Benin and the IMF
News Brief: IMF Completes Review Under Benin PRGF Arrangement and Approves US$5 Million Disbursement
Free Email Notification
Mr. Horst Köhler
Dear Mr. Köhler:
1. The attached memorandum on economic and financial policies describes the progress made during the second half of the first-year of the program that the Fund supports under an arrangement under the Poverty Reduction and Growth Facility (PRGF). The memorandum also indicates the policies and measures planned for the rest of 2001 and for 2002. The attached technical memorandum of understanding also specifies the definitions of benchmarks and criteria presented in Table 1 of Appendix I and the reporting requirements.
2. As indicated in paragraph 4 of the memorandum, all the quantitative performance criteria for end-March were observed during the first six months of the program.
3. The government is convinced that the policies and measures set forth in the memorandum on economic and financial policies are adequate to achieve the objectives of its program. The government will provide the International Monetary Fund with information that it may request for purposes of monitoring progress in implementing its economic and financial policies. In light of the policies and measures established for the second year of the program, we request that the disbursement of the fourth loan under the PRGF arrangement, in an amount equivalent to SDR 4.04 million, be approved upon completion of the third review under the arrangement, to be completed by mid-March 2002. The review will assess economic and financial developments during 2001 and early 2002, the outlook for the rest of 2002, and the implementation of the poverty reduction strategy. It will also set the phasing and conditions of the disbursements to be made during the third year of the PRGF arrangement.
Minister of Finance and Economy
Memorandum on Economic and Financial Policies for 2001/02
October 5, 2001
1. Discussions on the second review of the medium-term program supported by a Fund arrangement under the Poverty Reduction and Growth Facility (PRGF) were held in Cotonou during July 19-August 2, 2001 and in Washington during August 20-23, 2001. The discussions covered progress made in program implementation since September 2000, the outlook for the remainder of 2001 and for 2002, and measures planned for the next twelve months, including key elements of the 2002 budget. The government of Benin reaffirms its commitment to implement all the policies described in the present document, which supplements the memorandum on economic and financial policies prepared in June and December 2000.
II. Program Implementation, September 2000-June 2001
2. The program for 2000 and 2001 was prepared in the context of the medium-term strategy for 2000-03, which aims at achieving sustainable economic growth, reducing poverty, and maintaining financial viability by strengthening macroeconomic policies and liberalizing the economy.
3. In 2000, the economic situation was broadly in line with the program as revised during the first review in October 2000. Real GDP grew by 5.8 percent, compared with a target of 5.3 percent, mainly on account of higher-than-expected food production. Average inflation was contained at 4.2 percent, and the current account deficit, including current transfers, was equivalent to 8.0 percent of GDP in 2000, instead of the 7.3 percent projected in the program, largely because of delays in the disbursement of grants tied to the adjustment program. Nevertheless, a surplus was recorded in the overall balance of payments, enabling Benin to contribute CFAF 57.1 billion to the international reserves of the Central Bank of West African States (BCEAO).
4. The program benchmarks for end-December 2000 and the quantitative performance criteria for end-March 2001 were met. However, the civil service database maintained by the Ministry in charge of the Civil Service was merged with the payroll database in September 2001 instead of March 2001 (structural benchmark). Also, the indicators concerning expenditure on education and health at end-December 2000 and end-March 2001 were not observed, owing to problems encountered in starting some projects and in implementing a new computerized public expenditure management system.
A. Government Finance and Fiscal Reforms
5. In 2000, the overall fiscal balance, on a payment order basis and excluding grants, recorded a deficit equivalent to 3.5 percent of GDP as programmed. Including grants, the deficit amounted to 1.8 percent of GDP, instead of 0.1 percent as targeted, on account of delays in the disbursement of external grants. Given these delays, net bank credit to the government increased slightly instead of declining as planned. Total revenue reached 16.6 percent of GDP, or much better than the target of 15.9 percent of GDP set in the program, owing to a strengthening of tax collection and the implementation of a common external tariff in the West African Economic and Monetary Union (WAEMU). However, government expenditure was also higher than anticipated, reaching 20.1 percent of GDP, as spending on goods and services and investment projects accelerated toward the end of the year. The wage bill was kept below the ceiling set in the program at 4.8 percent of GDP, while outlays for education and health were only 80 percent of the budget appropriations, which included CFAF 3.5 billion in interim assistance under the enhanced Initiative for Heavily Indebted Poor Countries (HIPC Initiative). The government implemented its action plan to settle identified domestic arrears and reached an agreement with Italy to settle arrears on short-term debt amounting to CFAF 14.8 billion. Moreover, the government has started an audit of the utilization of HIPC resources in 2000, which is to be completed by end-2001.
6. In the first half of 2001, the fiscal situation was greatly affected by the difficulties, which were somewhat expected, encountered in implementing a new computerized expenditure management system (SIGFIP). Indeed, these difficulties slowed budget execution until April 2001 and led the Beninese Treasury to pay urgent expenses by using exceptional procedures. As a result, only 34 percent of total expenditure was executed at end-June 2001. In particular, spending for health and education was only at 30 percent of the level budgeted for the year. Nevertheless, the government has taken steps to speed up social sector spending for the rest of this year. Also, the government has decided to offset overspending on the elections, equivalent to 49 percent of the budgeted amount, by cutting nonpriority current outlays. On the revenue side, the outcome for the first six months of the year was close to the objective, with total revenue amounting to the equivalent of 7.3 percent of GDP, as a strong performance on domestic tax collection largely offset a shortfall in customs receipts. The low level of spending and the disbursement of external aid in early 2001, instead of at end-2000, led to a much greater than expected improvement in net bank credit to the government during the first six months of this year.
7. To make SIGFIP fully operational, the government has started implementing a series of actions, some of them recommended by a technical assistance mission from the International Monetary Fund. The measures include (i) enhancing user training, (ii) strengthening technical assistance to operate and expand the system, (iii) integrating foreign-financed expenditure into the system, and (iv) introducing specific budgetary lines in the 2001 supplementary budget to monitor outlays financed by HIPC Initiative resources. In addition, by end-December 2001, the government will link SIGFIP with the treasury's computer system and ensure that SIGFIP is able to monitor and provide information on the budget under the traditional format, as well as under the format of program budgets.
B. Money and Credit Developments
8. Broad money expanded by 21.3 percent in 2000, with the net foreign assets and the net domestic assets of the banking system contributing equally to the increase. In addition, credit to the economy grew by 25.5 percent during the year as banks increased lending to the cotton, trade, and industry sectors. Over the first six months of 2001, net domestic assets declined by 6.4 percent relative to the beginning-of-period money stock, mainly on account of a contraction in net bank credit to the government. Meanwhile, credit to the nongovernment sector increased by 13.7 percent in the 12 months to June 2001.
9. The financial situation of two of the five banks weakened in the second half of 2000 as a result of a rapid increase in lending and weaknesses in bank management and internal control procedures. This weakening led to a deterioration of the banks' solvency, as they were unable to observe key prudential ratios, particularly the capital adequacy ratio, at end-December 2000. At the same time, the situation of nonbank financial institutions remained weak, with two of the three small leasing companies facing serious difficulties. However, the measures taken since the second quarter of 2000 to restructure the largest cooperative bank, FECECAM, have started to bear fruit. In particular, FECECAM's management has been streamlined, and debt-collection procedures have been improved, so that the volume of outstanding nonperforming loans has fallen.
C. Structural Reforms
10. After ending the monopoly of the state cotton enterprise (SONAPRA) on the marketing of seed cotton, the government is working on gradually bringing competition into the cotton sector. In this context, the World Bank helped the Interprofessional Cotton Association to set up an autonomous agency (Centrale de Sécurisation des Paiements et des Recouvrements, or CSPR) which manages the distribution of cottonseeds to ginning mills and ensures crop credit repayments to commercial banks. As a result, the 2000/01 cotton harvest was generally satisfactory. However, the CSPR was unable to pay all producers because SONAPRA and a private ginning enterprise did not fully pay for cottonseeds.
11. Other structural reforms ground to a standstill during the months preceding the March 2001 presidential election. Little progress was made in the discussions on the privatization scheme for SONAPRA and on the government divestiture program for the telecommunications company (OPT), the water and electricity distribution company (SBEE), and the Autonomous Port of Cotonou (PAC). In particular, the National Assembly has yet to adopt the laws and regulatory frameworks that are required for the liberalization of these sectors. Similarly, the National Assembly has yet to amend the 1998 law on the compensation system for the civil service, as required by the Constitutional Court. The implementation of the decentralization policy was also delayed, as the local elections were postponed to a date to be announced.
12. The government continues to participate actively in the initiatives aimed at strengthening regional integration within the WAEMU and the Economic Community of West African States (ECOWAS). For this purpose, the government intends to bring the regulatory framework for economic activity progressively in line with the regional laws. As regards government finance, regional laws on the government chart of accounts and the budget nomenclature are being implemented. Also, the government has submitted to the National Assembly amendments to two articles of the Constitution that are contrary to some provisions of the fundamental regional law on the budget. With respect to governance, the WAEMU code of good conduct has been published, and training for its implementation will take place as scheduled by the WAEMU. In addition, the draft common investment code of the union is under discussions among WAEMU member countries. Lastly, the government has submitted to the WAEMU Commission a multiyear economic program consistent with the union's convergence criteria. At end-2000, Benin observed all the core criteria for macroeconomic convergence, except for the one on inflation, as the union target of 3 percent was exceeded slightly.
I. Medium- and Long-Term Framework
13. Studies on Benin's long-term prospects, carried out after broad consultations with various social groups in the country, revealed that the national vision for Benin in 2025 was that of a model country, well governed, united, and at peace, with a prosperous and competitive economy, an expanding cultural influence, and improved social well-being. With this vision of the future in mind, the new government has prepared an Action Program covering the five years of the President's term of office. The main focus of this Action Program is to (i) consolidate democracy and good governance; (ii) strengthen the physical bases of the economy; (iii) improve competitiveness; (iv) stabilize the macroeconomic framework; (v) improve infrastructure and ensure balanced development; (vi) intensify the fight against poverty; (vii) take into account young people's views and the gender dimension when addressing development issues; (viii) strengthen national unity and solidarity initiatives; and (ix) promote the expansion of Benin's international influence and African integration.
14. In the context of its Action Program for 2001-06, the government is actively preparing a poverty-reduction strategy paper (PRSP), which will cover the period 2002-04. Accordingly, the first four years of the government's Action Program will be consistent with the PRSP and the medium-term expenditure framework (MTEF). In addition, as part of its efforts to strengthen fiscal management, the government, with World Bank assistance, has already started preparing program budgets in the areas of health, education, rural development, environment, and transportation sectors. The MTEF and the program budgets will be approved by the government and submitted to the National Assembly by end-October 2001.
15. Based on the findings of a national seminar on the acceleration of Benin's economic growth, held in May 2001, the government's objectives are to achieve a real GDP growth of 7 percent by 2004, while keeping inflation below 3 percent a year on average. Such an ambitious objective forcefully demonstrates the government's determination to implement as soon as possible policies and structural reforms that can contribute to a steady acceleration of growth. To ensure the sustainability of this strategy over time, the government will also gradually bring the external current account deficit to below 7 percent of GDP and reduce the burden of the external debt relative to GDP. With this objective in mind, the government will make every effort to strengthen the competitiveness of the economy, so as to enable Benin to gain a larger share of regional and international trade and increase private investment in the productive sectors.
II. Policies and Measures Planned for the Remainder of 2001
and the First Half of 2002
16. The second year of the program supported by the PRGF covers the period from July 1, 2001 to June 30, 2002. The macroeconomic framework for 2001 that was presented in the memorandum of December 26, 2000 was only slightly modified to reflect recent developments. The real GDP growth target for 2001 was revised from 5 percent to 5.8 percent to take account of the increase in food production and in secondary sector activity, while the targets for inflation (3 percent) and for the external current account deficit (6.9 percent of GDP) were kept unchanged. For 2002, the growth target was also raised, from 5.6 percent to 6 percent, to take account of higher growth projected in the secondary sector, especially in textiles, construction, and public works, as well as in the tertiary sector (mainly trade and transportation). With world petroleum product prices stabilizing and sufficient rainfall for normal growth in food production, inflation is expected to continue falling to 2½ percent in 2002. However, the external current account deficit is expected to reach 7 percent of GDP, in view of the deterioration in the terms of trade, resulting from the drop in cotton price on the world markets. Nevertheless, the overall balance of payments position should remain in surplus.
A. Fiscal Policy and Budget Reform
17. In view of the fiscal outturn at end-June 2001, the government intends to accelerate budget execution and continue to improve tax collection during the rest of 2001. As a result, the overall fiscal deficit, on a commitment basis and excluding grants, is estimated at 4.1 percent of GDP, or 0.3 percentage point below the program target. The overall balance, including grants, should record a deficit of less than 1 percent of GDP, as expected. Further improvement in tax administration will keep total revenue at 16½ percent of GDP, as in 2000, but ½ of 1 percent above the program target. To that end, the government will make every effort to collect, by end-November 2001, CFAF 2.8 billion in customs duties owed by the company distributing petroleum products, SONACOP. On the expenditure side, the government will speed up budget execution, mainly by improving SIGFIP operations. Also, transfers will be increased by CFAF 7.1 billion to take into account payments owed to WAEMU and additional interim assistance obtained in the context of the HIPC Initiative (CFAF 3.1 billion), which will be used to increase transfers to local health centers, the teaching hospital, and the university. Hence, the target for total expenditure has been slightly raised to 20.6 percent of GDP. The wage bill will be kept within budget limit, at 4.6 percent of GDP, taking into account the planned recruitments in the social sectors, as well as the government's decision to increase wages to the level corresponding to the grades on the job ladders that civil servants reached in 1996. The total of other expenditure and current transfers will be kept at their initial level, notwithstanding the overruns in the cost of the recent elections. Similarly, the authorities intend to execute the investment program fully. Investment outlays include the purchase of an airplane for the president, an issue that has been discussed with Fund staff since 1998. The government will consult Fund staff before finalizing any transaction and finance the purchase only from budget appropriations included in the Finance Law and from external resources that observe the concessionality conditions agreed in the program (loan with a grant element of at least 35 percent). Budget appropriations have been voted for this purpose since 1999, and those for 1999 and 2000 have been carried forward in accordance with the law, since they have not been utilized. Hence, total budget appropriations for this purpose amount to CFAF 9 billion, including a grant of CFAF 3.7 billion received for such purchase in 1998.
18. The 2002 budget will reflect the government's policy and priorities as defined in its Action Program and the PRSP under preparation. The broad thrust of the budget will be (i) the preparation of program budgets and unified budgets by a number of ministries; (ii) an improvement in revenue collection; (iii) an increase in capital expenditure and operating expenditure for the social sectors and economic infrastructures; and (iv) a strengthening of capacity building to manage and use the available resources.
19. In this context, the government set the target for the overall fiscal deficit (on a payment order basis, excluding grants) at 4.2 percent of GDP in 2002, or slightly above the level envisaged under the medium-term program, in order to accommodate higher capital spending. In addition, the basic fiscal balance (excluding externally-financed investment) will record a surplus, so that Benin will continue to observe the main WAEMU convergence criteria. The overall fiscal deficit is to be financed by secured grants and external loans on concessional terms.
20. The government does not plan to introduce new tax measures in 2002 but intends to raise total revenue slightly to 16.7 percent of GDP by a further strengthening of tax administration. In particular, it will (i) continue to reinforce the department in charge of the taxation of large enterprises; (ii) interconnect the computers in the tax and customs departments; (iii) interconnect the computers of the customs department with those of the preshipment inspection enterprise; (iv) intensify customs valuation audits; and (v) computerize the monitoring of tax exemptions. In addition, the government will collect the dividends owed by SONACOP to the state for the first six months of 1999, prior to the enterprise's privatization.
21. Total expenditure is projected to rise slightly to 20.9 percent of GDP in 2002. The wage bill is to be kept stable at 4.5 percent of GDP (CFAF 85.8 billion). Before end-2001, the government will request the National Assembly to revise the law on the new compensation system, as required by the Constitutional Court, so as to implement it by early 2002. If the National Assembly fails to revise the law, the government will consult with Fund and World Bank staff on the approach it intends to pursue in order to implement the new compensation system. In addition, the government has decided to keep the size of the civil service unchanged, instead of maintaining the current practice of recruiting two civil servants for any three leaving the service. This action will contain the needs for personnel in ministries, pending the introduction of the staffing plans that will be prepared in the context of the reform of the administration. Additional teachers and health personnel will be hired at the local level and will be financed by transfers financed with some of the resources obtained in the context of the enhanced HIPC Initiative.
22. The government intends to increase in 2002 current nonwage expenditure by 5 percent for ministries in charge of education, health, social protection, agriculture, environment, transportation, water, and electricity, and by 3 percent for the others. Transfers, excluding scholarships and pensions, will be kept in 2002 at their 2001 level. Budget appropriations for public investment have been set at of 8.5 percent of GDP, or ½ percentage point higher than the level projected for 2001. The execution rate of investment is also expected to improve from 80 percent in 2001 to 90 percent in 2002. The government intends to discuss the composition of the investment program with Fund and World Bank staff once it is available.
23. The government will pursue the settlement of government liabilities stemming from the financial difficulties that Benin encountered during the 1980s. To that end, it will complete payments of private deposits left in liquidated banks (CFAF 5.2 billion) by March 2002. In addition, by end-December 2001, the authorities will make an inventory of all claims that civil servants may have made on the government as a result of the measures taken during the 1980s. If such an inventory were compiled, the government will discuss with Fund staff a financial package to settle them during the next review of the program.
24. In 2002, the government intends to reinforce measures taken in recent years to improve budget execution. To that end, it will (i) deepen the budget reforms, (ii) make SIGFIP fully operational, (iii) strengthen the financial and physical controls of outlays for infrastructure, (iv) increase the use of autonomous agencies to execute infrastructure projects, and (v) seek development partners' support to streamline loan and grant disbursement procedures. The government will also pursue its ongoing efforts to prepare economic and functional classifications of government expenditure. These classifications, together with the increased use of program budgets, would help reduce the amount of current outlays shown as capital expenditure. Also, the government intends to evaluate the system of cash advance accounts (comptes de régisseurs) during the first quarter of 2002, in order to increase the proportion of expenditure that is executing following the regular spending procedures. In addition, the remaining balance of those cash advance accounts will be transferred to the treasury by end-December 2001, and expenditure already committed will be cancelled, with the possibility of carrying them over to fiscal year 2002.
B. Outlook for Money, Credit, and the Financial System
25. Monetary policy, which is conducted at the regional level by the BCEAO, will be consistent in 2001-02 with the objectives of price stability and balance of payments viability. In light of anticipated trends in economic activity and financial intermediation, broad money is expected to grow by 10½ percent in 2001 and 9.5 percent in 2002. Net domestic assets are expected to decline in 2001, owing to the contraction in net bank credit to the government, which will be only partially offset by the increase in credit to the nongovernment sector. In 2002, net domestic assets should recover, as the contraction in net bank credit to the government should slow and credit to the nongovernment sector could rise by 13.9 percent. As a consequence, the net foreign assets of the banking system are expected to continue to increase during the 2001-02 period.
26. The government is determined to correct the weaknesses of Benin's financial system and strengthen the management of financial institutions. Already, as recommended by the regional banking commission, the management of two banks has been replaced, and the government intends to work with the banks' shareholders in order to increase their capital by end-2001 to the level required by the new prudential norms. By end-2001, the government will also propose a plan for the sale of the shares of the bank in which the public sector controls a majority of the capital. In addition, the government will ensure that all financial institutions observe the prudential ratios, especially those related to capital adequacy. As regards nonbank financial institutions, the government has decided to withdraw the license of one institution and enhance surveillance over the other two, in order to have them comply with the new prudential ratios by end-2001.
27. For microfinance institutions, the government will reinforce the unit in charge of their supervision by end-2001. The unit will exercise a closer surveillance over the two major networks, FECECAM and FENACREP, and subsequently over all microfinance institutions. Based on the audit carried out by an international firm, the government will ensure, with the support of external partners, that FECECAM's restructuring proceeds as planned. Finally, the government will pursue its efforts to collect the outstanding claims of the liquidated banks.
C. Other Structural Reforms
28. The government will continue to apply the new adjustment mechanism for petroleum product prices. It will assess its functioning by end-2001 and study in particular the impact of the growing volume of sales in the informal sector, which imports petroleum products from neighboring countries. For kerosene, the government will limit the subsidy to CFAF 4 billion in 2002, as was the case in 2001. Also, the government has decided to liberalize the price of cement by end-2001.
29. Given the size of the structural financial deficit of the pension fund for the civil service (FNRB), which is currently covered by budgetary transfers, the government will carry out an actuarial study of the fund and formulate a strategy by end-June 2002 for eliminating its financial deficit over the medium term. Meanwhile, the government will establish a database of retired personnel by end-December 2001.
30. For the telecommunications company (OPT), the government will complete a financial audit of its 2000 accounts by end-December 2001. Once the National Assembly has passed the laws on the postal services and telecommunications sector, the government will adopt the decree splitting the two branches, create a new telecommunications company by November 2001, and set up the regulatory agency by February 2002. The government will request bids for the privatization of the telecommunications company by end-February 2002, and select the successful bidder by July 2002.
31. Regarding the water and electricity company (SBEE), the government will adopt a privatization strategy by September 2001, as recommended by the national seminar on the reform of the water and electricity sectors. The main feature of the strategy to be defined by December 2001 will be the separation of the water and electricity sectors. The government intends to request World Bank assistance for financing studies on the separation of the two sectors, the privatization of the resulting entities, and the revision of the legal and regulatory frameworks. The government will then (i) submit the draft law to the National Assembly by end-March 2002, (ii) set up the regulatory agency in March 2002, (iii) launch the bidding process by June 2002, and (iv) choose the winning bid by November 2002. In addition, the government will propose a plan by end-October 2001 for restoring the company's finances, which are suffering from a difficult cash-flow situation and a balance sheet weakened by an accumulation of losses over the past years.
32. The government will review, in cooperation with the World Bank, the options that an international consulting firm suggested for the privatization of SONAPRA. It will adopt a privatization strategy by December 2001 and complete the transaction by end-November 2002. In conformity with the objective of accelerating growth, the government will also withdraw from public enterprises in the textile sector and, to that end, will prepare a divestiture strategy by end-December 2001.
33. To intensify private sector involvement in the management of the Autonomous Port of Cotonou (PAC), the government will adopt one of the options that a consulting firm is supposed to recommend in the coming months. It will then define how the option will be implemented before end-June 2002.
34. To promote good governance, the government has prepared a draft national anticorruption strategy after consultation with civil society. It intends to adopt the draft strategy by end-December 2001, after discussing it further with civil society in September 2001. In addition, the authorities have adopted regulations governing relations between government agencies and the population, as well as manuals of administrative procedures for use by government departments.
III. Monitoring of the Program
35. Program monitoring will be carried out on the basis of the accompanying Technical Memorandum of Understanding and the quarterly quantitative benchmarks, indicators, and structural benchmarks established for the period July 1, 2001-June 30, 2002, and through a midterm review. The quantitative limits for end-September 2001, end-March 2002, and end-June 2002 are benchmarks for program monitoring; those for end-December 2001 are program performance criteria, the observance of which is a condition for making the fourth disbursement under the arrangement under the PRGF. The quantitative benchmarks and the performance criteria include (i) a ceiling on net bank credit to the government; (ii) the nonaccumulation of new external payments arrears by the central government (on a continuous basis); (iii) a ceiling on new nonconcessional foreign debt with a maturity of one year or more, contracted or guaranteed by the central government; and (iv) a ceiling on new short-term foreign borrowing, with the exception of regular trade financing. The quarterly ceilings on net bank credit to the government will be adjusted downward (or upward), depending on the amount by which exceptional external assistance, excluding eventual debt relief, exceeds (or falls short of) program estimates, as indicated in the attached Table 1. The reduction of verified government domestic payments arrears has not been retained as a benchmark or a performance criterion since the government settled outstanding amounts in the first quarter of 2001, except for those still subject to legal proceedings.
36. Four measures will serve as structural benchmarks for end-December 2001: (i) submitting amendments to the law on a new pay scale and compensation system for the civil service to a vote of the National Assembly;(ii) completion of an inventory of civil servants' outstanding claims on the government; (iii) agreement between the government and Fund staff on an action plan to privatize the remaining state-controlled bank; and (iv) reconciling the end-2000 account balances of the treasury, budget department, externally-financed public investment project, and agencies that are included in the financial operation of the central government.
Technical Memorandum of Understanding
(October 5, 2001)
1. This technical memorandum of understanding defines the quantitative and structural performance criteria and benchmarks for the program supported by the Poverty Reduction and Growth Facility (PRGF). It also sets out the frequency and deadlines for data reporting to the staff of the International Monetary Fund (IMF) for program-monitoring purposes.
2. Unless otherwise indicated, the government is defined as the central government of the Republic of Benin and does not include local authorities, the central bank, or any other public entity with autonomous legal personality that is not included in the table of government financial operations (TOFE).
3. The definitions of "debt" and "concessional borrowing" for the purposes of this memorandum of understanding are as follows:
I. Quantitative Performance Criteria
A. Net Bank Credit to the Government
4. Net bank credit to the government is defined as the balance between the liabilities and claims of the government vis-à-vis the central bank and commercial banks. The scope of net credit to the government is that used by the Central Bank of West African States (BCEAO) and is consistent with established Fund practice in this area. It implies a broader definition of government than that specified in paragraph 2. Claims of the government include the CFA franc cash balance, postal checking accounts, subordinated debt (obligations cautionnées), and all deposits with the BCEAO and commercial banks of public entities, with the exception of industrial or commercial public entities (EPIC) and public enterprises, which are excluded from the calculation. Government debt to the banking system includes all debt to these same financial institutions.
5. At end-June 2001, net bank credit to the government as defined above stood at CFAF -39.6 billion.
6. The ceilings on the net credit to the government vis-à-vis the banking system will be adjusted downward (upward) by the amount by which disbursements on budgetary assistance exceed (fall short of) the amount programmed; the required correction in case of shortfall of budgetary assistance will be limited to CFAF 17 billion at end-December 2001, end-March 2002 and end-June 2002. Budgetary assistance is defined as grants, loans, and debt relief (excluding project loans and grants, IMF resources, and debt relief under the HIPC Initiative). In the context of the program, cumulative (since end-June 2001) external budgetary assistance is expected to reach CFAF 30.6 billion at end-December 2001, and to stay at that level at end-March 2002 and end-June 2002.
7. The ceiling on net bank credit to the government will be adjusted downward by the amount by which proceeds from privatization exceed the amount programmed for restructuring expenditure. In the context of the program, cumulative restructuring expenditure (since end-June 2001) is expected to reach CFAF 5 billion at end-December 2001, CFAF 10.6 billion at end-March 2002, and CFAF 10.6 billion at end-June 2002.
8. The ceiling on net bank credit to the government will also be adjusted downward by the amount of underspending on projects financed by HIPC Initiative resources. Targets for cumulative spending on projects financed by the HIPC Initiative (since end-June 2001) are CFAF 12.5 billion at end-December 2001, CFAF 15.5 billion at end-March 2002, and CFAF 21.4 billion at end-June 2002.
Performance criteria and benchmarks
9. The ceiling on net credit to the government is established as follows: CFAF -51.0 billion as at December 31, 2001, CFAF -55.0 billion as at March 31, 2002, and CFAF -57.0 billion as at June 30, 2002. The ceiling is a performance criterion as at end-December 2001 and a benchmark as at end-March 2002 and at end-June 2002.
10. Provisional data on net credit to the government, including a detailed list of the bank account balances of other public entities, will be transmitted on a monthly basis within the four weeks following the end of the month. The definitive data will be provided within an additional four weeks after the provisional data have been reported.
B. Nonaccumulation of External Public Payments Arrears
11. External payments arrears are defined as the sum of (i) external payments due, (ii) unpaid-for external liabilities of the government, and (iii) foreign debt held or guaranteed by the government. The definition of external debt provided in paragraph 3(a) applies here.
12. Under the program, the government will not accumulate external payments arrears, with the exception of arrears arising from debt under renegotiation or being rescheduled. The performance criterion on the nonaccumulation of external payments arrears will be monitored on a continuous basis throughout the program period.
C. Ceiling on Nonconcessional External Debt with a Maturity of One Year or More Newly Contracted or Guaranteed by the Government
13. This performance criterion applies not only to debt as defined in Point 9 of the Guidelines on Performance Criteria with Respect to Foreign Borrowing (Executive Board Decision No. 6230-(79/140), amended by Executive Board Decision No. 12274-(00/85) (8/24/00) but also to commitments contracted or guaranteed (including lease-purchase agreement) for which no value has yet been received. The definition of external debt excludes bonds issued in the regional market and disbursements under the PRGF arrangement.
14. The concept of "government" for the purposes of this performance criterion includes government as defined in paragraph 2, public institutions of an administrative nature (EPA), public institutions of a scientific and/or technical nature, public institutions of a professional nature, public institutions of an industrial and/or commercial nature (EPIC), and local governments.
15. Nonconcessional external borrowing will be zero throughout 2001/02 (July-June).
16. Information on any borrowing (including terms of loans and creditors) contracted or guaranteed by the government shall be transmitted each month within four weeks following the end of the month.
D. Ceiling on Short-Term
External Debt Newly Contracted or Guaranteed
17. The definitions in paragraphs 13 and 14 also apply to this performance criterion.
18. Short-term external debt is debt with a contractual term of less than one year. Import-related loans and debt relief operations are excluded from this performance criterion.
19. In the context of the program, the government and public enterprises will not contract, guarantee, or secure short-term nonconcessional external debt.
20. As of June 30, 2001, the government of Benin has no short-term external debt.
II. Quantitative Benchmarks
21. The quantitative benchmarks for the program comprise quarterly minimum spending targets for health and education. This includes both current capital and expenditures, including foreign-financed investments. The floor for health expenditure is on an accumulated basis (since end-June 2001) CFAF 30.0 billion for end-December 2001; CFAF 40.2 billion for end-March 2002; and CFAF 50.5 billion for end-June 2002. The floor for education expenditure is on an accumulated basis (since end-June 2001) CFAF 48.2 billion for end-December 2001; CFAF 68.1 billion for end-March 2002; and CFAF 87.9 billion for end-June 2002.
III. Quantitative Indicators
22. The program also includes indicators on total government revenues, the primary government expenditure, and the civil service wage bill.
A. Floor for Total Government Revenues
23. Government revenues are defined as those that appear in the government financial operations table (TOFE).
24. Quantitative performance indicators for total government revenues are set at CFAF 288.8 billion at end-December 2001; CFAF 363.4 billion at end-March 2002; and CFAF 438.0 at end-June 2002 (cumulative since end-December 2000).
25. The government shall report its revenues to IMF staff each month in the context of the TOFE.
B. Floor for Primary Government Expenditure
26. Primary government expenditure is defined as total government expenditure minus interest payments, externally financed investment expenditure, and net lending.
27. The floors for the performance indicators for primary government expenditure are set at CFAF 260.1 billion at end-December 2001; CFAF 321.7 billion at end-March 2002; and CFAF 390.6 billion at end-June 2002 (cumulative since end-December 2000).
28. The authorities will report monthly to IMF staff, in the context of the TOFE, provisional data on primary government expenditure. These data will be taken from the balances of treasury accounts for the items that are used to calculate this balance. The final data will be provided as soon as the final balances for these accounts are available, but not later than four weeks after the reporting of the provisional data.
C. Ceiling on the Wage Bill
29. The wage bill includes all public expenditure on wages, bonuses, and other benefits or allowances granted civil servants employed by the government, the military, and other security forces, and includes all similar expenditure with respect to special contracts and other permanent or temporary employment with the government. The wage bill excludes, however, wages paid under externally funded projects and transfers to local communities for the payment of salaries of teachers and health personnel.
30. The quantitative performance indicators for the wage bill are set at CFAF 80.8 billion at end-December 2001; CFAF 101.3 billion at end-March 2002; and CFAF 123.8 billion at end-June 2002 (cumulative since end-December 2000).
31. The government shall report the wage bill to IMF staff each month in the context of the TOFE.
IV. Structural Benchmarks
A. Submission of Amendments to the Law on a New Performance-Based Compensation Mechanism to a Vote of the National Assembly
32. By December 31, 2001 at the latest, the government will submit amendments to the law on a new performance-based compensation mechanism that were required by the Constitutional Court to be voted on by the National Assembly.
B. Completion of
an Inventory of Outstanding Claims of
33. By December 31, 2001, the government will complete an inventory of outstanding claims of civil servants on the government.
C. Agreement with
Fund Staff on an Action Plan to Privatize
34. By December 31, 2001, the government will agree with Fund staff on an action plan to privatize the remaining state-controlled.
D. Reconciliation of end-2000 Accounts Balances for the Treasury, Budget Department, Externally-Financed Public Investment Projects, and Agencies that are Included in the Financial Operations of the Central Government
35. By December 31, 2001, the government will reconcile the end-2000 account balances of the treasury, budget department, externally-financed public investment projects, and agencies that are included in the financial operations of the central government.
V. Other Data Requirements for Program Monitoring
A. Public Finance
35. Required public finance is as follows:
B. Monetary Sector
36. The following data will be transmitted on a monthly basis or, as specified below, within eight weeks of the end of the month:
C. External Sector
37. External sector data requirements are as follows:
D. Real Sector
38. The following requirements will apply to real sector data:
E. Structural Reforms and Other Data Requirements
39. Documentation of all measures undertaken by the government will be transmitted to the IMF's African Department within ten working days after the day of implementation. Any official studies pertaining to the economy of Benin, will be submitted within two weeks of publication.