IMF Executive Board Completes Sixth PRGF Review for Benin and Approves Increase of Financial Support by US$14.4 MillionPress Release No. 09/234
June 24, 2009
The Executive Board of the International Monetary Fund (IMF) today completed the sixth review of Benin’s economic performance under a program supported by the Poverty Reduction and Growth Facility (PRGF), and approved an augmentation of an amount equivalent to SDR 9.29 million (about US$14.42 million) to a total of SDR 24.77 million (about US$38.44 million). The decisions will allow for disbursement of the final SDR 10.20 million (US$15.83 million) under the arrangement.
The Executive Board also granted a waiver for Benin’s non-observance of the program’s end-December 2008 performance criterion on net domestic financing, which resulted from unforeseen net lending to the state-owned electricity company in response to high oil prices. The authorities have taken remedial actions, including plans to increase electricity tariffs and undertake a financial audit of the electricity company.
A three-year PRGF arrangement for Benin was approved on August 5, 2005 (see Press Release No. 05/190), and subsequently extended to August 4, 2009. In June 2008 it was augmented by SDR 9.29 million (about US$14.42 million) in order to help the country deal with rising food and oil prices.
Following the Executive Board's discussion on Benin, Mr. Murilo Portugal, Deputy Managing Director and Acting Chair, stated:
“Benin’s economic performance continued to strengthen in 2008. Real GDP growth reached 5 percent—the highest rate since 2005—average annual inflation remained below the program target, and the basic primary fiscal balance continued to be in surplus, reflecting strong domestic tax effort and tight control on spending. The larger-than-expected net domestic financing reflected the clearance of outstanding payment orders and unforeseen advances to the national electricity company. The authorities have taken remedial actions, including a decision to undertake a financial audit of the electricity company.
“The economic outlook for 2009 and 2010 is expected to deteriorate, as a result of the global economic crisis. Although prudent policies and lower commodity prices should reduce inflation, economic growth and fiscal revenue are expected to come under significant pressure. The authorities’ policy response of allowing automatic fiscal stabilizers to work is appropriate. For 2009, the overall spending envelope will be maintained, except for additional discretionary outlays on social safety nets. The recent decision by the regional central bank (BCEAO) to reduce the policy interest rates and Benin’s reserve requirements will help ease liquidity conditions, thereby mitigating the economic slowdown.
“Accelerating the implementation of structural reforms remains essential to enhance Benin’s external competitiveness, increase resilience to exogenous shocks, and contribute to higher sustainable growth over the medium term. The adoption of a comprehensive strategy for the cotton sector and the implementation of the public financial management action plan are welcome steps. The authorities also intend to privatize Benin Telecom, restructure the electricity company, streamline procedures and improve capacity at the Port of Cotonou, and strengthen the judicial system, land tenure, and financial supervision.
“The authorities’ fiscal policy response to the crisis is projected to result in significant financing gaps in 2009 and 2010, requiring additional budget support from the donor community. The Fund has increased its financial support to Benin, and calls on the donor community to make similar contributions in order to close the remaining financing gaps. The authorities remain committed to a prudent borrowing policy, including refraining from contracting new nonconcessional external loans, with a view to ensuring long-term debt sustainability.”
The PRGF is the IMF's low-interest lending facility for low-income countries. PRGF-supported programs are underpinned by comprehensive country-owned poverty reduction strategies.