News Brief No. 01/2

News Brief: IMF Completes First Review of Benin Program and Approves US$5 Million Credit

January 8, 2001

The Executive Board of the International Monetary Fund (IMF) today completed the first review of Benin's performance under a program supported by a three-year arrangement under the Poverty Reduction and Growth Facility (PRGF)¹, and approved the release of a second disbursement under the arrangement in an amount equivalent to SDR 4.04 million (about US$5 million). The latest review brings total disbursements under the arrangement to SDR 10.84 million (about US$14 million).

Benin's three-year arrangement under the PRGF was approved on July 17, 2000 (see Press Release No 00/43), in an amount equivalent to SDR 27 million (about US$35 million).

At the conclusion of the Executive Board's discussion on Benin, Stanley Fischer, First Deputy Managing Director and Acting Chairman, made the following statement:

"Benin's authorities are to be commended for the satisfactory macroeconomic performance achieved under the first six months of the PRGF-supported program. Real GDP growth remained robust, inflation continued to be moderate, and fiscal performance was strong. All performance criteria under the program were observed.

"The outlook for 2001 remains favorable. With the presidential election approaching, it is critical that the government continue to seek a broad consensus on key policies, avoid slippages in policy implementation and maintain a stable macroeconomic environment. In that context, the budget for 2001 is consistent with the government's medium-term program and objective of maintaining macroeconomic stability. The measures recently taken to strengthen the banking system are also welcome.

"The authorities have begun preparing a comprehensive strategy to reduce poverty, although much work remains to be done. Strong leadership will be needed to guide the process, prepare coherent programs for social sectors, and define priorities with the participation of civil society. Better budget management is also required to ensure an adequate level of social spending, raise public investment to targeted levels, and improve the monitoring and evaluation of public spending, especially for the programs financed by HIPC Initiative assistance.

"To promote the diversification of production and exports and help maintain high and sustainable growth, the authorities are encouraged to accelerate the reform process, complete the civil service reform, and broaden the economic base by opening all sectors to private investment. With regard to the latter, strengthening the privatization procedures to make them fair and transparent is also essential," Mr. Fischer said.

¹ On November 22, 1999, the IMF's concessional facility for low-income countries, the Enhanced Structural Adjustment Facility (ESAF), was renamed the Poverty Reduction and Growth Facility (PRGF), and its purposes were redefined. It is intended that PRGF-supported programs will in time be based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and donors, and articulated in a poverty reduction strategy paper (PRSP). This is intended to ensure that each PRGF-supported program is consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. For Benin, an interim PRSP was adopted. The authorities aim at producing their full-fledged PRSP by April 2001 through a participatory assistance. It is understood that all policy undertakings in the interim PRSP beyond 2001 are subject to reexamination and modification in line with the PRSP. Once completed and broadly endorsed by the Executive Boards of the IMF and the World Bank, the PRSP will provide the policy framework for subsequent reviews under this PRGF arrangement. PRGF loans carry an interest rate of 0.5 percent a year and are repayable over 10 years with a 5 ½-year grace period on principal payments.