Press Release: IMF Executive Board Completes Third Review Under PRGF Arrangement with Benin and Approves US$1.4 Million Disbursement
January 9, 2008Press Release No.08/05
The Executive Board of the International Monetary Fund (IMF) today completed the third review of Benin's economic performance under the SDR 6.19 million (about US$9.8 million) Poverty Reduction and Growth Facility (PRGF) arrangement (see Press Release No.05/190), and approved the disbursement of an amount equivalent to SDR 0.88 million (about US$1.4 million).
In completing the review, the Board approved Benin's request for waiver of the non-observance of a structural performance criterion pertaining to the establishment of a privately controlled cotton ginning company. The Executive Board also approved the authorities' request for an extension of the PRGF arrangement until August 4, 2009.
The PRGF is the IMF's concessional facility for low-income countries. It is intended that 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 a Poverty Reduction Strategy Paper (PRSP). 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.
In commenting on the Executive Board's decision, Mr. Murilo Portugal, Deputy Managing Director and Acting Chair, stated:
"The Beninese authorities are to be commended for the additional gains in macroeconomic stabilization in 2007 under the PRGF-supported program. A strong revenue performance helped to underpin a further improvement in public finances, economic growth increased and inflation remained low. However, more vigorous implementation of structural reforms will be essential if growth is to be raised to a level where economic vulnerabilities and high poverty can be tackled more decisively.
"Fiscal management continues to improve as the authorities endeavor to strengthen governance at revenue agencies and to enforce expenditure procedures more rigorously. Revenue is estimated to have reached a record high in 2007 and lower net bank credit to the government has facilitated private sector borrowing. However, weaknesses in the rate of execution of the investment budget and limited absorption capacity have continued to constrain the authorities' ability to effectively address infrastructure bottlenecks and speed up poverty alleviation.
"Against this backdrop, the authorities appropriately plan to focus in the period ahead on completing ongoing reforms to strengthen customs and tax administration and further improving public expenditure management so as to enable the achievement of further fiscal consolidation while raising outlays for pro-poor and pro-growth projects. Prudent public debt management and control over the public sector wage bill will further help preserve fiscal sustainability and create space for priority spending.
"Decisive progress in rolling back government involvement in commercial activities in key sectors, including cotton, remains the linchpin of Benin's structural reform agenda. Following an unsuccessful attempt to privatize SONAPRA, the authorities are encouraged to expedite their planned wide-ranging review of the sector and build consensus for a comprehensive reform strategy that secures state disengagement and also addresses key constraints to more efficient cotton sector operations. In the electricity and telecommunications sectors, efforts will need to focus on selecting strategic partners. The authorities' plans to enlist external expertise in Port of Cotonou management are important to help to enhance trade flows and achieve further competitiveness gains.
"The authorities' plans to step up additional reforms to promote private sector development beyond these sectors are welcome. A priority is to improve the business climate and continue to enhance governance and transparency. Measures to facilitate access to credit for small- and medium-sized enterprises, strengthen the banking system, and improve the efficiency of the land tenure system and the judiciary will enhance prospects for broad-based growth and economic diversification," Mr. Portugal said.