News Brief: IMF Completes Review Under Benin PRGF Arrangement and Approves US$5 Million Disbursement
November 5, 2001
The Executive Board of the International Monetary Fund (IMF) today completed the second review under Benin's Poverty Reduction and Growth Facility (PRGF)1 arrangement, and also reviewed the second year program supported under the arrangement. As a result, Benin will be able to draw up to SDR 4.04 million (about US$5 million) under the arrangement immediately.
Benin's three-year arrangement under the PRGF was approved on July 17, 2000 (see Press Release 00/43), for SDR 27 million (about US$35 million). So far, Benin has drawn SDR 10.84 million (about US$14 million) under the arrangement.
After the Executive Board's discussion on Benin, Ms. Anne Krueger, First Deputy Managing Director, and Acting Chairman, stated:
"Benin's authorities are to be commended for the satisfactory macroeconomic performance achieved under the first-year program supported by the Poverty Reduction and Growth Facility (PRGF). Real GDP growth remained robust and well above the population growth rate, inflation continued to be moderate, and fiscal performance remained strong. All quantitative performance criteria were observed, and the structural benchmark on the creation of a unified database for the civil service was implemented. However, there were delays in implementation of other important structural measures.
"The outlook for 2001 and 2002 remains favorable. Nevertheless, particularly in view of the uncertainties in the global economic environment and the uncertain outlook for cotton prices in world markets, it is important that the government maintain a stable macroeconomic environment. In this context, the fiscal stance remains appropriate in 2001 and in the preliminary budget for 2002. To improve the efficiency of the economy and accelerate economic growth, the authorities are encouraged to resume and accelerate the implementation of structural reforms, improve the level and quality of government expenditure, and broaden the economic base by opening all productive sectors to domestic and foreign private investment. In this regard a streamlining of the legal and regulatory framework would be essential. The adoption of the regional banking commission's key recommendations, aimed at strengthening the financial sector, is welcome. Decisive implementation will be required in order to preserve the health of the banking system. The deterioration of the financial condition of SONAPRA calls for rapid progress towards its privatization. Furthermore, it is essential that the authorities resolve problems encountered in the expenditure management system and pursue reforms aimed at strengthening the preparation, execution, monitoring, and evaluation of public spending. The authorities need also to move ahead in implementing the new civil service compensation system in order to reduce pressures on salaries and thereby strengthen the country's long-term fiscal viability and competitiveness.
"The authorities have made progress in the preparation of a full poverty reduction strategy paper (PRSP), with broad participation of the civil society. However, much work remains to be done, including the setting of sectoral objectives and policies and the identification and costing of priorities. In addition, the authorities need to solve the remaining methodological issues in poverty diagnosis in order to have a solid basis for the identification of indicators and a mechanism to monitor poverty," Ms. Krueger said.
1 On November 22, 1999, the IMF's 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 development partners 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. Following the preparation of an interim PRSP in June 2000, work on the full PRSP is underway. PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5 ½ grace period on principal payments.