021– 26 PAG. The authorities will conduct and publish a governance diagnostic (proposed Structural Benchmark for end-February 2023) with Fund technical support. Following the assessment, the authorities, together with staff, will identify key recommendations to be included as program conditionality from the Second Review.

37. Benin has initiated an extensive reform program to correct deficiencies in its Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT) framework. The 2021 Mutual Evaluation Report by the Inter-Governmental Action Group against Money Laundering in West Africa (GIABA) identified deficiencies in the effectiveness of Benin's AML/CFT Framework. In the absence of sustained action to address these deficiencies, Benin risks being grey listed by the Financial Action Task Force (FATF). In this regard, to strengthen the AML/CFT framework, the authorities have prepared a detailed action plan. The Council of Ministers is expected to adopt two Ministerial decrees to strengthen AML/CFT risk-based supervision and implementation of a targeted financial sanctions regime, in line with relevant UN Security Council Resolutions related to terrorism, terrorism financing, and proliferation financing (proposed Structural Benchmark for end-June 2022).

E. Limiting Pandemic Scars in the Financial Sector

38. While the banking system appears to have weathered the crisis so far, supervisory authorities are committed to continued vigilance to limit pandemic scars. The banking system remains well-capitalized, with broadly successful, albeit ongoing, transition to Basel II/III reforms. Notwithstanding the generally downward trend in the banking sector's NPLs-from 17.7 percent in 2019 to 14.9 percent in June 2021 (Figure 4)-two small banks, accounting for less than 5 percent of total banking sector's assets, failed to meet the regulatory capital minimum at end-December 2021. Staff confirmed with the Abidjan-based WAMU Banking Commission that the two banks do not pose financial stability risks; there is a plan to bring them back to conformity with prudential norms. Staff underscored the need for enhanced monitoring of sectoral fragilities, including the potential impact of the expiration (in December 2021) of the BCEAO's loan repayment deferral and the relatively high credit concentration among a small number of clients.

39. Despite a sound banking system, access to finance remains a major impediment to private sector development in Benin, especially among SMEs. The authorities have put in place various schemes to promote SME financing as part of their COVID-19 response plan, but their effectiveness is yet to be assessed. They have also authorized La Poste du Benin to provide banking services, leveraging its extensive nationwide network to facilitate access to financial services; they are committed to ensuring that its operations are adequately supervised. To promote access to finance, the authorities will transpose the WAEMU's regional financial inclusion strategy (adopted by the WAEMU Council of Ministers in 2016) at the national level and design a comprehensive financial inclusion strategy for Benin (Structural Benchmark for end-March 2023) (MEFP ¶31).

40. Measures to alleviate constraints to access to finance should also account for structural vulnerabilities of microfinance institutions (MFIs) and the risk they may pose to Benin's financial system. The wide reach of microfinance institutions, while good for inclusion, subjects them to asymmetry of information, compounding inadequate reporting systems. The authorities have made some progress in formalizing nonviable MFIs and improving the portfolio quality of the sector's lending-NPLs declined from 8.5 percent in end-December 2017 to 6.1 percent in end-December 2021. The mission recommended that governance and risk management practices, and formalization of MFIs be accounted for in the design of the national financial inclusion strategy.

Authorities' Views

41. The authorities are committed to further strengthening the resilience of the financial sector. They noted that the financial system appeared to have weathered the COVID-19 pandemic well. Nevertheless, they will remain vigilant in monitoring banking sector fragilities while striving to enhance access to and use of financial services, including through La Poste. They also indicated their intention to finalize the steps outlined by the WAMU Banking Commission to ensure all Benin's banks are adequately capitalized. Regarding MFIs, the authorities emphasized their vital role for financial inclusion and noted that action plans are in place to further address the sector's vulnerabilities.

Program Modalities

42. Staff supports the authorities' request for a 42-month blended EFF-ECF arrangements with High Combined Credit Exposure (HCCE).

• Program type and duration. The authorities have requested a long duration program to support the implementation of Benin's PND 2018–25. In addition to providing the needed time to implement far-reaching reforms (e.g., building on the upcoming governance diagnostic), aligning the duration of the program to the PND facilitates communication around policies and reforms under the program. The program would end just before the next presidential elections, scheduled for early 2026. Benin is a “presumed blender” based on its GNI, meaning that it is expected to access Fund support through a combination of PRGT and GRA resources (in a 1:2 ratio), thus the proposed blended EFF-ECF arrangements.

• Financing needs. External financing needs after factoring in a Eurobond issuance in 2025 are estimated to total an estimated CFAF 755 billion over 2022–25, of which CFAF 359 billion would be financed through budget support from MDBs and donors. Residual financing needs, to be filled by the envisaged Fund-supported program are estimated to total CFAF 396 billion over 2022–25. These needs would be heavily frontloaded in 2022–2023, given near-term BOP pressures, including from higher global food and oil prices related to the war in Ukraine; they will continue well into the medium-term, given the need to gradually reduce the heavy reliance on smuggled fuel products from Nigeria (SIP-III), and slack in export growth due to the plateauing of cotton production after nearly tripling from 2015. The program assumes robust financing from the regional domestic bond market (about CFAF 430 billion per year from 2022 to 2024), part of which could be substituted by external bond issuances should market conditions allow, and providing that this is consistent with debt sustainability and the interest-to-tax revenue operational guide.

• Access level and phasing of disbursements and purchases. Staff propose access of SDR 484.058 million or 391 percent of quota—SDR 161.349 million or 130.33 percent of quota from the ECF (PRGT) and SDR 322.709 million or 260.67 percent of quota from the EFF (GRA). Considering Benin's outstanding credit to the Fund (254.4 percent of quota), the proposed access level is above the combined normal cumulative access limit, triggering the HCCE procedure. Large and front-loaded disbursements and purchases (Table 12) would be used entirely for budget support, to cover budget needs closely intertwined with balance of payments needs generated by the impact of the war in Ukraine, the significant terms of trade shock expected to persist through 2024 and imports related to urgent spending to mitigate security risks. These current account pressures are coupled with likely constrained international and regional market financing amid tighter global conditions. While high in percent of quota, the proposed access is 3.6 percent of Benin's 2022 nominal GDP for a 31/2-year arrangement, close to the average size of typically shorter normal access UCT-quality programs over the past few years. Moreover, the call on PRGT resources is limited (two-thirds of program financing comes from GRA), with access remaining within normal annual and cumulative PRGT's access limits of 145/435 percent of quota throughout the program. The fact that Benin repays about 115 percent of quota to the Fund on existing obligations over the life of the program reduces Fund's net exposure by program end.

• Financing assurances and burden sharing. The program is fully financed over the next twelve months with good prospects of financing for the remainder of the arrangements. The program will benefit from strong technical and financial support from other Benin's development partners. For 2022, US$177 million (out of the US$698 million financing package expected from the World Bank, the European Union, and the African Development Bank for the year) will take the form of budget support, with continued support in the coming years (this includes World Bank's funding of Benin's vaccination program in the amount of US$27 million this year). While the Fund is expected to cover about 52 percent of the external and fiscal financing gaps over the program period under the baseline, there is significant upside to budget support this year, which the program captures through an adjustor for an additional US$92 million at end-December 2022 (¶20). If the adjustor kicks in, which is likely in light of progress in talks between Benin and its development partners, Fund's burden share over the program would fall below 50 percent. The Fund's burden share averages 61 percent in the first 18 months of the program (56 percent if the adjustor kicks in), reflecting front-loaded disbursements due to immediate BoP needs; it declines significantly to an average of 36 percent in the last two years of the program as the Fund-supported program catalyzes MDBs and donor support (Table 8).

43. Benin meets the three HCCE criteria in staff's assessment (Annex I). A program under normal access limits would leave urgent needs unmet, undermining the fragile economic recovery, potentially triggering a reduction in international reserves and a sharp fiscal adjustment. It would also preclude enhanced state presence in vulnerable areas, with possible serious social and security implications.

44. Benin's capacity to repay the Fund is expected to remain adequate and conditional on successful implementation of the reform agenda and absence of major shocks. Total obligations based on existing and prospective credit will peak at 0.47 percent of GDP (2.9 percent of total revenues excluding grants and 2.1 percent of exports) in 2029. While total Fund credit outstanding as a share of GDP and quota is well above the median of PRGT UCT-quality arrangements (peaking at 4.7 percent of GDP in 2023 and 549.8 percent of quota in 2024), both metrics gradually converge to the sample median. Overall debt service is expected to remain elevated for the next decade (at around 2 percent of GDP and 14 percent of revenues excluding grants), with peaks in 2026 and 2030. Benin's debt service projections would be improved by sustained revenue mobilization under the program. The program's macro framework is built on conservative assumptions, but a deterioration of the security situation, a climate-related shock, or the materialization of other major risks, could undermine the authorities' fiscal consolidation efforts and constraint capacity to repay. Remaining risks would be mitigated by leveraging the Fund's catalytic financing role. Given that Benin is a member of WAEMU and pools its reserves at the BCEAO, its capacity to repay the Fund is also affected by the capacity to repay of the other countries in the monetary union.

45. Safeguards assessment. The 2018 safeguards assessment found that the BCEAO has maintained a strong control culture and progress, and the last outstanding recommendation, related to strengthening risk management, has been implemented. In line with the safeguards policy's four-year cycle for regional central banks, an update assessment of the BCEAO is due in 2022. Moreover, given the expectation that at least 25 percent of the funds will be directed toward budget financing under the HCCE, the authorities have committed to a fiscal safeguards review (FSR) by the First Review.

46. The program will be monitored through semi-annual quantitative criteria and structural conditionality (Tables 10 11a–b). QPCs on the basic primary balance of the central government and net domestic financing will help monitor convergence towards the WAEMU norm. An indicative target (IT) on tax revenue will support the authorities' revenue mobilization effort and preserve the quality of adjustment. The program includes a PC on the PV of newly contracted external public and publicly guaranteed debt (in line with the IMF's Debt Limits Policy), calibrated to avoid tipping into a high-risk of external debt distress. An IT on priority social spending is set to reflect the core program objective of improving socio-economic outcomes, building on the authorities' social spending plans and taking into consideration data availability, timeliness, and measurability. Continuous PCs on external and domestic arrears are also included. Structural conditionality is aligned to the program's main objectives and supported by Fund TA (¶49). Table 10b identifies SBs for program reviews, with other important reforms envisaged by the authorities reflected in the MEFP.

47. Contingency planning. The program is subject to risks, including higher than anticipated security outlays, a more protracted COVID-19 pandemic (affecting revenues and spending) and social discontent. In the event of higher-than-anticipated spending pressures, the authorities will identify additional adjustment efforts or reprioritize spending. These could include implementing additional tax measures or slowing the execution of non-priority domestically financed projects. In the event of financing shortfalls in the medium-term, the authorities would seek recourse to regional or commercial financing provided costs are consistent with maintaining debt sustainability; they would adjust otherwise.

48. Data provision and capacity development (CD). Data provision is broadly adequate for surveillance and program review. However, further bolstering institutional capacity would help enhance policy design as well as depth and timeliness of data provision. The program will be supported by a comprehensive Capacity Development (CD) program, centered on improving statistics, governance, transparency (including BO reporting in procurement), enhancing revenue mobilization, wage bill management, and PFM (Annex IX). Fund TA will be complemented by technical support from other IFIs and donors in several areas, including the World Bank in strengthening social safety nets and human capital development, and the World Food Program in the national school feeding program.

Staff Appraisal

49. Benin made significant strides in macroeconomic management over the past five years, but both domestic and external shocks risk eroding hard-won economic gains. Scars from the COVID-19 pandemic, a deteriorating security situation at Benin's northern borders and higher cost of living due to the food and oil price shocks amid the war in Ukraine, are exacerbating pre-existing social vulnerabilities. These headwinds require urgent policy action to prevent hard-to-revert socio-economic hardship.

50. Against this backdrop, and recognizing Benin's solid track record in managing public finances, fiscal policy can be calibrated flexibly to accommodate near-term pressing needs. This includes postponing the fiscal adjustment planned in the original 2022 budget to provide spending room to mitigate security risks and contain the impact of the war in Ukraine. However, safeguarding the expected yields (half percentage point of GDP) from the package of tax policy and administrative measures in the 2022 budget will be critical to partly absorb the unanticipated spending. Moreover, the authorities should continue refining their policy response to the socio-economic implications from the war in Ukraine, including by substituting generalized subsidies for better targeted and cost-effective measures to support the population. It would also be important to ensure transparency around needed security-related spending.

51. Pivoting to revenue-based fiscal consolidation from next year will be essential to unlock Benin's tax potential and create fiscal space for large development needs while preserving debt sustainability. Benin is currently assessed as having a moderate risk of debt distress. The authorities planned Medium-Term Revenue Strategy (MTRS) should aim to expand the tax base, streamline tax expenditures, and improve the overall efficiency of the tax system, including by maintaining the digitalization drive. The authorities should quantify their ongoing wage bill reform efforts to ensure that public compensation remains sustainable despite pressures from hiring in health, police and armed forces and the pending salary revalorization for public sector employees.

52. Continued efforts to improve public financial management will be critical to strengthen transparency and spending efficiency. Staff encourage the authorities to enhance transparency in fiscal risk management by publishing a quantitative analysis of Benin's fiscal risks. Further improvements in public investment management will support the infrastructure push and generate efficiency savings, including by mandating the publication of appraisal and selection criteria, and feasibility studies for major projects.

53. Enhancing governance and transparency and strengthening the AML/CFT framework will bolster the institutional foundations of private sector-led inclusive growth. The systematic publication of beneficial ownership (BO) information for public procurement contracts will consolidate progress in public procurement transparency in recent years. The authorities' planned governance diagnostic, supported by the Fund, will help identify key measures to reinforce governance and the rule of law. Staff encourage the authorities to pursue their extensive reform program to correct identified deficiencies in Benin's AML/CFT framework, including by adopting legislation to strengthen risk-based supervision and implement a targeted financial sanctions regime.

54. Promoting inclusion will require a holistic, fiscally sustainable approach to development and enhanced social protection. Alleviating existing regional disparities will be critical for realizing Benin's development objectives. In this context, planned improved access to basic public services in areas vulnerable to security-related risks is welcome, in line with the authorities' “civilian approach” to tackling security threats. Finalizing the social registry will contribute to strengthening social safety nets for better targeting of social protection going forward.

55. Sustainable, private sector-led growth will require diversifying the economy by supporting private investment and economic transformation. Benin's external position is assessed to be in line with fundamentals and desirable policies. Continued improvements in the competitiveness of the Port of Cotonou will help harness further trade opportunities. This should be accompanied by measures to improve the overall business environment and promote private investment for a gradual shift away from the Nigeria-dependent transit-centered economic growth model. This could be achieved by leveraging digital solutions, improving access to public services and finance, and leveling the playing field among all participants to the Special Economic Zone. A robust PPP framework could foster private sector participation in development financing and partake in SEZ. At the same time, it will be important to monitor the cost-effectiveness of SEZ fiscal incentives, guard against over-burdening tax administration, and monitor PPP-related risks closely.

56. While the banking system appears to be weathering the multiple shocks so far, continued vigilance by supervisory authorities is needed to limit crises scars. Staff encourages the authorities to press ahead with reforms to maintain banking sector stability and follow-up closely on the WAMU Banking Commission's recommendations for bringing the two small under-capitalized banks back to conformity with regulatory norms. Access to finance could be enhanced by implementing a national financial inclusion strategy and consolidating the MFI sector by closing nonviable institution.

57. Against this backdrop, staff support the authorities' request for EFF-ECF supported arrangements under High Credit Combined Exposure to meet urgent financing needs and support the implementation of Benin's National Development Plan. The program should catalyze financing from Benin's development partners and would be bolstered by a comprehensive capacity development program towards far-reaching reforms.

Figure 1.
Figure 1.

Benin: Recent Developments, 2012–22

Citation: IMF Staff Country Reports 2022, 245; 10.5089/9798400217777.002.A001

Source: Beninese authorities and IMF staff projections.
Figure 2.
Figure 2.

Benin: Fiscal Developments, 2012–21

Citation: IMF Staff Country Reports 2022, 245; 10.5089/9798400217777.002.A001

Source: Beninese authorities and IMF staff projections.
Figure 3.
Figure 3.

Benin: Real and External Sector Developments, 2006–21

Citation: IMF Staff Country Reports 2022, 245; 10.5089/9798400217777.002.A001

Source: Beninese authorities and IMF staff projections.
Figure 4.
Figure 4.

Benin: Financial Sector Developments, 2004–21

Citation: IMF Staff Country Reports 2022, 245; 10.5089/9798400217777.002.A001

Source: Beninese authorities and IMF staff projections.
Table 1.

Benin: Selected Economic and Financial Indicators, 2019–27

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Sources: Beninese authorities; and IMF staff estimates and projections.
Table 2.

Benin: Consolidated Central Government Operations, 2019–271

(in billions of CFA francs)

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Sources: Beninese authorities; and IMF staff estimates and projections.

Consolidated central government includes government entities whose operations are include in the table of government financial operations (TOFE). Does not include any local governments, the central back, or any other public or government-owned entity that has autonomous legal status.

Projections from 2022 include financing from BOAD.

Total revenue (excluding grants) minus current primary expenditure, capital expenditure, and net lending.

Total revenue (excluding grants) minus current primary expenditure, capital expenditure, and net lending.

Total revenue (excluding grants) minus current primary expenditure and capital expenditure financed by domestic resources.

Includes financing by Beninese banks.

Includes financing by regional commercial banks.

Table 3.

Benin: Consolidated Central Government Operations, 2019–27

(in percent of GDP)

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Sources: Beninese authorities; and IMF staff estimates and projections.

Consolidated central government includes government entities whose operations are include in the table of government financial operations (TOFE). Does not include any local governments, the central back, or any other public or government-owned entity that has autonomous legal status.

2020-27 includes wages of wages of trainee “aspirant” employees previously reflected in goods and services.

Projections from 2022 include financing from BOAD.

Total revenue (excluding grants) minus current primary expenditure, capital expenditure, and net lending.

Total revenue (excluding grants) minus current primary expenditure and capital expenditure financed by domestic resources.

Includes financing by Beninese banks.

Includes financing by regional commercial banks.

Table 4.

Benin: Quarterly Consolidated Central Government Operations, 2022–23

(Billion CFAF)

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Sources: Beninese authorities; and IMF staff estimates and projections.

Total revenue (excluding grants) minus current primary expenditure, capital expenditure, and net lending.

Total revenue (excluding grants) minus current primary expenditure and capital expenditure financed by domestic resources.

Includes financing by Beninese banks.

Includes financing by regional commercial banks.

Table 5.

Benin: Balance of Payments, 2019–27

(in billions of CFA francs)

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Sources: Beninese authorities; IMF staff estimates and projections. 1 Includes re-exports and imports for re-export. 2 Includes the IMF debt service relief of CFAF 196.86 bilion from the five tranches of Catastrophe Containment and Relief Trust (CCRT).
Table 6.

Benin: Monetary Survey, 2019–24

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Sources: BCEAO; IMF staff estimates and projections.

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

Including deposits excluded from broad money, securities other than shares excluded from broad money, loans, financial derivatives, insurance technical reserves, and shares and other equity.

Table 7.

Benin: Financial Stability Indicators, 2012–21

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Source: BCEAO. Note: … = not available.

The first year of data reporting in accordance with Basel II/III and Revised Chart of Accounts (Interim Data)

Credits reported to the Central Risk Office

Excluding taxes on banking operations.

Including savings accounts.

Table 8.

Benin: External Financing Requirements and Sources, 2021–25

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Source: Beninese authorities; IMF staff estimates and projections

Includes portfolio investment, private investment, and capital account (excl grants).

Table 9.

Benin: Capacity to Repay the Fund, 2022–341

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Sources: IMF staff estimates and projections.

Data are projections

On May 24, 2019, the IMF Executive Board approved a modified interest rate setting mechanism which effectively sets interest rates to zero on ECF and SCF through June 2021 and possibly longer. The Board also decided to extend zero interest rate on ESF until end June 2021 while interest rate on RCF was set to zero in July 2015. Based on these decisions and current projections of the SDR rate, the following interest rates are assumed beyond June 2021: 0/0/0/0 percent per annum for the ECF, SCF, RCF and ESF, respectively. The Executive Board will review the interest rates on concessional lending by end-June 2021 and every two years thereafter.

Table 10.

Benin: Quantitative Performance Criteria and Indicative Targets, 2021–20231

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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.

Total revenue (excluding grants) minus current primary expenditure and capital expenditure financed by domestic resources.

Includes on-lending from the BCEAO related to the IMF disbursement. 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.

Annual for 2022. The debt limit for 2023 will be revised in line with the authorites' borrowing plan and and updated DSA.

Includes internally and externally financed expenditures related to government interventions that directly reduce poverty in the areas of education, health and nutrition, social safety nets, access to electricity, water and sanitation, microfinance, and security and civil protection. Excludes salary expenditures.

Table 11a.

Benin: Prior Action

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Table 11b.

Benin: Structural Benchmarks, 2022–23

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Table 12.

Benin: Proposed Schedule of Reviews Under the ECF-EFF Arrangement

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Sources: IMF Staff Estimates

Benin's quota is 123.8 million SDR.

Annex I. Staff Assessment of High Combined Credit Exposure (HCCE) Criteria

Criterion 1: The member is experiencing or has the potential to experience exceptional balance of payments pressures on the current account or capital account, resulting in a need for Fund financing that cannot be met without giving rise to a combined access to PRGT and GRA resources in amounts exceeding the thresholds that apply as limits in the GRA.

Benin faces several sources of BOP pressures:

• First, the current account is projected to widen in 2022–23, due to higher import bill from the sharp increase in global oil and food prices (Box 4) and the need to gradually reduce reliance on smuggled fuel products from Nigeria (SIP-III). In addition, although cotton prices are expected to remain elevated over the medium-term (albeit well-below their 2022 level), this would not be enough to offset the impact on exports from the plateauing cotton production after nearly tripling in volume between 2015-20.

• On the financing side, FDI flows (although increasing) are expected to cover only a fraction of the ongoing infrastructure push. Moreover, the ongoing tightening in global financial conditions may constrain Benin's ability to tap international capital markets at terms consistent with the program's interest-to-revenue guide and debt sustainability (Annex V).

Criterion 2: Risks to the sustainability of public debt are adequately contained.

Benin is projected to remain at moderate risk of debt distress despite having limited space to absorb shocks (DSA). Moreover, the fact that the SDR rate on GRA resources would still likely remain relatively low even as monetary conditions tighten in countries that constitute the SDR basket, and expected higher concessional financing amid the expected Fund catalytic role would further improve Benin's debt profile.

Criterion 3: The policy program of the member provides a reasonably strong prospect of success, including not only the member's adjustment plans but also its institutional and political capacity to deliver that adjustment.

Benin has strong institutional capacity to implement a large Fund-supported program, given its solid track record of policy implementation as demonstrated by the “very satisfactory” performance under the previous ECF (2017–20). The authorities have also consistently implemented past TA recommendations and enjoy good traction with the donor community. The country was assessed above SSA peers in several areas under the 2021 FAD Fiscal Transparency Evaluation. There is demonstrated commitment to reform (and resolve to maintain it), with robust involvement of the civil society, including in the budget process, as additional safeguard. Strong upfront conditionality in governance, transparency and AML/CFT, and the authorities' permanent tax package this year (1/2 ppt of GDP) set the program on strong footing.

Annex II. Status of Implementation of Key Recommendations from 2019 Article IV Consultations

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Annex III. Risk Assessment Matrix1

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Annex IV. External Sector Assessment1

Overall assessment: The external sector assessment indicates that Benin's external position in 2021 was broadly in line with the level implied by fundamentals and desirable policies, similar to the results obtained in the previous ESA, conducted in 2019.2 Based on staff's estimates of data3, the current account deficit widened in 2021 on account of higher food and oil prices and significant increase in imports driven by public investment scaling-up. Over the medium term, the current account is expected to improve gradually driven by fiscal consolidation and expected increase in exports following the completion of several major infrastructure projects. Following a sharp but temporary increase in capital inflows in 2021, reflecting two Eurobond issuances and the IMF's general SDR allocation, the financial account balance is expected to gradually stabilize over the medium term. The financial account is subject to risks, given the uncertain path of global interest rates.

Potential policy response: In the near term, policies should continue to support the recovery from the pandemic, while monitoring external financing risks stemming from uncertain developments in global interest rates. A gradual fiscal consolidation towards the regional deficit target, combined with structural reforms to support private sector competitiveness, will help narrow imbalances over the medium term.

A. Foreign Assets and Liabilities: Position and Trajectory

1. 2020 position. Benin's net international position (NIIP) deteriorated to - 33 percent of GDP at end-December 2020 (the most recent data point), from -26.5 percent of GDP at end-December 2019. Financial assets of 36 percent of GDP were split between portfolio investments (16 percent of GDP), other investments (7 percent of GDP), and reserves (9 percent of GDP). More than a half of financial liabilities were comprised of concessional loans to the government (39 percent of GDP).

2. Outlook. A large current account (CA) deficit in 2021 is estimated to have driven the NIIP, while the projected improvement in the CA position from 2023 should contribute to stabilizing the NIIP ratio over the medium term. Nearly a third of Benin's external liabilities in 2020 were comprised of foreign direct investments (FDI), while portfolio investments (which are more volatile than FDI) constituted only 13 percent of external liabilities, containing the risks to external sustainability arising from the negative NIIP. As a result, the current NIIP and its projected path do not imply risk to the country's external sustainability.

B. Current Account

3. Background. The CA deficit is estimated to have increased to 4.4 percent of GDP in 2021 (from 1.7 percent of GDP in 2020) reflecting import recovery and higher international oil and food prices (Text Figure 1). The widening of the CA deficit reflects factors related to the lingering COVID-19 pandemic, scaling-up of public investment, and negative terms-of-trade shocks, which are expected to moderate over the medium term. Under the baseline projection, the CA deficit is expected to gradually improve over the medium term and reach 4.1 percent of GDP in 2027 (level broadly similar to the 2017-19 average) on account of fiscal consolidation and expected increase in exports following the completion of several major projects, including the construction of a new terminal at the Port of Cotonou. Nevertheless, important risks to this outlook remain given the elevated uncertainty associated with the scope and speed of the global economic recovery and persistence of shock stemming from the war in Ukraine, as well as the dependence on transit-centered trade, including with Nigeria (SIP-III).

Text Figure 1.
Text Figure 1.

Benin: Current Account

(Percent of GDP)

Citation: IMF Staff Country Reports 2022, 245; 10.5089/9798400217777.002.A001

4. Assessment. The EBA-lite CA model, which compares the actual current account balance with the estimated current account norm and infers the real exchange rate adjustment necessary to bridge the gap, suggests that Benin's external position in 2021 was broadly in line with the level implied by fundamentals and desirable policies.4 Using preliminary estimates for 2021, the CA model indicates an overvaluation of 3.5 percent and a CA gap of -0.7 percent of GDP: a cyclically adjusted CA balance of -4.4 percent of GDP against a norm of -3.7 (Text Table 1). A standard adjustor was added to the actual CA balance account for the temporary impact of COVID-19 on tourism (0.08) percent of GDP) and remittances (0.04 percent of GDP). The current account gap is driven by a policy gap of 1.9 percent of GDP, which mostly reflects an increase in Benin's contribution to WAEMU's pooled reserves as a result of large Eurobond issuances in January and July 2021, and the IMF's August 2021 SDR allocation. As a result, the contribution of the foreign exchange (FX) intervention gap is large and positive, reflecting a deviation between change in reserves (1 percent of GDP) from its desirable policy level for the World as a whole compared to Benin's (set at 0 percent of GDP).5 Assuming an elasticity of the current account balance with respect to the exchange rate of -0.20, the real exchange rate would need to depreciate by 3.5 percent to eliminate the gap between the norm and the actual current account.

Text Table 1.

Benin: Model Estimates for 2021

(Percent of GDP)

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Additional cyclical adjustment to account for the temporary impact of the pandemic on tourism (0.08 percent of GDP) and remittances (0.04 percent of GDP).

Cyclically adjusted, including multilateral consistency adjustments.

C. Real Exchange Rate

5. Background: The CFA Franc (CFAF) depreciated by about 13.6 percent in real effective terms over 2009-19,6 reflecting both the nominal depreciation of the Euro vis-à-vis the US dollar and relatively low inflation in Benin compared with its trading partners. After having appreciated by about 3.8 percent in 2020—largely as a result of relative appreciation of the Euro against the USD—the real effective exchange rate (REER) remained stable in 2021, depreciating by about -0.7 percent (Text Figure 2).

Text Figure 2.
Text Figure 2.

Benin: Effective Exchange Rates

Citation: IMF Staff Country Reports 2022, 245; 10.5089/9798400217777.002.A001

Source: IMF International Notice System

6. Assessment: When applied to 2021 data, the EBA-Lite Index Real Effective Exchange Rate (IREER) model finds an undervaluation of approximately 20.1 percent, implying a CA gap of 3.9 percent of GDP. As in past external sector assessments, staff finds the REER model results tend to be an outlier that needs to be treated with caution in the context of Benin 's CA deficits. Staff judges that the CA model offers a stronger explanatory power for a country like Benin as it takes advantage of cross-country information. Thus, staff rely on the CA model for the bottom-line external sector assessment given its explanatory power.

D. Capital and Financial Account

7. Background: In 2021, net capital inflows are estimated to have increased to 3.2 percent of GDP, from 0.6 percent of GDP in 2020, driven by a sharp but temporary increase in net portfolio flows (5.0 percent of GDP), reflecting Benin's large Eurobond issuances in January and July of 2021 (Text Figure 3), a portion of which was used for debt liability management operations (Annex VI). Over the medium term, the financial account is projected to gradually stabilize to -3.0 percent of GDP in 2026, compared to -2.8 percent of GDP, on average, over 2017-19, as stable FDI and official inflows are expected to be offset by a decline in portfolio investments—the latter reflecting prudent assumptions on new net Eurobond issuances over the period given uncertain international market borrowing costs.

Text Figure 3.
Text Figure 3.

Benin: Financing Sources

(percent of GDP)

Citation: IMF Staff Country Reports 2022, 245; 10.5089/9798400217777.002.A001

8. Assessment: Staff sees some risks from a financial account perspective:

• Benin was the first SSA country to return to international capital markets since the onset of COVID-19. Proactive debt management operations, the use of concessional financing, and increased donor support to fund the government's response to the lingering COVID-19 pandemic, reduced financing risks.

• However, while spreads are currently low, Benin's capacity to access financing on capital markets at a reasonable cost is subject to the path for global interest rates, which remains highly uncertain. Shifts in global risk appetite resulting from monetary policy normalization in advanced economies could narrow the access to international markets. Similarly, persistence of the war in Ukraine conflict could increase rollover risks. Over the medium term, prioritizing concessional financing while monitoring the cost of Benin's debt service will be important. In this regard, the authorities' aim to strengthen their fiscal position while advancing revenue mobilization to improve the debt service capacity will be important (Annex V). Nevertheless, as Benin's access to concessional sources of finance is expected to gradually decline with improvements in the country's income, greater efforts should focus on attracting more private capital inflows and enhancing the business environment.

E. Reserves7

9. Background. The WAEMU pooled reserves continued to expand in 2021, increasing from CFAF 11.7 trillion at end-2020 to about CFAF 13.9 trillion at end-2021—equivalent to 5.8 months of 2022 imports (Text Figure 4). The reserve position was supported by large Eurobond issuances by Benin, Cote d'Ivoire, Senegal, and the BOAD (2.6 percent of 2021 GDP or 1.2 months of 2022 imports), a recovery in export repatriation proceeds, and the IMF's general SDR allocation in August 2021 (about USD 2.3 billion, roughly equivalent to 0.6 months of 2022 imports). Over the medium term, reserve coverage is expected to contract gradually to about 5 months of prospective imports by 2026 largely driven by a moderate pickup of imports during the recovery and a subdued outlook for capital inflows (FDI and official flows) at the regional level. The gradual convergence of WAEMU members towards a fiscal deficit of the 3 percent of GDP, the regional norm, will help support the reserve position.

Text Figure 4.
Text Figure 4.

Benin: WAEMU Regional Gross International Reserves

(In million USD and months of next year's extraregional imports)

Citation: IMF Staff Country Reports 2022, 245; 10.5089/9798400217777.002.A001

Source: BCEAO

Annex V. The Interest-to-Tax Revenue Ratio as a Guide for Fiscal Policy1

1. Using the interest-to-tax revenue ratio as a guide for fiscal policy embeds the important trade-off between borrowing to meet spending needs and maintaining debt servicing capacity. In addition to providing a direct link between domestic revenue mobilization and fiscal space, the interest-to-revenue ratio reflects debt servicing capacity, a strong predictor of fiscal stress episodes.

2. This ratio is particularly well-suited to Benin where interest costs have risen sharply since 2014, tax revenues remain low, and development needs high.

3. Benin has increasingly relied on non-concessional borrowing to meet its financing needs (See DSA), including due to the declining availability of concessional financing given the country's relatively high per capita income to other LICs. Partly as result of this trend, the interest bill rose above 20 percent of tax revenue by 2021 (from only about 3 percent in 2014). While successful liability management operations, using proceeds from the large Eurobond issuance in 2021, put a dent on interest costs over 2022-24, high borrowing costs going forward, as global financial conditions tighten, could crowd-out priority spending. The focus on interest-to-tax revenue is also relevant given that even though Benin's debt level is manageable, increasing revenues from a relatively low base (SIP-II) will be critical to continue servicing it. More fundamentally, durably expanding the tax base would provide more room for accessing market financing to support development needs, including in the context of the limited availability of concessional financing as Benin's income rises.

Annex V. Figure 1.
Annex V. Figure 1.

Benin: Interest to Tax Revenue and Debt to GDP 2009-26

(Percent)

Citation: IMF Staff Country Reports 2022, 245; 10.5089/9798400217777.002.A001

Sources: IMF staff calculations
Annex V. Figure 2.
Annex V. Figure 2.

Benin: Interest-to-Revenue Ratio Baseline vs. Alternative Scenarios1

(percent)

Citation: IMF Staff Country Reports 2022, 245; 10.5089/9798400217777.002.A001

4. Staff estimations suggest that an interest-to-tax revenue ratio of 19 percent would provide a buffer against a fiscal stress event materializing, while avoiding the crowding out of primary expenditures. Cross-country analysis of fiscal stress episodes suggest that an interest-to-revenue ratio of 19 percent can robustly predict fiscal stress.2 Given the low tax base and the lower predictability of non-tax revenue, an interest-to-tax revenue (as opposed to total revenues) anchor is better tailored to Benin's circumstances. We set the interest-to-tax revenue anchor to the 19 percent high risk threshold established in the stress analysis based on total revenue. This de facto provides a safety buffer of about 2 percent, considering and is consistent with non-total revenues in Benin remaining at historical levels. The 19 percent threshold for the interest to tax revenue anchor is also consistent with maintaining debt sustainability.

5. Downside scenarios illustrate how both revenue efforts and shocks can quickly lead to a breach of the threshold. A scenario where no new measures were taken to mobilize tax revenues would put the interest-to-revenue ratio on an increasing path, reaching 14 percent by 2026 (nearly 4 ppts above the baseline), while 250 basis point increase in new borrowing costs would bring the ratio to 16 percent (about 4 ppts above the baseline) and a combination of these scenarios would breach the threshold and bring the ratio to 19 percent. Continued prudent borrowing and a sustained revenue mobilization strategy that insulates the tax base from shocks would mitigate the risk of breaching the anchor.

Annex VI. Benin's Access to Capital Markets: Opportunities and Risks1

Access to global capital markets provides countries with an alternative source of financing with considerable benefits. Sovereign issuances can also carry significant risks, including sudden change in investors' sentiment and deteriorated external conditions. Safeguarding Benin's market access over the medium term will require prudent fiscal policy and continued proactive debt management practices. Further reliance on concessional financing as Benin diversifies its other financing sources would contain borrowing cost.

Benin's Market Access

1. Benin issued its first Eurobond in March 2019 and became the 17th country in SSA to tap international capital markets to meet its financing needs. Unconventional monetary policies in advanced economies produced a prolonged episode of ultra-low global interest rates and extremely low volatility in financial markets, since 2009-10. Taking advantage of the benign global financial environment, Benin issued its first Eurobond for an amount of EUR 500 million, carrying a coupon of 5.75 percent with a maturity of 7 years.

2. Like for many other sovereigns, Benin's bond spreads soared at the onset of the pandemic (by 550 bps by end-March 2020). Spreads subsequently returned gradually to pre-pandemic levels by end of 2020. The Beninese authorities carefully timed their return to international capital markets in January 2021, at a moment when the country's sovereign bond spreads fell to the lowest levels since 2019Q1 (Figure 5.1). Split into two tranches, Benin's second Eurobond secured the longest maturity (31 years) ever received by a WAEMU member on global capital markets. The issuance was oversubscribed by threefold, attracting nearly EUR 3 billion in bids from 125 investors.

Annex VI. Figure 1.
Annex VI. Figure 1.

Benin: EMBI Spreads (Selected countries, 2019-2021)

Citation: IMF Staff Country Reports 2022, 245; 10.5089/9798400217777.002.A001

Source: Bloomberg

3. Global impact of the COVID-19 pandemic spurred an unprecedented boom in the issuance of non-traditional sovereign bonds. They grew by 64 percent in 2021 to reach US$992 billion or 11.3 percent of total global bond issuance (Moody's ESG Sustainable Finance Outlook Report 2022). Benin became the first country in SSA to issue an SDG bond in July 2021, building on the innovative SDG bond framework (Box 1). Despite a relatively low coupon (on par with the Cote d'Ivoire's Eurobond issued in December 2020), Benin's third Eurobond realized a “greenium”—a reduction in premium against its estimated secondary trading price—of nearly 20 basis points.

Benin's SDG Bond Framework

Benin has anchored its national development plan (PND; 2018–25) on Sustainable Development Goals (SDGs). The PND is the result of a consultative process involving a wide array of domestic stakeholders to foster ownership.

This policy blueprint allowed the authorities to develop an SDG Bond Framework as an integral part of the country's development finance strategy. The framework was preceded by a costing of SDGs with UN technical support and focuses on 12 green and social eligible categories, including education, health, and water. It describes how the bond proceeds will be used, the process for expenditure evaluation and selection, the management of proceeds as well as the reporting on allocation and impacts of the funds used. As the bond proceeds are channeled through the national budget, investors bear no risk tied to projects.

The framework facilitated the issuance of EUR 500 million SDG Eurobond in July 2021. While the first in SSA, the issuance reflects a global trend towards green, social, and sustainability bond financing (Figure 1). Benin's SDG bond presents several advantages. First, it was obtained at relatively attractive terms (12.5-year maturity at 4.95 percent coupon). Second, the underlying framework is transparent and features a strong accountability mechanism. Third, the required annual reporting ensures that the spending priorities are not crowded-out in the budget process, supporting specific development objectives.

Figure 1:
Figure 1:

Non-traditional bond issuances

(2015-21, in US$ billions)

Citation: IMF Staff Country Reports 2022, 245; 10.5089/9798400217777.002.A001

Sources: Moody’s ESG Solutions and Environmental Finance Bond Database

Benin's SDG Bond Framework can serve as a model to other countries in the region seeking to tap international capital markets towards development financing. The framework was deemed aligned with the four core components of Green Bond Principles and Social Bond Principles by Vigeo Eiris (subsidiary of Moody's) in June 2021. As for any other source of financing, borrowing under the framework should remain consistent with debt sustainability (see DSA).

4. Continuous improvements in investors' senitment throughout 2021 (Table 5.1) lowered Benin's average sovereign bond spreads below those of Cote d'Ivoire in the last quarter of 2021. The decline in spreads reflected the resilience of Benin's economy to the dual shock of COVID-19 pandemic and the Nigerian border closure, strong potential growth, as well as sound fiscal management and manageable debt level.

Annex VI. Table 1.

Benin: Sovereign Rating (as of February 11, 2022)

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Source: Fitch, Moody's, and Standards&Poors

Benefits of Market Access

5. Access to global capital markets provides countries with an alternative source of financing with considerable benefits. Sovereign Eurobonds can be useful as a signal for attracting other capital flows to the private sector as they provide a benchmark of country risk. They are a very transparent form of debt, as all the terms and conditions are published by the exchanges the bonds are listed on. They can represent means to quickly raise a considerable level of financing under market-imposed discipline policy conditions that are usually tied to funding coming from official sources. Finally, they can empower country's debt management agencies by providing them with a choice for lending terms (i.e., currency denomination, tenor, and repayment schedule).

6. Compared to the WAEMU regional market, international capital market access provides Benin with preferable terms (Figure 5.2). For instance, the average yield on a 10-year bond issued on the regional market (6.72 percent) was trading nearly 160 bps higher than if issued on international markets (5.34 percent) at end-January 2022. Moreover, international capital markets provide Benin with access to long-term debt needed to finance Benin's developmental goals.

Annex VI. Figure 2.
Annex VI. Figure 2.

Benin: Yield Curves on Regional and International Capital Markets (As of January 31, 2022)

Citation: IMF Staff Country Reports 2022, 245; 10.5089/9798400217777.002.A001

Source: Bloomberg

7. Global capital markets provide Benin with preferrable borrowing terms and longer maturities compared to its regional peers. Yields on Benin's Eurobonds experienced a notable decline in 2021. For example, spreads on Benin's first Eurobond (BEN 2026) declined from 436 bps on January 4, 2021 to 374 bps on December 31, 2021. As a result, Benin's Eurobond yield curve fell below those of Senegal and Cote d'Ivoire by end-January 2022 (Figure 5.3).

Annex VI. Figure 3.
Annex VI. Figure 3.

Benin: Yield Curves on Outstanding Eurobond Issuances (Selected countries, as of January 30, 2022)

Citation: IMF Staff Country Reports 2022, 245; 10.5089/9798400217777.002.A001

Source: Bloomberg

8. In addition to diversifying sources to finance its developmental agenda, access to international markets enabled Benin to proactively manage its debt portfolio. Benin used part of the proceeds of the January 2021 Eurobond towards an early repayment of 65 percent of the more expensive 2019 Eurobond (EUR 324 million or 2.1 percent of GDP), with shorter remaining maturity.

Similarly, more than three quarters of the July 2021 Eurobond were used to retire shorter maturity and more expensive domestic debt (CFAF 218 billion or 2.1 percent of GDP) in November 2021. These debt management operations reduced amortization of Benin's external debt over 2024-26 period, lowered reliance on domestic (regional) liquidity and refinancing risks, decreased the average cost of its debt and extended its maturity.

Risks Of Market Access

9. Sovereign issuances can also carry significant risks. Investor sentiment can shift quickly if a sovereign's policies change, country's economic outlook deteriorates, or global economy or financial markets experience a shock inherently unrelated to the sovereign. This volatility, combined with the foreign currency risk and borrowing cost, can make Eurobond borrowing hazardous.

10. To shed light on the main drivers of Benin's sovereign bond spreads, we apply the results of the Local Projections method model (IMF, 2019).2 The model decomposes changes in EMBI spreads into the contribution of external and domestic factors. The results of the exercise confirm that the current levels of Benin's sovereign bond spreads can be explained by a combination of external conditions (such as investors' risk aversion and oil prices) and macroeconomic fundamentals (such as level of debt, fiscal stance, and institutional quality). The results also show that Benin's spreads were on average 58 basis points higher since the country's first Eurobond issuance in March 2019, compared to spreads implied by the country's fundamentals (Figure 5.4). The model also suggest that the decline in spreads in 2021 was mainly driven by improved investors' sentiment (proxied by VIX index). Some authors have interpreted this as African countries paying a higher risk premium on their external debt, reflecting real and perceived sovereign risks (Presbitero at al., 2016; Mutize, 2019; Soto, 2020, Fofack, 2021). To limit perception risk from investors, Benin did not participate in the ongoing Debt Service Suspension Initiative (DSSI).

Annex VI. Figure 4.
Annex VI. Figure 4.

Benin: Sovereign Bond Spreads

(EMBI vs Fundamentals)

Citation: IMF Staff Country Reports 2022, 245; 10.5089/9798400217777.002.A001

Sources: Staff estimate; Bloomberg

11. While Benin's performance on international sovereign bond markets has been strong, gradual monetary policy tightening in advanced economies, and uncertainty related to the war in Ukraine, disrupted capital flows, increased Benin's risk premia and its borrowing costs. Indeed, as of end-April 2022, Benin's EMBI spreads have increased by 70 bps since the outset of thewar. Nevertheless, deterioration in international market conditions is unlikely to increase the country's refinancing risks in the near term: while about 10 percent of Benin's outstanding Eurobond issuances (0.5 percent of GDP) is maturing within 4 years (Figure 5.5), only around 2 percent of Benin's current debt stock is subject to variable interest rates. In addition, given the maturity profile, the authorities have ample time to proactively pursue liability management operations, as they have successfully done in the recent past.3 Finally, there is no obvious exchange rate risk as all of Benin's Eurobond issuances are denominated in euros.

Annex VI. Figure 5.
Annex VI. Figure 5.

Benin: Maturity Profile for Outstanding Issues: Benin, Senegal, and Cote d’Ivoire (as of January 30, 2022)

Citation: IMF Staff Country Reports 2022, 245; 10.5089/9798400217777.002.A001

Source: Bloomberg

12. Persistently high-risk premia paid by WAEMU countries with international capital markets access, including Benin, could lead to their higher reliance on domestic (regional) financing and lower private sector credit growth. This could create conditions in which the WAEMU's biggest economies (such as Senegal and Cote d'Ivoire) borrow regionally at the same time, exerting significant liquidity pressures on WAEMU capital markets, crowding out private sector credit, and leaving limited space to absorb financing needs of WAEMU's smaller members, such as Benin.

Safeguarding Market Access Over the Medium Term

13. Maintaining access to international capital markets will require prudent fiscal policy and debt management. This will require striking a balance in deficit financing between maintaining market access (at non-concessional terms) and preserving fiscal space for development needs. While Benin's debt is assessed to be at the moderate level of debt distress, interest costs are high relative to revenues, leaving little space to absorb shocks. This puts premium on continued reliance on concessional financing over the medium term. In addition, the authorities should continue making further progress in the implementation of Benin's medium-term debt strategy (MTDS), including by improving its consistency with the regional market issuance schedule and the national annual financing plan, and by seeking to better integrate cash and debt management practices.

14. Benin's ability to tap international capital markets over the medium term will depend on its ability to continue attracting foreign and domestic private investment. The country's access to concessional borrowing is expected to decrease over the medium term with a gradual improvement in its income level. As such, diversifying financing sources and attracting private financing will be essential to maintain robust and inclusive economic growth.4 Additional efforts to enhance Benin's business environment and strengthen trade and regional integration could help lower private sector's investment risks.

15. To mitigate adverse effect of monetary policy normalization in world's advanced economies, additional efforts should be devoted to deepening regional public debt markets. In this regard, Benin's issuance of CFAF 150 billion (about $250 million) in two tranches of 15 years and 20 years in February 2022 marked the first 20-year issuance on the regional market, and the longest to date. This demonstrated Benin's ability to “drive the market” and consolidated its position as a major player on the regional market. Sustaining this position will mitigate risks of potential crowding out of private sector credit in cases of higher reliance of WAEMU members on domestic (regional) financing. While monetary policy and capital markets development are under the purview of the regional authorities5, for Benin additional efforts could focus on facilitating greater role of Benin's institutional investors (e.g., Caisse Nationale de Sécurité Sociale du Bénin and Caisse des Dépôts et Consignations du Bénin) in the regional debt public market, seeking to improve coordination of sovereign issuances among the WAEMU members, and contributing to enhanced operations of the regional market's primary dealers.

References

Annex VII. Scaling Up Benin's Social Safety Nets1

Access to social safety nets in Benin was limited prior to the pandemic, which further highlighted the need to have strong social safety nets in place to reach the vulnerable in times of hardship. To facilitate efficient targeting of social spending, the authorities are in the process of developing a national social registry, underpinned by a harmonized targeting methodology. In addition, they have successfully piloted various social safety net projects, including their flagship Assurance pour le Renforcement du Capital Humain (ARCH). While implementation of ARCH has been gradual, its coverage is expected to increase significantly in the near term, in particular with the scaling up of the mandatory health insurance coverage since February 2021.

1. The COVID-19 pandemic highlighted the need to have strong social safety nets in place to reach the vulnerable in times of hardship. Access to social safety nets in Benin was limited leading up to the pandemic, with a substantial share of households living from subsistence farming and nearly 85 percent of the labor force employed in the informal economy (mostly comprised of women) (INSAE, 2019). Total spending on education, health and social protection amounted to about 5.3 percent of GDP in Benin during 2018–21, slightly above the average recorded between 2016-18 (4.9 percent of GDP) which was nearly half the level recorded among LICs (Figure 7.1). Historically low levels of social expenditure reflect the authorities' view that ensuring better access to basic public services is the optimal way to support the poor absent robust social safety nets. Constrained by the limited capacity to efficiently target vulnerable households, the government reach at the onset of the pandemic was limited—cash transfers amounted to only 0.13 percent of GDP out of the 4.5 percent of GDP comprising the overall COVID response plan. Because they do not have access to social protection, informal sector employees were particularly affected by the pandemic (INSAE, 2020).

Annex VII. Figure 1.
Annex VII. Figure 1.

Benin: Social Spending

(in percent)

Citation: IMF Staff Country Reports 2022, 245; 10.5089/9798400217777.002.A001

Source: World Health Organization, Beninese authorities

2. To facilitate efficient targeting of social protection programs, the authorities are in the process of developing a national social registry. This is a social policy tool that collects the socio-economic and demographic profiles and characteristics of a country's poorest segments of populations and facilitates effective targeting of social programs. The number of enrolled households reached 364,673 as of April 2021, moving well on the goal of putting in a unified, modern social registry of 550,000 households by end-2023, or the equivalent of 3.3 to 4 million individual beneficiaries, nearly a third of Benin's total population. The collected data is linked to the national biometric identification system.

3. National registry's data gathering is underpinned by a harmonized targeting methodology. Conducted in three stages starting in 2017, the methodology combines community level targeting (CMT) with proxy means testing (PMT): poor households are first identified by trained Community Identification Committees, followed by the household and proxy means data collection, whose results are finally validated through consultation with local communities. While the results of the final CMT are expected to be completed by end-2022, the process has already identified nearly 1.6 million people living below the poverty line, including 1.2 million categorized as extremely poor and 0.4 million as poor.

4. In July 2017, Assurance pour le Renforcement du Capital Humain (ARCH), the authorities' flagship social protection program, was launched. The program is comprised of four pillars focusing on (i) enhancing access to health by improving health insurance coverage, specifically targeting the poor; (ii) providing continuous occupational training (to about 1.8 million of informal workers); (iii) facilitating access to micro-credit (to nearly 1.8 million of informal enterprises); and (iv) extending guaranteed retirement pensions (to approximately 2 million people employed in the informal sector). The authorities' estimate the total cost of the overall project at CFAF 183.8 billion (about 1.8 percent of GDP) over 2021-26, of which about a third (CFAF88.6 billion or about 1 percent of GDP) has already been secured through mostly external sources.2

5. While implementation of ARCH has been gradual, its coverage is expected to increase significantly in the near term. The health insurance is the main component of ARCH, and its implementation is the most advanced, with health insurance becoming compulsory for all Beninese residents in January 2022 (Box 1). While the remaining components of ARCH remain in pilot phase, their coverage is expanding. For example, as of end-December 2021, the pilot phase of the micro-credit component (Microcredit ALAFIA) provided CFAF 8.7 billion (US$15 million) to 177,848 beneficiaries (of which 86 percent were women). By end-2022, this component is expected to disburse CFAF 15.8 billion (US$27.3 million) to 233,000 beneficiaries. The pilot phase of the vocational training component was launched in December 2020 across eight municipalities and is expected to have created nearly 2,600 jobs by end-December 2021. The completion of the census of approximately 241,000 artisans (expected by end-2022) will facilitate efficient targeting of vocational training to this segment of population. Lastly, the final version of the business model for the retirement component of ARCH has been completed and the pilot phase is planned to start in second half of 2022.3

Pursuing Universal Health Coverage in Benin

Benin's health insurance system is extremely fragmented with several co-existing schemes, including contributory schemes covering civil servants, retirees and employees of the formal sector, and voluntary community-based health insurance. Compared to other SSA countries, Benin's government health expenditure is very low, at 0.5 percent of GDP in 2019 (Figure 1). As a result, only 8.4 percent of the total population was covered by health insurance in 2019 and out-of-pocket payments constituted 47 percent of healthcare expenditure (Figure 2). These costs can force households into poverty, wipe out their savings, or even keep them from seeking care altogether.

Figure 1:
Figure 1:

Government Health Expenditure (% GDP, 2019)

Citation: IMF Staff Country Reports 2022, 245; 10.5089/9798400217777.002.A001

Source: Global Health Expenditure Database
Figure 2:
Figure 2:

Out-of-pocket as % of Current Health Expenditure (2019)

Citation: IMF Staff Country Reports 2022, 245; 10.5089/9798400217777.002.A001

Source: Global Health Expenditure Database

With objective of boosting access to basic health services, in July 2019 the authorities launched the pilot phase of the health insurance component of ARCH (ARCH-Assurance Maladie, ARCH-AM). By end-2021, the project has expanded its coverage from initially 7 to 21 (out of 77) communes in Benin. Finalization of the PMT survey across the remaining 56 communes is expected by end-2022, with the total number of ARCH-AM beneficiaries expected to increase to 5.1 million (40 percent of total population) by end-2023, including 1.3 million of extremely poor and 3.8 million non-extremely poor.

The authorities have also made health insurance compulsory in February 2021. They plan to fully subsidize the cost of health insurance premiums for the extremely poor and 40 percent of the premiums for the population living below the poverty line. Following two actuarial studies, the health insurance annual premium's cost was estimated to be CFAF 6000 (or about US$10) under the assumption that insured people would have two medical contacts per year, multiplied by the average consultation cost at primary health care level.

To achieve the universal health coverage, pre-pandemic estimates suggest that Benin would need to spend about 9.3 percent of its GDP on health (US$119 per capita) by 2030 (IMF, 2019). This compares to 4.2 percent of GDP (US$33 per capita) of total spending on health equivalent in 2019 and corresponds to recruiting 8 times more doctors and four times more support staff than in 2019. The lingering health pandemic is estimated to have increased spending needs even further (IMF, 2021).

The authorities are likely to face several important challenges in their pursuit of universal health coverage. These may include a highly fragmented health insurance system and fiscal risks stemming from inefficient funding of ARCH-AM, which could engender galloping health costs and reduce the cost-effectiveness of the whole system. Addressing these challenges will require improving institutional capacity, bolstering targeting and delivery systems, and securing the necessary funding. Significant spending needs call for strong accountability and transparency mechanisms to ensure a sustainable increase in health coverage in Benin.

6. In addition, the authorities have successfully piloted various donor-funded social safety net projects, whose coverage is yet to be scaled up across the country. These projects focused on cash transfers, health insurance, school feeding, early childhood development, nutritional support for vulnerable children and people with disabilities, and temporary humanitarian relief. Most notably, the National Integrated School Feeding Program (PNASI), piloted by the World Food Programme in 2017 and co-financed by Catholic Relief Services and USAID, constitutes a de facto the largest social safety net program in the country. In 2021, the program benefited nearly 650,000 students, covering 54 percent of all primary schools across the country (WFP, 2021), and is expected to increase its coverage to all primary schools by end-2023. Similarly, since 2018, the World Bank-funded ACCESS project has been providing unconditional cash transfers of CFAF 5,000 per month delivered via mobile money, and additional income through labor intensive community works projects. In 2021, the project provided transfers to over 19,216 households directly benefitting over 100,000 people.

7. The authorities are in the process of finalizing a Ten-Year Productive Social Safety Net Program in Benin for 2022-2031 (PDFPSP 2022-2031), leveraging the being finalized national registry. The PDFPSP aims to contribute to accelerating poverty reduction through targeted interventions that ensure regular and reliable assistance to extreme poor households in the short term and help the poor participate in the economic process. At the same time, the activities supported by the program through conditional cash transfers linked to participation in community-level works will improve the living environment of communities, particularly sanitation, landscaping and maintenance of public places. The program is designed through four differentiated interventions including i) unconditional cash transfer of CFAF 12,000 per month; ii) additional CFAF 2,000 per month for participation in vocational training, including in health and financial inclusion; iii) public works opportunities (with focus on climate change and deforestation) for 12 days over a 3-month period paying CFAF 13,500; and iv) revenue-generating activity (with focus on improving SME access to finance), for which beneficiary firms would receive training on developing a business plan and a grant of CFAF 25,000 towards their business.

8. Going forward, leveraging digital solutions could enhance the access to and targeting of social protection. The completion of the national social registry that tracks the beneficiaries across all social safety net programs could provide a useful instrument to improve the coordination, effectiveness, and targeting. Similarly, collecting information on the characteristics of informal workers could help design better programs to foster their productivity, such as providing training and financial inclusion. Several countries in SSA have used mobile technologies to scale up social protection programs, with cash transfers distributed via mobile wallets. In Togo, for example, a new mobile cash-transfer program, NOVISSI, was launched in April 2020 to support informal workers, identified through their voter ID. The program used the 2020 voter registration database to identify recipients and relies on mobile transfers.

References

  • African Collaborative for Health Financing Solutions, 2021. “Study of the State of Accountability for Universal Health Coverage (UHC) in Benin,” September

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  • Delphine Prady and Mouhamadou Sy, 2019. “The Spending Challenge for Reaching the SDGs in Sub-Saharan Africa: Lessons Learned from Benin and Rwanda,” IMF Working Paper WP/19/270, December

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  • World Food Program, 2021. “Évaluation décentralisée conjointe finale du Programme National d'Alimentation Scolaire Intégré (PNASI) au Bénin 2017 à 2021,“ September

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  • Institut National de la Statistique et de l'Analyse Économique, 2018. “Integrated Regional Survey of Employment and Informal Sector”

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  • Institut National de la Statistique et de l'Analyse Économique, 2019. “Enquête Démographique et de Santé au Bénin, 2017-2018”

  • Institut National de la Statistique et de l'Analyse Économique, 2020. “Enquête Téléphonique de Haute Fréquence : Impacts Socio-économiques au Bénin”

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  • République du Benin, Politique Holistique de Protection Social au Benin, 2014

  • IMF, 2021. “A Post-Pandemic Assessment of the Sustainable Development Goals,” IMF Staff Discussion Note, Washington, DC, March.

Annex VIII. Vulnerability to Climate Change and National Strategy1

Benin is ranked as one of the most vulnerable countries to climate change. The agricultural sector, which makes up nearly a third of the economy, is particularly vulnerable to climate shocks. Climate change would have both socio-economic and health consequences, compounding already weak social outcomes. Benin has developed a national strategy to improve resilience to climate change and is also committed to climate change mitigation, in line with a long-standing commitment to protecting the environment. Nevertheless, any adaptation and mitigation efforts will require mobilizing considerable financing resources.

1. With already significant exposure to risks from natural disasters, Benin is ranked as one of the most vulnerable countries to climate shocks. It has experienced a wide range of natural hazards since 1900 with epidemic and floods accounting for nearly 90 percent of them (Text Figure 8.1). In particular, flooding affected 3.2 million people in Benin over the past 40 years (Text Figure 8.2). Benin was also ranked as the 12th most vulnerable country to climate shocks (in a sample of 192 countries) by the Notre Dame Global Adaptation Initiative (ND-GAIN; 2019).2 The low ranking was particularly driven by Benin's relatively low agricultural technological capacity and the projected impact of climate change on crops.

Text Figure 8.1.
Text Figure 8.1.

Benin: Average Annual Natural Hazard Occurrence, 1900-2018

(Percent of total)

Citation: IMF Staff Country Reports 2022, 245; 10.5089/9798400217777.002.A001

Source: World Bank (Climate Change Knowledge Portal)
Text Figure 8.2.
Text Figure 8.2.

Benin: Key Natural Statistics for Natural Hazards, 1985-2018

(Number of people affected)

Citation: IMF Staff Country Reports 2022, 245; 10.5089/9798400217777.002.A001

Source: World Bank (Climate Change Knowledge Portal)

2. Benin is subject to both acute and chronic risks from climate change, with impacts on both rural and urban areas. Some of these risks have already started to materialize, including droughts, more intense and frequent flooding, high winds, disruptions to rainfall cycles, violent winds, excessive heat, and sea level rise. Rainfall has decreased consistently in April-June during 1960-2006, with an average rate of decrease of 3.9 mm per month per decade. According to the European Space Agency's Seas Level Climate Change Initiative, sea level anomaly has steadily increased from less than 15 mm on average in 1993-2000 to above 60 mm on average between 2010-18. Going forward, these vulnerabilities could become more persistent and severe, leading to further coastal erosion, saltwater intrusion into the water supply, and significant declines in crop yields.

3. The primary sector, which made up nearly 30 percent of the economy in 2021, is particularly vulnerable to climate change. Warmer conditions, droughts and disruptions in the agricultural calendar could lead significantly lower declines in crop yields, disruption of fishing activities, and higher livestock mortality. For example, according to a climate change scenario by UNDP, maize yields could decline by 16.7 percent by 2030.3 However, with increasingly uncertain weather patterns, the precise impact on crops has been difficult to predict, complicating risk management.

4. Climate change in Benin could have both socio-economic and health consequences. Declines in crop yields can affect food security, particularly for vulnerable segments of the population that depend on subsistence agriculture. Weather events could reduce the drinking water supply, and sanitation and waste collection systems. Increasing temperatures and floods may also impact the spread of infectious diseases like malaria, compounding already weak health outcomes in a country where health spending is low and there are important regional disparities in the access to services (see SIP–I on Public Spending for Inclusive Growth).

5. While Benin's readiness to address climate shocks is relatively low, the authorities have developed a national policy to manage climate change and improve its resilience. The 2019 ND-GAINS index ranked Benin as the 57th least ready to address the consequence of climate shocks in a sample of 192 countries based on a range of economic, social, and governance indicators. The authorities have established a National Policy for the Management of Climatic Changes (PNGCC 2021-2030) plan for 2021-30,4 which focuses on the agriculture and energy sectors, and land, forestry, and waste management. The plan centers around three strategic pillars: (i) strengthening the institutional, individual, and physical capacities to effectively cope with climate change; (ii) promotion of low carbon and climate resilient development in all sectors; and (iii) governance of climate change. Each pillar comprises concrete reforms and actions organized around four distinct programs across all sectors to be implemented by 2030, including (a) capacity building on climate change; (b) adaptation to climate change; (c) climate change mitigation; and (d) support for climate change management. A dedicated steering committee5 is expected to be formed as well as a coordination and implementation body.6

6. Although its contribution to global greenhouse gas emissions is relatively small, Benin has also committed to combatting global warming. In 2015, Benin share of global emissions was 0.03 percent. However, Benin has a longstanding commitment to protecting the environment, entrenched in the Constitution since 1990, which states “Everyone has the right to a healthy, satisfactory and sustainable environment and has the duty to defend it. The State ensures the protection of the environment.” In line with these institutional foundations, Benin is a signatory county of the Paris Climate Agreement and has committed to reducing its emissions by 20 percent over 2021-2030. In this connection, Benin has been working with the World Bank to support its mitigation efforts.

7. Climate change adaptation and mitigation is costly and will require support from the international community. According to the Nationally Determined Contributions Database, estimates for Benin's climate adaptation and mitigation plans total US$10.5 billion (60 percent of GDP), of which US$4.9 billion are conditional on international support. While the authorities have envisaged financing from various climate-related global funds, accessing these funds has proven challenging thus far. Further initiatives, such as the pending IMF Resilience Sustainability Trust, would be welcome and helpful in this regard

Annex IX. Capacity Building and Technical Assistance Framework

This note presents a summary of the understanding between IMF staff and the Beninese authorities on the capacity development strategy (CD) in support of the authorities' reform priorities for 2022-25, supported by the 42-month blended EFF/ECF.

1. Over the last five years, extensive Fund CD activities have informed policy formulation and implementation. The CD program under the previous 2017–20 ECF arrangement included technical assistance from both IMF headquarters and the West Africa Regional Technical Assistance Center (AFRITAC-West); it focused on enhancing revenue mobilization, improving budgeting and public expenditure efficiency and transparency, digitalizing core procedures, and upgrading the quality and availability of national account statistics and government finance statistics. Following the completion of the ECF, CD pivoted to supporting the authorities in designing their policy response to the COVID-19 pandemic, while continuing to pursue domestic revenue mobilization efforts, critical for meeting Benin's large development needs.

2. This CD strategy focuses on supporting the authorities' reform priorities under the proposed EFF/ECF (2022–2025). CD activities will include improving revenue mobilization, enhancing governance and transparency, wage bill management, PFM, and government finance statistics and real sector statistics (Table 1). The IMF-supported CD program is complemented by technical support by Benin's development partners in key program areas, including the WB in social protection and human capital development; the European Union support in governance and PFM; the African Development Bank in agriculture and inclusive infrastructure; and the UN World Food Programme in expanding the authorities' flagship school feeding program.

Table 1.

Benin: Technical Assistance Priorities

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Authorities' Views

3. The authorities value the close and continued technical support of the Fund and agree with the focus of the envisaged CD program. They are committed to reinforcing TA coordination and continued appropriation of the main TA recommendations.

Appendix I. Letter of Intent

Cotonou June 23, 2022

Ms. Kristalina Georgieva

Managing Director

International Monetary Fund

Washington, D.C. 20431

United States

Dear Madam Managing Director,

Since the re-election of President Talon in April 2021, the Government of the Republic of Benin has pursued its Revealing Benin vision that marked, in 2016, a new era of governance in public policy to modernize our economy.

The reforms and public investments implemented under the Government's Action Program (PAG; 2016–2021) helped accelerate economic activity, with growth reaching 6.7 percent in 2019 (from 1.8 percent in 2015). This, together with a reduction in fiscal deficits (our overall budget was quasi-balanced in 2019) put public debt on a downward trajectory prior to the COVID-19 pandemic. We also made significant advances in budget transparency and debt management, which supported our access to the international capital markets in 2019. While the Beninese economy has shown resilience at the aggregate level (economic activity expanded by 3.8 percent in 2020, the highest growth rate in the WAEMU region), the COVID-19 pandemic has imposed significant socio-economic hardship on our people. As we pursue our efforts to limit the impact of the pandemic on the population, we now must confront new shocks that could jeopardize the return to pre-pandemic economic growth rates and risk eroding hard-won social gains. These include regional terrorist threats at our northern borders and the war in Ukraine.

Faced with the urgency to act to limit the rapid increase in the cost of living of Beninese households caused by the war in Ukraine, our government introduced a first wave of subsidy measures, but has since been pivoting to more targeted support measures. These include subsidies on fertilizers for farmers to curb the upward trend in food insecurity.

We are adopting a “civilian approach” to tackling security risks, particularly by enhancing state presence and social cohesion in vulnerable communities under elevated risk of extremism. In this context, we are forced to pause the fiscal adjustment that we had planned under the original budget law for 2022, which would inevitably increase our financing needs in a context of tight financing conditions.

The recent shocks strengthened our resolve to create fiscal space at times of peace and to accelerate our development agenda, including by filling large gaps in the social sector and developing inclusive infrastructure. In that regard, the Government's Action Program for the period 2021–2026 is centered on three pillars: (i) strengthening democracy and the rule of law, while consolidating governance; (ii) continuing the structural transformation of the economy; and (iii) improving the well-being of populations in a sustainable manner.

In this context and considering the urgent fiscal and balance of payments needs, the Government of the Republic of Benin is formally requesting assistance from the International Monetary Fund (IMF) through 42-month arrangements supported by the Extended Fund Facility (EFF) and the Extended Credit Facility (ECF) for an exceptional amount of SDR 484.058 million (equivalent to 391 percent of quota)—SDR 161.349 million (130.33 percent of quota from the ECF (PRGT)) and SDR 322.709 million (260.67 percent of quota from the EFF (GRA)). We seek a first purchase/disbursement equivalent to 87.48 percent of quota. The program will help us meet urgent balance of payments needs, consolidate our public finances starting next year and support our National Development Program (PND; 2018–25). We will continue to seek additional financial support from our other development partners, including in the form of budget support.

We are convinced that our economic reform program will support economic recovery and help us achieve our sustainable development goals. We will implement policies and measures described in the Memorandum of Economic and Financial Policies (MEFP, Attachment I), that aim to:

  • Consolidate our public finances by boosting revenue mobilization and improving spending efficiency;

  • Strengthening social safety nets and protecting priority social spending; and

  • Promoting an enabling business environment and reinforcing governance to foster private sector participation.

The Government believes that the set of reforms enclosed to the MEFP are adequate to achieve the program objectives, but remains committed to take any further measures that may become appropriate for this purpose. The Government will consult with the Fund on the adoption of these measures and in advance of revisions to the policies contained in the MEFP, in accordance with the Fund's policies on such consultation.

We will fulfil the commitments set forth in the MEFP and agree to provide the IMF with information pertaining to the implementation of the measures agreed upon and on program execution, as set out in the attached Technical Memorandum of Understanding (TMU; Attachment II). Moreover, we commit to a Fiscal Safeguards Review by the Fund by the first program review.

To implement these priorities and bolster our credibility among the international community, the Government intends to maintain a productive relationship with its development partners. To this end, we plan to work closely with the Fund to support our strategy to promote growth through investments in human capital and infrastructure.

In line with the government's objective to foster transparency, we consent to the publication of this letter, its attachments, and the Staff Report associated with our request for support.

Very truly yours,

/s/

Romuald WADAGNI

Senior Minister of State, Minister of the Economy and Finance

Attachments: (2)

I. Memorandum of Economic and Financial Policies

II. Technical Memorandum of Understanding

Attachment I. Memorandum of Economic and Financial Policies

Our vision “Revealing Benin” marked a new era of governance in public policy in Benin with the election of President Talon in April 2016. Since then, the Government has undertaken actions on multiple fronts to sustainably improve the living conditions of the population. Our sound management of public finances helped improve our resilience to multiple shocks in recent years. We intend to rebuild our policy buffers in the coming years and to support inclusive private sector-led growth that benefits all of the people of Benin in a safe environment. We are pleased that these efforts will be supported by the IMF's Extended Fund Facility (EFF) and the Extended Credit Facility (ECF) under exceptional access, with frontloaded disbursements in 2022 when we need them most.

I. Recent Economic Developments and Outlook

1. In general, our economy has shown resilience in the face of multiple negative shocks in recent years, including the COVID-19 pandemic since March 2020 and the border closure with Nigeria between August 2019 and December 2020. The war in Ukraine came at a time when our economy was recovering from these two shocks. Our economic resilience was supported by the implementation of large public investment projects under the Government Action Program (PAG; 2016-2021) and reform continuity following the re-election of President Talon in April 2021. After accelerating to an average growth rate of 6.4 percent between 2017 and 2019, the economy decelerated in 2020 to a growth rate of 3.8 percent. This rate was nonetheless one of the highest in Sub-Saharan Africa, reflecting our strong macroeconomic fundamentals entering the crisis, an innovative approach to managing the COVID-19 pandemic (including the establishment of a sanitary belt), and a robust response plan. The Beninese economy rebounded to 7.2 percent in 2021, driven by improvements in the global health situation, the reopening of the border with Nigeria, and the continuation of structural reforms under the Government Action Program.

2. Benin entered 2020 in a sound economic position, despite the closing of border with Nigeria in August 2019. The implementation of the Fund-supported Extended Credit Facility (2017–2020) was deemed very satisfactory by the Fund, with significant improvements in macroeconomic indicators: GDP growth reached 6.9 percent in 2019, while the budget was near-balanced (with the deficit limited to 0.5 percent of GDP). These two major dynamics reversed the upward trend in public debt, stabilizing it at 43 percent of GDP at end-2019, well below the regional norm of 70 percent.

3. Strong of these macroeconomic fundamentals, the government adopted a robust COVID-19 response plan, supported by funding from several sources.

• The response included additional public spending to cushion the impact of the health crisis on households and firms and to revive the economy. Against this backdrop, the budget deficit increased from 0.5 percent of GDP in 2019 to 4.7 percent in 2020, and to 5.7 percent in 2021. By contrast, tax revenue did not fall during this period, indicative of the effectiveness of the tax reforms that we undertook prior to the crisis.

• Our COVID-19 response plan benefited from IMF emergency financing in December 2020 (US$ 177.96 million), the general allocation of special drawing rights (SDR) in August 2021 (approximately US$168 million), and funding from other development partners. These were complemented by our access to the international capital market through a €1 billion Eurobond at favorable terms in January 2021 and a €500 million SDG bond in July 2021.

4. Although the government's efforts have supported economic resilience at the aggregate level, the health crisis has exacerbated social challenges. While our economy has shown resilience, the COVID-19 crisis has had a disproportionate impact on some segments of the population, including persons employed in contact-intensive sectors such as tourism, crafts, and catering. In addition, the growth rate of 7.2 percent in 2021 masks important sectoral disparities, with some sectors such as tourism (and services more generally) are still under the negative effects of COVID-19.

5. In this context, we continue to face substantial socioeconomic challenges:

• The current account deficit widened to 4.4 percent of GDP in 2021. After a significant decline in 2020 in the context of supply chain disruptions related to the COVID-19 pandemic, there was a substantial increase in imports in 2021, driven by higher commodity prices and increased in imports of capital goods. Exports of goods are on the rise, and are still dominated by cotton sales abroad. Service exports (largely related to tourism) continue to be adversely affected by the health crisis.

• Funding sources, and particularly grants, are on the decline, while financing conditions are tightening. Already in 2021, there was a decline in grants compared to the exceptional level recorded in 2020, while pressure on spending remained high. The year 2020 was characterized by a substantial mobilization of resources from key donors, including the IMF, particularly in the context of the COVID-19 pandemic. Most development partners have scaled down their support following the decline in the number of cases of COVID-19. As a result, the amount of budget support to Benin declined significantly in 2021 (to CFAF 37.4 billion compared with CFAF 105.3 billion in 2020). Moreover, the ongoing monetary policy tightening in advanced economies has already negatively affected financing conditions on the international financial market.

• We have substantial gaps to fill in human and physical capital. Even before COVID-19 struck, progress towards achieving the Sustainable Development Goals (SDG) was insufficient, as evidenced by the persistently high levels of malaria prevalence, particularly among children, the high maternal mortality rate, and the share of the population in a situation of food insecurity. The COVID-19 pandemic highlighted the importance of improving the health system and social safety nets, while the pandemic scars risk eroding hard-won economic gains. Despite some improvement, progress in access to basic public services (such as drinking water, electricity, and sanitation) has fallen short of expectations.

6. More importantly, Benin has faced additional security and geopolitical challenges in recent months:

• As Benin shares borders with countries subject to terrorism, there has been a resurgence of terrorist attacks in the northern part of the country. Although the first terrorist activities date back to 2019, they have recently intensified. In light of rising terrorism risks, the government has strengthened its border security system and consolidated its counter-terrorism activities and subregional security cooperation. The government is adopting a “civilian approach” to tackle security risks. This strategy put emphasis on improving the living conditions of populations, recognizing that social challenges can fuel sentiments of revolt and facilitate recruitment by terrorists. Against this backdrop, our security plan is centered around three pillars: (i) identifying vulnerable zones; (ii) assessing and meeting the needs of populations in vulnerable zones; and (iii) promoting social cohesion among the communities.

• The recent commodity price shock, amidst the war in Ukraine, is increasing the cost of living of Beninese households and taking a toll on economic activity. In the context of global geopolitical tensions, the sharp rise in international commodity prices, and the disruption of the global food system have led to a surge in consumer prices for basic food products to 9.5 percent between September 2021 and March 2022. During the same period, retail energy prices increased from 19 to 28 percent. There is a risk that these developments may exacerbate food insecurity, already affected by COVID-19.

II. Maintain Macroeconomic Stability, Consolidate Public Finances, and Continue Progress Toward the SDGs

In the coming years, the government plans to create fiscal space and undertake ambitious reforms and projects to leverage the country's sound economic fundamentals, mitigate security risks, and accelerate progress toward achieving the SDGs, in line with the National Development Program (PND; 2018–2025) and the Government Action Program (PAG 2; 2021–26). In this regard, domestic revenue mobilization is the cornerstone of our reform program.

7. Our economic and social development plan will be supported by the IMF through an innovative program that will facilitate the achievement of our medium and long-term objectives. Our economic and financial agreement with the IMF is unique in many respects. First, it has a duration of 42 months (unlike traditional programs that are limited to a period of three years), to enable the Fund to support us throughout our National Development Program. Second, it combines two instruments (EFF and ECF). Third, the access level is exceptional, with the bulk of disbursements/purchases occurring in 2022 when we need them most. This combination reflects the strong partnership between Benin and this Bretton Woods institution, the important reforms that we have undertaken in recent years and our resolve to build upon them.

8. Our macroeconomic program will allow us to gradually return to the robust and sustained growth path that prevailed before the COVID-19 crisis.

• The war in Ukraine will affect the strong economic recovery observed in 2021, bringing projected growth for 2022 to 5.7 percent, approximately one percentage point below our forecasts before the war. Growth will be driven, on the one hand, by a significant public investment and the implementation of major public projects, including the deployment of fiber optics at the national level, the completion of the Niger-Benin pipeline, and the expansion of the Port of Cotonou; and, on the other hand, by the gradual dissipation of the effects of COVID-19 that is expected from improvements in the coverage of vaccinated population.

• Over the medium term, the economy is expected to record a growth rate of approximately 6 percent per year, partially as the result of the continuation of major public projects and stronger private sector participation. As envisaged in our Government Action Plan 2 linked to the National Development Plan, the drivers of medium and long-term growth will continue to be (i) accelerated implementation of current measures to promote sectors with high potential, including agriculture, tourism, digital economy and knowledge-based economy, and promotion of technical education and vocational training; (ii) continuation of major projects designed to fill Benin's infrastructure deficit, particularly in transportation, energy, and sanitation infrastructures; and (iii) development of the processing industry.

9. However, this outlook entails substantial risks.

• At the local level, although the vaccination uptake rate has accelerated since November 2021, it is still relatively low, exposing Benin to new variants of COVID-19 that could undermine economic activity. With the support of our development partners, the government will strive to increase the rate of vaccination against COVID-19. Coordination efforts and continued proximity to the populations have already reduced the reluctance of the public vis-à-vis vaccination, leading to higher take up among the population aged 12 and above (from 3 percent in November 2021 to more than 46 percent at the end-April 2022). Our objective is to bring this ratio to 60 percent by the end of this year.

• At the regional level, a resurgence of terrorist attacks from neighbor countries could affect the business climate and exacerbate social tensions.

• At the global level, deterioration in the global economic environment that can result in a significant decline in cotton prices, our country's main export product, might affect the agricultural sector's contribution to income and the balance of payments. Similarly, sustained increases in food and energy prices, should the war in Ukraine continue, could lead to an increase in the cost of living for Beninese households.

• Moreover, Benin remains vulnerable to the effects of climate changes, such as the recurrence of floods and droughts.

A. Prudent Fiscal Policy and Debt Strategy

10. After the fiscal relaxation due to the COVID-19 pandemic, regional security risks, and the war in Ukraine, our medium-term fiscal policy will focus primarily on achieving the convergence targets set at the regional level. This includes the overall fiscal deficit and wage bill targets, with efforts towards the tax-to-GDP target.

• The fiscal deficit widened in 2020 and 2021, reflecting the measures undertaken to contain the impact of the health crisis and to scale up public investment that accounted for 8.2 percent of GDP in 2021 (against 6.9 percent of GDP in 2020 and 3.9 percent of GDP in 2019). As a result, public debt rose to 49.9 percent of GDP at end-December 2021, from 46.1 percent at end-December 2020 and 42.5 percent at end-December 2019.

• The fiscal consolidation strategy targets a deficit of 5.5 percent of GDP in 2022. The deficit will be subsequently reduced to 4.3 percent of GDP in 2023, to reach 2.9 percent by 2024, slightly below the current regional norm of 3 percent of GDP, as a precautionary measure. In light of the changes in circumstances, the fiscal deficit is expected to increase by one percentage point of GDP in 2022 compared to the original budget law that targeted a deficit of 4.5 percent of GDP. In fact, we intend to adjust public spending upwards in 2022 (compared to the original budget) towards urgent measures to stem regional terrorism risks in northern Benin.

• We will also ensure that the wage bill does not absorb a disproportionate share of our budget resources over the medium-term. The ongoing consultations to upgrade civil service wages, combined with urgent recruitment measures in the health and security areas will necessarily put significant pressures on the wage bill and may jeopardize the achievement of the community target (consisting of a wage bill to tax revenue ratio of 35 percent) in the absence of measures. In this regard, we will conduct a detailed assessment of the compensation policy across the public sector, with a view to identifying areas where efficiency gains can be generated. In this connection, we will receive technical support from our development partners, that will help us identify the appropriate strategy to achieve a more equitable and efficient wage bill.

11. Revenue mobilization will be the cornerstone of our fiscal consolidation, in light of the relatively low level of tax revenue in Benin and the need to preserve social and infrastructure spending. While tax revenue performed relatively well during the pandemic as a result of the reforms we undertook before the crisis, it accounted for only approximately 11.0 percent of GDP in 2021, nine percentage points below the target of 20 percent for the WAEMU region, in a context of a substantial share of informal activity. This is indicative of substantial untapped potential and a narrow tax base.

12. The consolidation of our public finances will enable us to sustainably generate the resources required to support our large development needs while preserving public debt sustainability. We plan to achieve a gradual reduction in the fiscal deficit, to bring it just below the threshold of 3 percent of GDP by 2024 as per the current WAEMU norm. The increased use of digitization, the recent revisions to the Tax Code and publication for the first time of the Tax Procedures Book have simplified the payment of taxes and improved revenue collection. We will intensify our efforts to improve tax revenue on an ongoing basis.

  • To guide these efforts and ensure optimal synergies between the revenue-collection agencies, we will develop a medium-term revenue mobilisation strategy (Structural Benchmark for end-September 2023) with the support of the technical and financial partners, particularly the IMF.

  • We will continue to improve the transparency and cost of tax expenditures (and quantify tax expenditure in connection with energy subsidies). We will attach to the 2023 Draft Budget Law submitted to the National Assembly a detailed report on tax expenditures for 2021, and develop a strategy to rationalize tax expenditure during the period 2023–25 (Structural Benchmark for end-November 2022).

  • The overall medium-term financing strategy for 2022–2026 will continue to prioritize diversification of funding sources and active debt management. Benin intends to continue its efforts to mobilize concessional resources, including external budget support, from traditional multilateral donors (the World Bank, the African Development Bank, and the European Union), to supplement the exceptional financing from the IMF. World Bank's recent classification of Benin to lower-middle income country in July 2020, reduced the opportunities to obtain concessional financing. In this context, Benin will continue its strategy to diversify the sources of financing, in line with the debt strategy currently being implemented, within a prudent approach designed to mitigate risks and preserve debt sustainability.

  • Although BOAD loans are considered as external debt for program purposes (TMU ¶4), we are of the view that they should be treated as domestic debt for the following reasons: (i) BOAD is a regional development bank within the WAEMU; (ii) BOAD financing is denominated in CFAF; and (iii) any changes in BOAD classification has adverse consequences on debt sustainability, and therefore reduce Benin's margins to tap international financial markets, undermining regional integration and development of regional financial markets. In addition, classification of regional development banks' debt should be harmonized across all monetary unions (including WAEMU and CEMAC) and treated as domestic. Finally, vulnerabilities linked to external debt were already exacerbated by the pandemic, and additional statistical changes further deteriorate debt sustainability and seriously compromise the possibilities for countries to mobilize additional resources to support economic recovery post-COVID.

Response plan to address the effects of the war in Ukraine

13. Meanwhile, in the wake of global geopolitical tensions, we have had to take a temporary set of measures to limit the impact of rising international prices on the public and on the economy.

  • Basic food products. In addition to ban on exports of selected agricultural products, we introduced on March 23, 2022 (and effective until end-June 2022) subsidies on selected products (rice, flour and vegetable oil) and a 50 percent rebate on the associated cost of freight.

  • Fertilizer. In light of the surge in international fertilizer prices, we will introduce targeted net subsidies for farmers of CFAF 31.5 billion for the 2022/2023 agricultural year, to stem the increase in food insecurity.

  • Energy products. Following surges in international oil prices amid geopolitical tensions, we increased fuel prices at the pump by approximately 28 percent from the beginning of the year through end-April. This partial adjustment reflects our dual objective to support our people during these challenging times while limiting the impact of non-targeted fuel subsidies on the budget.

  • Other measures. Following discussions with trade unions and the confederation of employers, we have agreed to increase the guaranteed minimum wage (SMIG), that had been set at CFAF 40,000 since 2014, to CFAF 52,000, equivalent to an unprecedented increase of 30 percent. However, the effects of this increase on the government wage bill is expected to be limited.

14. Still, our fuel pricing mechanism must be overhauled in the medium term to enhance public spending efficiency and release resources to finance priority social spending. Mindful of the generally regressive nature of non-targeted subsidies, as well as their inefficiency and high cost, we will develop an integrated medium-term strategy for the gradual alignment of the prices of fuel products and electricity tariffs with supply costs. For that purpose, we will request technical support from the development partners to assess the current pricing system for fuel products that dates back to 2004, and ways to mitigate the effects of international price volatility on local prices. We will also resume the adjustment of electricity tariffs that was suspended in the wake of the COVID-19 pandemic.

• 2022 Budget Law

15. A draft supplementary budget law will be submitted to the National Assembly for approval by end-October 2022. The supplementary budget will reflect the additional expenditure that has become necessary, including security outlays, as well as expenditure related to measures to cushion the impact of surges in food and energy prices in connection with the war in Ukraine. We will ensure that these measures are efficient and targeted at the most vulnerable segments of the society in particular. This fiscal relaxation will be financed primarily with disbursements/purchases under our Extended Fund Facility and Extended Credit Facility with the IMF and new budget support to be catalyzed by this new arrangement.

16. To contain the impact of spending pressure on the government budget, we will pursue in 2022 tax measures to generate additional 0.5 percent of GDP of revenues, as planned in the original budget law. To launch the second generation of tax reform, we have adopted a new General Tax Code in the 2022 Budget Law. This Code aims in particular to simplify tax expenditure, strengthen the rules designed to protect the tax assessment base on individuals and corporate profits, broader the tax base, improve the valuation of imported goods, and improve the recovery of arrears. We have also implemented a new tax management information system to replace SIGTAS.

17. We are prepared to relax the 2022 overall fiscal deficit by 0.5 percent of GDP to cope with the difficult situation, albeit under certain conditions. In agreement with IMF staff, the primary deficit target under the EFF/EFF will be relaxed by up to 0.5 percent of GDP to accommodate targeted measures to contain the high cost of living in connection with the war in Ukraine, providing that we secure additional budget (beyond the currently envisaged amount) to close the resulting financing gap (paragraph 7 of the Technical Memorandum of Understanding, TMU). We will ensure that the additional funds are earmarked for their intended purpose. This additional budget support together with the programmed budget support from other donors would supplement the IMF's exceptional financial support in 2022 (more than CFAF 150 billion).

B. Public Financial Management

18. With respect to cash-flow management, we intend to draw upon recent IMF TA to help strengthen the technical and operational framework for the Treasury Single Account (TSA). In particular, we will take steps to enlist the support of depositors for the TSA mechanism by completing the actual interconnection of all of the accounting centers (postes comptables) of the financial agencies of the central government and its departments and the modernization of the Treasury's banking services. In addition, we are planning to: (i) connect the Public Treasury to the regional GIM-UEMOA platform for the issuance and acceptance of Public Treasury bank cards by end-September 2022; (ii) roll out the National Electronic Payment Platform by end-June 2022; and (iii) extend the digitization of revenue payments pertaining to diplomatic and consular missions with a view to ensuring the rapid centralization of such revenues by end-2023. Last but not least, several actions aimed at safeguarding and digitalizing payments of miscellaneous taxes and duties will be undertaken with the revenue-collecting agencies in order to minimize the use of cash.

19. With regard to public expenditure, we plan to expedite reforms in order to enhance their effectiveness and will reallocate resources toward priority sectors. The main medium-term reforms focus on the continued restructuring of the public expenditure framework and the improvement of the regulatory framework for public investment projects.

  • The migration to program-based budgeting for the 2022 budget constitutes a major step forward, and we intend to build upon these efforts. Planned initiatives include: (i) further coordination between the logical framework for budget programs and for the SDGs, with a focus on ensuring that the government budget is sensitive to such cross-cutting issues such as gender, climate change, and security; and (ii) strengthening the performance of budget programs while enhancing their consistency with the results chain;

  • We intend to promote more effective targeting of government expenditure in favor of public investment and social sectors, while pursuing a systematic review of the quality of government expenditure and effective control of cost indicators with a view to improving the quality of budget preparation. In the wake of the November 2021 adoption of the decree establishing the general framework for the management of public investment, we have sought to achieve a successful budgetary transition between phases 1 and 2 of the Government Action Plan by incorporating as a first priority the funding required to complete ongoing projects and as a second priority the resources needed to carry out feasibility studies for new investment projects and innovative reform projects for the five-year period 2021-2026. We agree to ensure the systematic publication, as of end-December 2023, of all the criteria for the appraisal and selection of major investment projects, along with feasibility studies (structural benchmark for end-December 2023).

20. Fiscal transparency will be further strengthened, in line with the recommendations in the most recent fiscal transparency evaluation (FTE) performed by Fund staff in 2021. We will take steps to: (i) implement a mechanism for identifying and evaluating local counterparts for financing resources for co-financed projects and other expenditures and bringing forward their inclusion in the government budget; (ii) enhance the predictability of expenditure in the social sectors; and (iii) ensure that civil society has a more important role to play in budget preparation, budget decision-making, and the supervision of budget execution, including through participation in the various phases of the awarding of government contracts in accordance with the provisions of the government procurement code.

21. The management of fiscal risks is also a priority. We have set up a ministerial risk management committee and a ministerial internal audit committee to strengthen accountability. With respect to the management of public enterprises and contingent liabilities, reforms aimed at restructuring the portfolio of securities and improving their yields will be pursued. To this end, we have adopted a new law which modernizes the legal framework of public enterprises. Regular monitoring of the financial status of public enterprises is being conducted in order to prevent the fiscal risks potentially associated therewith. We plan to improve the monitoring of guarantee mechanisms and to further clarify the financial relationships between these mechanisms and the budget. We shall also improve the disclosure of information on the financial performance of public enterprises including the Port of Cotonou, as well as on public-private partnerships (PPP). By end-October 2023 we intend to prepare a statement containing a quantitative analysis of fiscal risks in all key areas as part of the 2024 draft budget law documentation (structural benchmark for end-October 2023). This exercise will benefit from IMF TA.

C. A “Highly” Social Mandate

22. The current five-year term for the Talon government will be a “highly social” mandate. The COVID-19 crisis has underscored the importance of strengthening the social sectors. We are currently enhancing the strategy for distributing the growth dividends, particularly in favor of the most vulnerable members of our society. We are resolutely committed to implement the Sustainable Development Goals (SDGs), for which the priority targets have already been adopted and a monitoring system has been implemented and is already operational. In this regard, it should be pointed out that Benin was the first country in Sub-Saharan Africa to issue in July 2021 a Eurobond intended exclusively for the financing of projects having a significant impact on attainment of the SDGs (in the amount of €500 million).

23. The attainment of the SDGs will require increasing the resources allocated for social sectors as well as improving execution capacities. We will expedite the implementation of projects having a substantial social impact:

  • On social protection, we will raise the number of poor people who are recipients under the ARCH program from their current level of 280,000. To facilitate the targeting of social safety nets, we will finalize the social register database by (i) completing the community validations of vulnerable households identified through the first cycle of proxy-mean test surveys (mass registration) in at least 70 of the 77 communes; and (ii) publishing by end-July 2022 the results of the social registry database at the commune level on an easily accessibly government website. In addition, we intend to increase coverage of the national school feeding program from 53 percent at end-2021 to 75 percent by end-2022 and to achieve universal access by end-2023.

  • We will further strengthen health-care expenditure and improve its efficiency by leveraging the move to program budgeting. In particular, we will increase the financial and human resources allocated for: (i) the national anti-malaria program, in an effort to bring down the rate of prevalence of malaria (from 40 percent at present to 20 percent at end-2024); (ii) the maternal health program to improve access to health-care services and curb increases in maternal mortality; and (iii) the child vaccination program.

  • Inclusive infrastructure projects are essential for reducing geographical inequalities and strengthening social cohesion. In particular, we intend: (i) to continue the construction and refurbishment of agriculture schools in the sectors of technical education and vocational training; (ii) to expedite the implementation of programs for serving towns and rural areas with drinking water; and (iii) to broaden the road network at the rural level.

24. Strengthening Benin's resiliency in the face of climate change is at the forefront of government policy. We promulgated a law on climate change coupled with a national policy on climate change management and a policy on sustainable land management. We also prepared our national adaptation plan to address eight areas of vulnerability facing Benin. The program for managing the impact of climate change also includes programs for the sustainable management of forests and conservation zones, integrated waste management, and efforts to combat coastal erosion. From the legal and regulatory points of view, beginning in FY 2022 we shall undertake a review of the Framework Law on the Environment and its implementing decrees on wastewater management, the management of solid household wastes, soil pollution, classified installations for environmental protection, air pollution, noise pollution, etc., and the Public Hygiene Code. Our Constitution is already committed to environmental protection. Benin's goals are reflected in our Determined National Contribution (DNC) to reduce greenhouse gas emissions by 20.15 percent as against 16.17 percent in our previous undertaking. Furthermore, with the accreditation of the National Fund for Environment and Climate (FNEC) vis-à-vis the Green Climate Fund (FVC) and the Adaptation Fund (FA), we plan to bolster the financing of environmental and climate-related initiatives. We will evaluate the overall cost of implementing the adaptation and mitigation strategy while exploring opportunities for financing, in particular through the new IMF facility dedicated for this purpose.

D. Strengthening Transparency, Governance, the Rule of Law, and the AML/CFT Framework

25. We are reaffirming our commitment to ensuring transparency in government expenditure.

  • The regulation and supervision of government contracts will be further strengthened. We have made major strides in enhancing transparency in government expenditure in recent years, including through efforts to strengthen the legal framework applicable to government contracts in September 2020. We are engaged in reforms aimed at regulating government procurement; these reforms are predicated on efforts to update the law governing the legal framework on public-private partnerships and its implementing regulations, in addition to the rollout of e-procurement.

  • Furthermore, we will further strengthen transparency of beneficial ownership information. We will strongly emphasize the requirement for contracting authorities to forward (for authentication by the National Directorate of Procurement Control and Procurement Control Units) all government contracts which they enter into. To this end, we shall adopt into law by end-June 2022, with IMF TA, a secondary regulation requiring procurement agencies to collect BO information for companies awarded public procurement contracts above CFAF 10 million (structural benchmark for end-June 2022).

  • We will commence the regular publication of this information on a government website as of September 2022 (structural benchmark for end-September 2022). With the aim of ensuring compliance with the provisions of Articles 53, 78, and 87 of Law 2020-26 of September 29, 2020 establishing the government procurement code, which provide that the procurement plan, invitations to tender, and notices of contract awards must be published on the government procurement web portal, we intend to impose sanctions and restrictions on contracting authorities in cases involving failure to publish appropriate invitations to tender and contract award notices on the government procurement web portal.

  • With respect to COVID-related expenditures, we are now publishing information on the beneficial owners of government contracts. The Audit Court has conducted and published the audit of COVID-related expenditures, meeting the related prior action. Furthermore, continued efforts are being made to ensure the full operational implementation of the Audit Court.

26. The government has reaffirmed the importance of governance and the rule of law as the main pillar of its action program for 2021-26. Accordingly, we intend to conduct and publish with IMF TA a governance diagnostic assessment by end-February 2023 (structural benchmark for end-February 2023).

27. We intend to continue strengthening the AML/CFT framework in order to comply with international standards and support efforts to combat corruption. Accordingly, taking account of the recommendations made by the report on the mutual evaluation of Benin's AML/CFT framework adopted in May 2021 by the GIABA, and with IMF support, we have prepared an action plan validated by the National Technical Committee (CTN) and approved by the Council of Ministers. Pursuant to this action plan:

  • The Council of Ministers will adopt by end-June 2022 two Ministerial decrees to strengthen AML/CFT risk-based supervision and implementation of a targeted financial sanctions regime, in line with relevant UN Security Council Resolutions related to terrorism, terrorism financing, and proliferation financing (structural benchmark for end-June 2022):

  • A decree establishing the National Committee for the Coordination of Activities (CNCA) in the Area of AML/CFT replacing the National Technical Committee (CTN) in order to improve the coordination of AML/CFT activities and ensure effective cooperation among all relevant domestic stakeholders pursuant to FATF Recommendations 1 and 2. The CNCA will also be the authority in charge of AML/CFT monitoring and supervision of designated nonfinancial professional enterprises (except the real estate sector and gambling and betting sectors) with powers and responsibilities to undertake risk-based supervision in line with FATF Recommendation 28. Finally, the CNCA will be broadened to include all relevant public sector and private sector stakeholders, as well as equipped with a permanent technical secretariat adequately funded to perform all its assigned functions effectively;

  • A decree establishing a framework for the implementation of targeted financial sanctions to comply with the relevant UN Council Resolutions on terrorism, terrorist financing, and proliferation financing in line with FATF Recommendations (6 and 7). This decree will strengthen the powers of the Advisory Committee on the Administrative Freezing and will expedite the implementation of targeted financial sanctions by all relevant individuals or entities in Benin;

  • A decree conferring upon the National Agency for Government Property and Land the status of authority exercising oversight and supervision over the real estate sector in the area of AML/CFT, with powers to impose administrative and disciplinary sanctions in the event of failure to fulfill AML/CFT obligations on the part of real estate agents will be adopted by end July 2022; the aim is to facilitate the monitoring of real estate investments and transactions and combatting efforts to use the real estate sector for ML/TF purposes. Staff of the National Agency for Government Property and Land will be provided with proper training in risk-based tools focusing on risks of ML/TF in the real estate sector in order to ensure that active risk-based supervision can commence by end-December 2022.

  • During FY 2022 or 2023, the government intends to review laws and regulations governing the creation and registration of legal entities with the twofold aim of : (i) defining and establishing the principles and procedures for collecting accurate information on identifying beneficial owners, and how they can be registered and their records maintained, updated, accessed, and consulted in timely fashion by law enforcement agencies, AML/CFT supervisors, and reporting financial and nonfinancial entities in the context of implementing their preventive or oversight obligations; and (ii) designing and implementing legal and or regulatory measures aimed at combatting the use of legal entities for purposes of tax evasion or money laundering.

  • During FY 2022 or 2023, the government intends to review various laws and regulations (not including the Uniform Act on AML/CFT). These revisions will inter alia consist in: (i) incorporating into Law 2018-16 of December 28, 2018 establishing the criminal code, provisions allowing for prosecution on grounds of financing the travel of terrorist combatants, a terrorist organization, or a terrorist individual “for any purposes;” (ii) adopting a decree on the creation of the Beninese Agency for the Recovery and Management of Frozen, Seized, or Confiscated Assets with the aim of guaranteeing the recovery and management of property or assets frozen, seized, or confiscated in the course of criminal proceedings, and of imposing targeted financial sanctions; (iii) adopting a decree on the creation of the Authority for the Regulation of Gambling, Leisure, and Casinos (under the supervision of the MEF) entrusted inter alia with overseeing and monitoring the leisure and casino sector, including the National Lottery of Benin, in regard to AML/CFT with powers to impose administrative and disciplinary penalties in cases of failure to perform AML/CFT.

28. We have introduced a major reform of local governance, in order to strengthen the role of local jurisdictions in development. The reform is designed to bring about an institutional reorganization of municipalities (communes) in an effort to separate political responsibilities from technical responsibilities. This reform should help to strengthen responsibility and accountability in local governance. Furthermore, the Fund for Support for Municipality Development (FADeC) is expected to undergo a radical change, becoming an autonomous investment fund. This reform is aimed at empowering local governments to finance local development through a framework for enabling municipalities to gain access to the resources they need to finance their investment projects. We are engaged in negotiations with the various technical and financial stakeholders in the field of decentralization in Benin, in the interest of pursuing these reforms as effectively as possible.

E. Resilient and Inclusive Financial Sector

29. We remain vigilant on the potential fallout on the banking sector resulting from the COVID-19 pandemic. Overall, the banking sector is showing a high degree of resilience reflecting sufficient capitalization as well as measures for loan maturities deferral. The domestic banking sector remains solvent. The capital adequacy ratio (solvency ratio), calculated on the basis of Basel II/III principles, was at 13.4 percent at end-June 2021 against 14.4 percent at end-December 2020 and 10.4 percent at end-2019, thereby meeting the standards of 9.5 percent required in 2019 and 2020 and 10.375 percent in 2021. Two banks failed to meet the regulatory capital minimum. These banks are being monitored by the WEAMU Banking Commission, in the context of efforts to implement their recapitalization plans to bring them back to conformity with prudential rules. It is also worth noting that the domestic banking sector has since 2019 been performing well in restructuring the portfolio of nonperforming loans. The gross rate of impairment of the banking sector's portfolio was at 12.5 percent at end-December 2021, compared to 16.7 percent at end-December 2020 and 18.0 percent in 2019. In addition, several reforms are in progress aimed at improving the regulatory framework for the financial sector and thereby strengthening its stability. These reforms include: (i) adoption of macroprudential surveillance indicators for the banking and financial sectors; (ii) identification of systemically important banks; (iii) supervision of bank groups on a consolidated basis; and (iv) supplementary surveillance of financial conglomerate.

30. Improved access to financing, particularly for SMEs, is a priority, to facilitate the structural transformation of the economy and foster a private sector-led growth. We have accordingly increased the resources for the interest subsidy and guarantee mechanisms, particularly in favor of the agricultural sector and SMEs. Thus, the contribution of these funds is estimated at CFAF 6.5 billion in 2020 and 2021. We intend to evaluate the efficiency of these mechanisms and their associated risks, as well as to set up a monitoring system to reduce distortions.

31. We intend to transpose the WAEMU regional financial inclusion strategy at the national level (Structural Benchmark for end-March 2023). The National Financial Inclusion Strategy (SNIF) is in the process of being finalized. The strategy will provide an appropriate and harmonized framework for financial inclusion initiatives in Benin and will be centered around five (05) pillars; (i) improve the institutional, legal, and regulatory framework for financial products/services, FINTECH, electronic currencies and digital finance for the general public; (ii) provide financial and digital education and literacy for the general public; (iii) improve the range of innovative financial products and services that meet the needs of the general public; (iv) lay further groundwork for the implementation of customized agricultural products/services and agricultural insurance; and (v) strengthen the implementation of mechanisms to support the development of financial, energy-related, and personal identification infrastructures. These pillars are inspired from the WAEMU regional financial inclusion strategy (SRIF) approved in May 2016.

32. Furthermore, the recent authorization for La Poste to provide banking services is expected to leverage the large postal network to enhance access to financial services. However, we will reassure that these operations are properly supervised to limit risks to the financial sector. Moreover, we shall strengthen the role of the microcredit sector, particularly in the context of the ARCH Program, while endeavoring to improve its soundness.

F. Toward Private Sector-led Growth

33. The Beninese economy remains vulnerable to shocks originating from Nigeria and is not sufficiently diversified. Exports are dominated by cotton products (accounting for 55 percent of exports), while the share of the industrial sector in GDP remains relatively low. While the effects of the recent bordure closure with Nigeria were clearly limited, the Beninese economy would need to diversify in order to improve its resilience to exogenous shocks.

34. We believe that the private sector could play a more important role in investment and economic activity. This would foster job creation and help achieve sustained growth. With this in mind, we intend to implement a structured, permanent, and well-informed public-private dialogue with the aim of further strengthening the predictability of public policies and more rapidly improving the business climate (including the commercial court system). In order to foster private sector participation to development financing, we will encourage the recourse to public-private partnerships, joint venture operations, and the acquisition of equity holdings within existing or fledgling government corporations. We will also dematerialize the procedure for the issuance of real estate titles and press ahead with the implementation of our industrial zone.

G. Upgrading Our Statistical System

35. Accurate and readily available data, published in a timely fashion, are essential input for policy-making. In this respect, the Parliament approved a new statistics law in early 2022. This statistics law is in line with international standards and will safeguard the quality of official statistics by (i) establishing the obligation to comply with core principles and leading practices in statistical matters; (ii) promoting the systematic and timely performance of major statistical operations; and (iii) ensuring their financing through the creation and timely support for the National Statistical Development Fund. Our medium-term goal is to adopt the Special Data Dissemination Standard (SDDS). In the interim, all stakeholders in the statistical system are redoubling their various efforts to ensure that the data revolution launched in 2016 can meet the requirements of the Enhanced General Data Dissemination System (E-GDDS), to which Benin has already subscribed.

III. Program Monitoring

36. Monitoring. The program will be monitored through six-monthly reviews, with prior action, quantitative performance criteria, indicative targets, and structural benchmarks. The quantitative and continuous performance criteria and indicative targets are set out in Table 1, and further specified in the TMU. The prior action and proposed structural benchmarks are set out in Table 2 and Table 3 respectively.

Table 1.

Benin: Quantitative Performance Criteria and Indicative Targets, 2021-20231

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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.

Total revenue (excluding grants) minus current primary expenditure and capital expenditure financed by domestic resources.

Includes on-lending from the BCEAO related to the IMF disbursement. 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.

Annual for 2022. The debt limit for 2023 will be revised in line with the authorites' borrowing plan and and updated DSA.

Includes internally and externally financed expenditures related to government interventions that directly reduce poverty in the areas of education, health and nutrition, social safety nets, access to electricity, water and sanitation, microfinance, and security and civil protection. Excludes salary expenditures.

Table 2.

Benin: Prior Action

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Table 3.

Benin: Structural Benchmarks (2022–23)

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Attachment II. Technical Memorandum of Understanding

1. This Technical Memorandum of Understanding (TMU) sets out the understandings regarding the definitions of the performance criteria (PCs) and indicative targets (ITs) that will be applied under Benin's program supported by a 42-month EFF/ECF (2022–2025), as described in the Memorandum of Economic and Financial Policies (MEFP) and its attached tables. It also specifies the frequency and deadlines for data reporting to the staff of the International Monetary Fund (IMF) for program monitoring purposes. Reviews will assess quantitative targets as of specified test dates and on a continuous basis. Specifically, the First Review will assess the end-June 2022 test date and the Second Review will assess the end-December 2022 test date, etc.1

Program Assumptions

2. Exchange rates under the program. For the purposes of this TMU, 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 key exchange rates below as of December 31, 2021 (Table 1).

Table 1.

Exchange Rates. (End of period, 2021)

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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 local governments, the Central Bank, or any other public or government-owned entity that has autonomous legal status and whose operations are not included in the table of government financial operations (Tableau des opérations financières de l'État, TOFE).

4. The definitions of “debt” and borrowing for the purposes of this TMU 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 several 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 TMU.

    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. The present value of loans will be calculated using a single discount rate set at 5 percent.

  • c. 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 SOFR is 2.03 percent and will remain fixed for the duration of the program.2 The spread of six-month Euro LIBOR over six-month USD SOFR is -200 basis points. The spread of six-month GBP SONIA over six-month USD SOFR is -100 basis points. For interest rates on currencies other than Euro and GBP, the spread over six month USD SOFR is -100 basis points. Where the variable rate is linked to a benchmark interest rate other than the six-month USD SOFR, a spread reflecting the difference between the benchmark rate and the six-month USD SOFR (rounded to the nearest 50 bps) will be added.

  • d. Domestic debt is defined as debt denominated in CFA franc other than the debt contracted from BOAD. External debt is defined as debt denominated in any currency other than the CFA franc. For program purposes, BOAD loans are considered as external debt.3

Quantitative Performance Criteria

A. Floor on the Basic Primary Fiscal Balance (excluding grants)

Definition

5. The basic primary fiscal balance is defined as the difference between total fiscal revenue on a cash basis (tax and nontax) and basic primary fiscal expenditure. 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 (on a payment order basis). Grants are excluded from revenue in this definition and net government lending is excluded from fiscal expenditure.

6. The balances at end June 2022 and end-December 2022 (PCs) and the balances at end-September 2022 and end-March 2023 (ITs) must be equal to or greater than the amounts indicated in Table 1 of the MEFP.

Adjustor

7. For 2022, the floor on the basic primary fiscal balance (cumulative since January 1 2022) will be adjusted downward by the amount of additional budget support (as defined in Paragraph 9) beyond the programmed 88 CFAF billion, for an amount up to CFAF 54 billion at end-December 2022, under conditions defined in Paragraph 17 of the MEFP.

B. Ceiling on Net Domestic Financing of the Government

Definitions

8. Net domestic financing of the government is defined as the sum of (i) the net position (difference between the government's claims and debt) vis-à-vis the central bank and commercial banks and (ii) financing of the government through the issuance (net of redemptions) of securities to individuals or legal entities outside the banking system or to nonresident banks domiciled in the West African Economic and Monetary Union (WAEMU).

9. 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

10. Net domestic financing at end-June and end-December 2022 (both PCs) and net domestic financing at end-September 2022 and end-March 2023 (both ITs) must be equal to or less than the amounts indicated in Table 1 attached to the MEFP.

Adjustor

11. Net domestic financing of the government will be adjusted downward (upward) if net external budgetary assistance exceeds (or falls short) of the program projections in Table 2:

Table 2.

Benin: Expected Net External Budgetary Assistance

(Billions of CFA francs)

article image

  • 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 raised pro tanto, up to a maximum of CFAF 50 billions.

C. Non-Accumulation of New Domestic Payment Arrears by the Government

Definition

12. Domestic payment 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 4 and of the government in Paragraph 3 apply here.

Continuous Performance Criteria

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

D. Non-Accumulation of External Payment Arrears by the Government

Definition

14. 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 4d, and of the government in paragraph 3 apply here.

Continuous Performance Criterion

15. The government undertakes not to accumulate any external public payment 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 payment arrears will be continuously monitored throughout the program.

E. Ceiling on the Present Value of New External Debt Contracted or Guaranteed by the Government with a Maturity of One Year or More

Definition

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

17. The term “government” used for this performance criterion and for the performance criterion on the new external debt contracted by the government, includes the government, as paragraph 3.

18. This performance criterion also covers government-guaranteed debt of 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.

Adjustor

19. For 2022, the ceiling on the present value of new External debt contracted or guaranteed by the government (cumulative since January 1, 2022) will be adjusted upward by the present value equivalent of the amount of additional budget support beyond the programmed 88 CFA billion, for an amount up to CFA 54 billion at end-December 2022, under conditions defined in Paragraph 17 of the MEFP.

Continuous Performance Criterion

20. The present value of new external borrowing contracted or guaranteed by the government in 2022 should not exceed a cumulative amount of CFAF 620 billion (Table 3). 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.

Table 3.

Benin: Borowing plan in 2022

(Billions of CFA francs)

article image

Indicative Targets

F. Floor on Tax Revenue

Definition

21. Tax revenue includes revenues collected on a cash basis by revenue-collection departments. The data are reported in the Government Financial Operations Table (statistical TOFE) prepared monthly by the Economic and Financial Programs Monitoring Unit of the Ministry of Economy and Finance.

22. The revenue will be calculated cumulatively from the beginning of the calendar year. Revenue collections at end-June, end-September, and end-December 2022 as well as end-March 2023 must be equal to or greater than the amounts indicated in Table 1 attached to the MEFP. The tax revenue floor is an IT for the entire duration of the program.

G. Priority Social Spending

23. Priority social expenditure includes expenditure executed from the State budget (from both domestic and external resources), excluding salary expenditure and relating mainly to public interventions in the areas of education, health and nutrition, the establishment of social safety nets, access to electricity, water and sanitation, microfinance (small and medium enterprises), as well as security and to civil protection. Priority social spending (PSE) is very selective and captures only spending that directly reduces poverty.

24. Priority social expenditure will be monitored on a payment order basis under the program. The indicative target applies to the execution of expenditure (not the allocation). The indicative target for the central government priority social spending floor will be calculated cumulatively from the beginning of the calendar year.

25. This indicative target will be monitored through the table of quarterly expenditure provided by the Ministry of Economy and Finance. A detailed list of priority expenditure items is provided in Table 4:

Table 4.

Benin: Priority Social Spending Coverage

article image

Assistance to hemodialysis patients; screening and treatment of ulcer, pneumo-pathobiology, fight against tuberculosis, AIDS, hepatitis, non-communicable diseases, leprosy, malaria, sickle cell anemia, subsidies to hospitals, etc.

Indicative Target

26. Priority Social spending at end-June 2022, end-September 2022 end-December 2022 and end-March 2023 must be equal to or greater than the amounts indicated in Table 1 of the MEFP.

Information for Program Monitoring

I. Data on Performance Criteria and Indicative Targets

27. To facilitate effective program monitoring, the authorities will provide IMF staff with the following data in excel format:

Monthly:

  • Data on any loan (terms and creditors) contracted or guaranteed by the government, in the first week after the end of the month of entry into force of these loans;

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

  • The TOFE, including revenue on a cash basis, 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, within six weeks of the end of the month;

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

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

Quarterly:

  • The price structure of petroleum products;

  • The employment index and the traffic of merchandise at the Port of Cotonou, within 25 days of the end of the month;

  • The Industrial production index and the turnover index, within three months of the end of the quarter;

  • High priority social spending (Table 4), including health, education, social protection and security, by functional classification of expenditure, within eight weeks after the end of the quarter;

  • Data pertaining to the amount of exceptional payment orders or other exceptional measures, within six weeks of the end of the quarter;

  • Stock-flow adjustment table;

  • National account statistics, within three months of the end of the quarter.

  • Total new Eurobond issuances provided on quarterly basis, within two weeks after the end of the quarter.

J. Other Information

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

  • Financial soundness indicators, produced semi-annually by the BCEAO, within eight weeks of the end of the semester.

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

  • Update of the PPP projects catalog and the amounts of contracted projects, within eight weeks of the end of the quarter.

  • Execution of the investment budget, within eight weeks of the end of the quarter.

  • 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.

  • Data on military and security spending, within eight weeks of the end of the quarter.

  • Balance of payments data, produced by the BCEAO, within ten months of the end of the year.

  • More generally, the authorities will report to the IMF staff any information needed for effective monitoring of the implementation of economic policies.
2

Portail des marchés publics du Bénin (marches-publics.bj)

4

The publication of BO information for COVID-19-related contracts and the independent audit of COVID-19 spending (and its publication) were RCF/RFI commitments.

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 and 3 years, respectively.

1

Prepared by Goran Amidzic (AFR).

2

See Benin's 2019 Article IV Consultation, Fourth Review under the Extended Credit Facility Arrangement, and Request for Modification of Performance Criteria, Country Report No. 19/203.

3

The latest official BoP data, including for NIIP, are for 2020. Data for 2021 are estimates; final data for 2021 will be available in the first quarter of 2023.

4

Desirable policies are set as follows: i) cyclically adjusted fiscal balance is set at -2.2 percent, in line with debt-stabilizing primary balance consistent with existing fiscal rules in 2026; ii) public health expenditures (as a share of GDP) is set at 1.3 percent, using the benchmark suggested by the EBA-lite CA model; change in reserve is set at 0 as no additional FX accumulation (beyond minimal amounts to sustain such adequate level of FX liquidity) would be deemed necessary over the medium term; iii) private sector credit level (27.9 percent of GDP) and growth (5.5 percent of GDP) are determined using the provided indicative benchmark based on an auxiliary regression that links the credit-to-GDP ratio to measures of financial development and structure, GDP per capita, public debt, inflation, and other variables; and iv) desirable policy level for capital controls is set to 0.47, reflecting contemporaneous cross-country average level of the controls index for 2018.

5

Under the principle that countries are expected to hold, over the medium term, an FX stock position deemed adequate from a precautionary viewpoint, no additional FX accumulation (beyond minimal amounts to sustain such adequate level of FX liquidity) would be deemed necessary over the medium term (i.e., the desirable level of FXI over the medium term should, in most cases, be set to zero).

6

The CFA Franc has been pegged to the Euro since its launch in 1999 at a fixed rate, and previously to the French Franc. The REER used in the annex is based on CPI prices.

7

See Annex IV, WAEMU's Staff Report on Common Policies for Member Countries (Country Report No. 2021/049).

1

Prepared by Deirdre Daly (AFR), building on earlier work by Alexandre Nguyen-Duong (now WHD).

2

A Simple Approach to Anchor Fiscal Policy in SSA Countries Post COVID-19 (Forthcoming AFR Departmental Note).

1

Prepared by Goran Amidzic (AFR).

2

See IMF Selected Issues Paper, “EMBI Spreads: External Factors, and the Impact of Fiscal Consolidation,” IMF Country Report No. 19/80. The dependent variable in the model is the sovereign bond spreads, measured by the EMBI spreads, and the key explanatory domestic variable is fiscal policy, measured by the cyclically adjusted primary balance and the level of public debt as percent of GDP. Other explanatory domestic determinants include the country's default history, the quality of institutions, oil prices, and investor risk appetite.

3

Benin has set up a weekly market monitoring system to identify and seize the optimal window of opportunity to pursue liability management operations.

4

Over the recent years, Benin has taken an innovative approach to diversifying its financing sources, including the 2018 debt reprofiling operation that was financed by a private international financial institution with a guarantee provided by the World Bank. The guarantee amounted to EUR 154.8 million (equivalent to USD 180 million, corresponding to an International Development Association (IDA) allocation of USD 45 million), for a commercial loan to the government denominated in euros in the amount of EUR 387 million (equivalent to USD 450 million). Two-thirds of the funds were used to buy back costly domestic debt, including debt owed to a regional development bank. The operation also helped reduce the interest costs of public debt and extend its average maturity.

5

These comprise the BCEAO (regional central bank), the WAMU Banking Commission, and the CREPMF (capital markets authority).

1

By Goran Amidzic (AFR).

2

In 2019, the authorities signed a loan in amount of €127 million (CFAF 83 billion, 0.8 percent of GPD) with Crédit Suisse (at 3.5 percent interest and maturity of 12 years), which was partially guaranteed (up to 40 percent of the principal) by the World Bank. In addition, World Bank, USAID, UNICEF, and small budgetary transfer are contributing to finance ARCH.

3

Pension coverage in Benin is limited to a small portion of the total population (formal private and public sector workers) and heavily concentrated in the wealthier segments. In 2020 only 1.2% of the working age population contributed to the FNRB (National Pension Fund), and 9.1% of the population aged 60 and over (60,677 individuals) received a pension.

1

Prepared by Deirdre Daly (AFR) and Alexandre Nguyen-Duong (now WHD).

2

This assessment evaluates a broad range of indicators in the areas of food, water, health, ecosystem, human habitat, and infrastructure.

3

«Le Benin, un pays vulnérable aux changements climatiques » (UNDP, 2020).

4

Politique Nationale de Gestion des Changements Climatiques (PNGCC 2021-2030).

5

The National Change Management Committee (Le Comité National de Gestion des changements).

6

The department in charge of climate change (La Direction en charge des changements climatiques).

1

Some elements of the TMU might be updated during program reviews.

2

The program reference rates and spreads are based on the “average projected rate” for the six-month USD SOFR over the following 10 years from the Spring 2022 World Economic Outlook (WEO).

3

See MEFP ¶12 for the authorities' views on this classification.

Other IMF Content

Other Publishers

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Cover IMF Staff Country Reports
Benin: 2022 Article IV Consultation and Requests for an Extended Arrangement under the Extended Fund Facility and an Arrangement under the Extended Credit Facility-Press Release; Staff Report; Staff Statement; and Statement by the Executive Director for Benin
Author:
International Monetary Fund. African Dept.
Volume/Issue:
Volume 2022: Issue 245
Publisher:
International Monetary Fund
ISBN:
9798400217777
ISSN:
1934-7685
Pages:
151
DOI:
https://doi.org/10.5089/9798400217777.002
  • <sup><xref rid="RA001txfig01" ref-type="fig">Text Figure 1.</xref></sup>
    View in gallery
    Text Figure 1.

    Benin: Distribution of Selected Economic Indicators

    (SSA, 2017-2019 average)

  • <sup><xref rid="RA001txfig02" ref-type="fig">Text Figure 2.</xref></sup>
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    Text Figure 2.

    Benin: Social Spending

    (percent of GDP)

  • <sup><xref rid="RA001txfig03" ref-type="fig">Text Figure 3.</xref></sup>
    View in gallery
    Text Figure 3.

    Benin: Recent Socio-Economic Developments

  • <sup><xref rid="RA001txfig04" ref-type="fig">Text Figure 4.</xref></sup>
    View in gallery
    Text Figure 4.

    Benin: COVID-19 Developments in Perspective

  • <sup><xref rid="RA001txfig05" ref-type="fig">Text Figure 5.</xref></sup>
    View in gallery
    Text Figure 5.

    Benin: Regional Disparities in Benin: Literacy Rate and Access to Health Services (as of 2019)

  • <sup><xref rid="RA001txfig06" ref-type="fig">Text Figure 6.</xref></sup>
    View in gallery
    Text Figure 6.

    Nigeria Border Re-opening, Port Traffic and Economic Recovery in Benin (y/y)

  • <sup><xref rid="RA001txfig07" ref-type="fig">Text Figure 7.</xref></sup>
    View in gallery
    Text Figure 7.

    Benin: Evolution of Inflation

    (January 2019-March 2022, y/y)

  • <sup><xref rid="RA001txfig08" ref-type="fig">Text Figure 8.</xref></sup>
    View in gallery
    Text Figure 8.

    Benin: Overall Balance and Debt: Forecasts vs. Outturn

    (2020–21)

  • View in gallery

    Benin Growth Decomposition

    (Percent, 2010-2021)

  • <sup><xref rid="RA001txfig09" ref-type="fig">Text Figure 9.</xref></sup>
    View in gallery
    Text Figure 9.

    Benin: Wage Bill Compared with WAEMU and SSA Peers

    (in percent of Gross National Income)

  • <sup><xref rid="RA001txfig10" ref-type="fig">Text Figure 10.</xref></sup>
    View in gallery
    Text Figure 10.

    Benin: International Oil Prices and Fuel Prices at the Pump (2012-2022)

  • View in gallery
  • <sup><xref rid="RA001txfig11" ref-type="fig">Text Figure 11.</xref></sup>
    View in gallery
    Text Figure 11.

    Benin: Relative Tax Performance

  • <sup><xref rid="RA001txfig12" ref-type="fig">Text Figure 12.</xref></sup>
    View in gallery
    Text Figure 12.

    Benin: Efficiency in Public Expenditure vis-à-vis Peers

  • <sup><xref rid="RA001txfig13" ref-type="fig">Text Figure 13.</xref></sup>
    View in gallery
    Text Figure 13.

    Benin: Relative Performance Along Selected SDGs and Estimated Spending Gaps

  • <sup><xref rid="RA001txfig14" ref-type="fig">Text Figure 14.</xref></sup>
    View in gallery
    Text Figure 14.

    Benin: Dependence on Nigeria

  • Figure 1.
    View in gallery
    Figure 1.

    Benin: Recent Developments, 2012–22

  • <sup><xref rid="RA001fig2" ref-type="fig">Figure 2.</xref></sup>
    View in gallery
    Figure 2.

    Benin: Fiscal Developments, 2012–21

  • Figure 3.
    View in gallery
    Figure 3.

    Benin: Real and External Sector Developments, 2006–21

  • <sup><xref rid="RA001fig4" ref-type="fig">Figure 4.</xref></sup>
    View in gallery
    Figure 4.

    Benin: Financial Sector Developments, 2004–21

  • <sup><xref rid="RA001app4txfig01" ref-type="fig">Text Figure 1.</xref></sup>
    View in gallery
    Text Figure 1.

    Benin: Current Account

    (Percent of GDP)

  • <sup><xref rid="RA001app4txfig02" ref-type="fig">Text Figure 2.</xref></sup>
    View in gallery
    Text Figure 2.

    Benin: Effective Exchange Rates

  • <sup><xref rid="RA001app4txfig03" ref-type="fig">Text Figure 3.</xref></sup>
    View in gallery
    Text Figure 3.

    Benin: Financing Sources

    (percent of GDP)

  • <sup><xref rid="RA001app4txfig04" ref-type="fig">Text Figure 4.</xref></sup>
    View in gallery
    Text Figure 4.

    Benin: WAEMU Regional Gross International Reserves

    (In million USD and months of next year's extraregional imports)

  • Annex V. Figure 1.
    View in gallery
    Annex V. Figure 1.

    Benin: Interest to Tax Revenue and Debt to GDP 2009-26

    (Percent)

  • Annex V. Figure 2.
    View in gallery
    Annex V. Figure 2.

    Benin: Interest-to-Revenue Ratio Baseline vs. Alternative Scenarios1

    (percent)

  • <sup><xref rid="RA001app6txfig01" ref-type="fig">Annex VI. Figure 1.</xref></sup>
    View in gallery
    Annex VI. Figure 1.

    Benin: EMBI Spreads (Selected countries, 2019-2021)

  • <sup><xref rid="RA001app6fig01" ref-type="fig">Figure 1:</xref></sup>
    View in gallery
    Figure 1:

    Non-traditional bond issuances

    (2015-21, in US$ billions)

  • <sup><xref rid="RA001app6fig02" ref-type="fig">Annex VI. Figure 2.</xref></sup>
    View in gallery
    Annex VI. Figure 2.

    Benin: Yield Curves on Regional and International Capital Markets (As of January 31, 2022)

  • <sup><xref rid="RA001app6fig03" ref-type="fig">Annex VI. Figure 3.</xref></sup>
    View in gallery
    Annex VI. Figure 3.

    Benin: Yield Curves on Outstanding Eurobond Issuances (Selected countries, as of January 30, 2022)

  • <sup><xref rid="RA001app6fig04" ref-type="fig">Annex VI. Figure 4.</xref></sup>
    View in gallery
    Annex VI. Figure 4.

    Benin: Sovereign Bond Spreads

    (EMBI vs Fundamentals)

  • <sup><xref rid="RA001app6fig05" ref-type="fig">Annex VI. Figure 5.</xref></sup>
    View in gallery
    Annex VI. Figure 5.

    Benin: Maturity Profile for Outstanding Issues: Benin, Senegal, and Cote d’Ivoire (as of January 30, 2022)

  • <sup><xref rid="RA001app7txfig01" ref-type="fig">Annex VII. Figure 1.</xref></sup>
    View in gallery
    Annex VII. Figure 1.

    Benin: Social Spending

    (in percent)

  • <sup><xref rid="RA001app7fig01" ref-type="fig">Figure 1:</xref></sup>
    View in gallery
    Figure 1:

    Government Health Expenditure (% GDP, 2019)

  • <sup><xref rid="RA001app7fig02" ref-type="fig">Figure 2:</xref></sup>
    View in gallery
    Figure 2:

    Out-of-pocket as % of Current Health Expenditure (2019)

  • <sup><xref rid="RA001app8txfig01" ref-type="fig">Text Figure 8.1.</xref></sup>
    View in gallery
    Text Figure 8.1.

    Benin: Average Annual Natural Hazard Occurrence, 1900-2018

    (Percent of total)

  • <sup><xref rid="RA001app8txfig02" ref-type="fig">Text Figure 8.2.</xref></sup>
    View in gallery
    Text Figure 8.2.

    Benin: Key Natural Statistics for Natural Hazards, 1985-2018

    (Number of people affected)

Text Figure 1.

Benin: Distribution of Selected Economic Indicators

(SSA, 2017-2019 average)
Text Figure 2.

Benin: Social Spending

(percent of GDP)
Text Figure 3.

Benin: Recent Socio-Economic Developments
Text Figure 4.

Benin: COVID-19 Developments in Perspective
Text Figure 5.

Benin: Regional Disparities in Benin: Literacy Rate and Access to Health Services (as of 2019)
Text Figure 6.

Nigeria Border Re-opening, Port Traffic and Economic Recovery in Benin (y/y)
Text Figure 7.

Benin: Evolution of Inflation

(January 2019-March 2022, y/y)
Text Figure 8.

Benin: Overall Balance and Debt: Forecasts vs. Outturn

(2020–21)

Benin Growth Decomposition

(Percent, 2010-2021)
Text Figure 9.

Benin: Wage Bill Compared with WAEMU and SSA Peers

(in percent of Gross National Income)
Text Figure 10.

Benin: International Oil Prices and Fuel Prices at the Pump (2012-2022)
Text Figure 11.

Benin: Relative Tax Performance
Text Figure 12.

Benin: Efficiency in Public Expenditure vis-à-vis Peers
Text Figure 13.

Benin: Relative Performance Along Selected SDGs and Estimated Spending Gaps
Text Figure 14.

Benin: Dependence on Nigeria
Figure 1.

Benin: Recent Developments, 2012–22
Figure 2.

Benin: Fiscal Developments, 2012–21
Figure 3.

Benin: Real and External Sector Developments, 2006–21
Figure 4.

Benin: Financial Sector Developments, 2004–21
Text Figure 1.

Benin: Current Account

(Percent of GDP)
Text Figure 2.

Benin: Effective Exchange Rates
Text Figure 3.

Benin: Financing Sources

(percent of GDP)
Text Figure 4.

Benin: WAEMU Regional Gross International Reserves

(In million USD and months of next year's extraregional imports)
Annex V. Figure 1.

Benin: Interest to Tax Revenue and Debt to GDP 2009-26

(Percent)
Annex V. Figure 2.

Benin: Interest-to-Revenue Ratio Baseline vs. Alternative Scenarios1

(percent)
Annex VI. Figure 1.

Benin: EMBI Spreads (Selected countries, 2019-2021)
Figure 1:

Non-traditional bond issuances

(2015-21, in US$ billions)
Annex VI. Figure 2.

Benin: Yield Curves on Regional and International Capital Markets (As of January 31, 2022)
Annex VI. Figure 3.

Benin: Yield Curves on Outstanding Eurobond Issuances (Selected countries, as of January 30, 2022)
Annex VI. Figure 4.

Benin: Sovereign Bond Spreads

(EMBI vs Fundamentals)
Annex VI. Figure 5.

Benin: Maturity Profile for Outstanding Issues: Benin, Senegal, and Cote d’Ivoire (as of January 30, 2022)
Annex VII. Figure 1.

Benin: Social Spending

(in percent)
Figure 1:

Government Health Expenditure (% GDP, 2019)
Figure 2:

Out-of-pocket as % of Current Health Expenditure (2019)
Text Figure 8.1.

Benin: Average Annual Natural Hazard Occurrence, 1900-2018

(Percent of total)
Text Figure 8.2.

Benin: Key Natural Statistics for Natural Hazards, 1985-2018

(Number of people affected)