Press Release No. 06/185

Press Release: Statement by the IMF Staff Mission to Benin

August 29, 2006

The following statement was issued in Cotonou by Mr. Mbuyamu Matungulu, International Monetary Fund mission chief to Benin.

"An IMF mission team visited Cotonou during August 9-23, 2006 to conduct the 2006 Article IV Consultation and hold discussions with the authorities on the first review under the three-year economic program supported by the IMF's Poverty Reduction and Growth Facility (PRGF)¹. The mission met with the President of the Republic, His Excellency Boni Yayi, the Minister of Development, Economy and Finance, Mr. Irene Koupaki, and other ministers and senior public officials. The staff team also conferred with representatives of the private sector, including those of the banking community, and with labor union leaders. The mission would like to thank the authorities for the high quality of the dialogue and for their close cooperation during its stay in Cotonou.

"The mission held productive discussions with the authorities on a number of key policy issues, focusing on recent and medium-term macroeconomic developments, notably in the fiscal area, in light of the much reduced public external debt following the extension of the Multilateral Debt Relief Initiative to Benin. Discussions also centered on conditions for deepening structural reforms to enhance economic competitiveness and foster private sector-led economic growth, all of which are essential to accelerating poverty alleviation efforts and facilitating achievement of the 2015 Millennium Development Goals (MDGs).

"Over the past 24 months, Benin's economic performance has been mixed. Real GDP growth has decelerated because of marked erosion of competitiveness, terms of trade deterioration, and delays in implementing key structural reforms. Real GDP growth fell below 3 percent in 2005 and inflation, although declining, remained above the West African Economic and Monetary Union (WAEMU) target of 3 percent. Reflecting a substantial recovery of cotton production, economic growth is expected to rebound to 4.5 percent in 2006, and inflation is likely to remain under control as last year's drought-related pressures on food prices are reversed. Fiscal discipline has significantly improved in recent months, and the overall budgetary situation remains broadly favorable.

"Looking ahead, Benin's main challenge is to achieve stronger and balanced economic growth. Higher economic growth in a stable macroeconomic environment is crucial for improving living standards and reducing poverty. The mission agreed with the authorities that a multi-pronged approach was necessary to accomplish these goals. At the heart of this strategy are: (i) continued improvement of the medium-term viability of the budget; (ii) state disengagement from commercial activities in the cotton, electricity and telecommunication sectors; and (iii) a focus on improving the business environment for private sector investment. The authorities expressed strong commitment to envisaged medium-term policy initiatives in these areas.

"Benin's IMF-supported program remains broadly on track. Preliminary data indicate that most performance criteria under the PRGF program were observed, except for the commitments to no borrowing or guaranteeing by the government of nonconcessional loans and no accumulation of domestic payments arrears. However, major delays have been experienced in all but the port area of structural reform. The mission has agreed with the authorities on a new time timetable that would rekindle hitherto stalled structural reforms, the implementation of which is being given a new impetus.

"The mission also discussed with the authorities the use of debt savings arising from the Multilateral Debt Relief Initiative amounting to over US$1 billion from multilateral creditors, including the IMF. Savings on debt service are expected to be used to step up priority poverty reducing programs under the new 2006-2009 Poverty Reduction Strategy Paper (PRSP), with a focus on education, health, infrastructure, and agriculture. The timing and actual projects to be financed are still being specified, although it is expected that some spending will begin during the last quarter of this year".

¹ The PRGF is the IMF's concessional facility for low-income countries. PRGF-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners and articulated in the country's Poverty Reduction Strategy Paper. This is intended to ensure that PRGF-supported programs are consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5½ -year grace period on principal payments.