## cr17100

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---

### Recent economic developments
- Inflation:
  - "Inflation remained subdued at less than 1 percent in 2015 and turned negative in 2016."
  - Consumer price index (average): 2015: "1.0", 2016: "-1.1".
  - Consumer price index (end of period): 2015: "-1.8", 2016: "-0.8".
  - GDP deflator: 2015: "1.4", 2016: "-0.2".
- Growth and output:
  - Economic growth decelerated to "2.1 percent" in 2015 and rebounded to "4 percent" estimated for 2016.
  - GDP at constant prices (annual change): 2015: "7.2", 2016: "6.4", 2017: "2.1", 2018: "4.0" (selected series reported).
  - Text Table 2 projections: Real GDP: 2016 act. "4.0 percent"; projections: 2017 "5.4", 2018 "6.0", 2019 "6.3".
- External and contextual shocks:
  - Negative spillovers from Nigeria and unfavorable weather depressed 2015 outcomes; improved weather supported 2016 bumper crops.
  - Nigeria’s fuel subsidy cuts and naira devaluation contributed to lower domestic fuel prices—major CPI component.
  - External current account deficit described as high, reflecting investment-related imports; financial account projected to record "small surpluses".

### Fiscal developments and macro framework
- Fiscal balances and public finances:
  - Fiscal deficit (including grants) narrowed to "6.2 percent of GDP in 2016" from "8 percent of GDP" a year earlier (text).
  - Overall fiscal deficit (commitment basis, incl. grants) path in projections: 2016: "-6.2", 2017: "-7.9" (peak), convergence to below WAEMU criterion of "3 percent of GDP by 2019."
  - Selected fiscal table (percent of GDP): Overall fiscal deficit (commitment basis, incl. grants): 2014: "-0.4", 2015: "-2.6", 2016: "-1.9", 2017: "-8.0", 2018: "-6.2", 2019: "-7.9", 2020: "-4.0", 2021: "-1.9", 2022: "-0.8".
  - Total revenue (percent of GDP) reported series includes: 2015: "10.1", 2016: "-1.9", 2017: "5.0" (as presented), and other series across tables (e.g., program-level series).
  - Composition of fiscal revenues (Text Table 1): Total Revenues: 2011-14* Avg. "17.0" | 2015 Act. "16.7" | 2016 "14.7".
  - Public revenues at "14.7 percent of GDP in 2016" (Text Table 2).
- Public investment and expenditure:
  - Public investment: 2016 act. "5.9 percent of GDP"; projections: 2017 "10.1", 2018 "7.6", 2019 "6.2" (Text Table 2).
  - Expenditure and net lending (percent of GDP) entries shown: 2015: "16.7", 2016: "-3.7", 2017: "35.5" (selected reported figures).
  - 2017 fiscal program: total expenditure expected to grow by "3.3 percentage points of GDP to 24.7 percent of GDP", capital expenditures to rise to "10.1 percent of GDP in 2017", current primary expenditure would decline by "1.2 percentage points of GDP."
- Public debt:
  - Total government debt (percent of GDP): 2014: "26.7", 2015: "25.3", 2016: "30.5", 2017: "42.4", 2018: "49.5", 2019: "54.3", 2020: "54.4", 2021: "52.3", 2022: "49.1".
  - Total non-financial public sector debt (percent of GDP): projected series includes "...50.3 55.1 55.2 53.1 49.8 46.1 41.7" (as reported).
  - Program macro goal: limit the present value of non-financial public sector debt to no more than "50 percent of GDP."

### Program objectives, design, and modalities
- Purpose and request:
  - Authorities requested a three-year arrangement under the Extended Credit Facility (ECF).
  - Authorities requested an ECF amount equivalent to "SDR 111.42 million (90 percent of quota)."
- Program aims and pillars:
  - "Create fiscal space by stepping up domestic revenue mobilization and enhancing the efficiency of government spending."
  - "Increase gradually absorptive capacity to scale up investment."
  - "Strengthen public debt management."
  - "Promote private sector investment by strengthening institutions and improving the business environment while preserving debt sustainability."
- Regional convergence and macro targets:
  - Program consistent with achieving all WAEMU convergence criteria by 2019, except revenue-to-GDP criterion of "20 percent."
  - Inflation targeted to remain below WAEMU threshold of "3 percent".
  - Program fiscal target: average deficit (including grants) of "4.6 percent of GDP" consistent with fiscal and debt sustainability (Text Table 2 statement).
- Expected macro trajectory:
  - Growth rebound in 2017 and medium term driven mainly by agriculture and a significant increase in public investment.
  - External current account: remain high due to investment-related imports; financial account: "small surpluses".
- Staff endorsement:
  - "Staff supports the authorities’ request. The Letter of Intent (LOI) and Memorandum of Economic and Financial Policies (MEFP) set out appropriate policies to pursue the program’s objectives."

### Program financing and disbursement schedule
- Proposed access and coverage:
  - Proposed access of "90 percent of quota (SDR 111.42 million)" expected to cover about one fourth of the financing gap.
  - Credit outstanding from the Fund once all disbursements under the ECF arrangement are made will be "109.7 percent of quota (SDR 135.82 million)."
- Proposed schedule of disbursements under the ECF arrangement (Table 7):
  - April 7, 2017 — SDR 15.917 million — Executive Board approval.
  - Oct 31, 2017 — SDR 15.917 million — end-June 2017 performance criteria and first review.
  - Apr 30, 2018 — SDR 15.917 million — end-Dec 2017 performance criteria and second review.
  - Oct 31, 2018 — SDR 15.917 million — end-June 2018 performance criteria and third review.
  - Apr 30, 2019 — SDR 15.917 million — end-Dec 2018 performance criteria and fourth review.
  - Oct 31, 2019 — SDR 15.917 million — end-June 2019 performance criteria and fifth review.
  - Mar 23, 2020 — SDR 15.918 million — end-Dec 2019 performance criteria and sixth review.
  - Total — SDR 111.42 million.

### Technical Memorandum of Understanding — key quantitative performance criteria
- Net Domestic Financing (cumulative ceilings since January 1):
  - End-March 2017: CFAF "70.1" billion
  - End-June 2017: CFAF "116.1" billion
  - End-September 2017: CFAF "183.9" billion (indicative)
  - End-December 2017: CFAF "177.7" billion
- Floor for Basic Primary Fiscal Balance (cumulative since January 1):
  - End-March 2017: CFAF "-64.7" billion
  - End-June 2017: CFAF "-73.1" billion
  - End-September 2017: CFAF "-139.0" billion
  - End-December 2017: CFAF "-171.3" billion
- Floor for Total Government Revenue (cumulative since January 1):
  - End-March 2017: CFAF "182.9" billion
  - End-June 2017: CFAF "386.1" billion
  - End-September 2017: CFAF "602.9" billion
  - End-December 2017: CFAF "843.9" billion
- Continuous prohibitions:
  - Non-accumulation of new domestic payments arrears.
  - Non-accumulation of external payments arrears.
  - Present value ceiling on new external debt contracted or guaranteed by the government (continuous monitoring).
  - Ceiling on government pre-financing contracts for public investments (no pre-financing contracts during program).

### Revenue mobilization measures (2017 identified measures) and targets
- Program aim: increase revenues by "2.1 percentage points of GDP to 16.8 percent by 2019" (program aim stated).
- Identified 2017 measures (Text Table 3 — amounts and percent of GDP preserved exactly where reported):
  - Tax on earnings from gambling: CFAF "10.0" billion ("0.02 percent of GDP")
  - Tax on unprocessed agricultural prod: CFAF "40.0" billion ("0.07 percent of GDP")
  - Tax on scrap metal export: CFAF "30.0" billion ("0.05 percent of GDP")
  - Tax on four-wheel motor vehicles: CFAF "30.0" billion ("0.05 percent of GDP")
  - Tax on seeds, fibers and cashew nuts: CFAF "40.0" billion ("0.07 percent of GDP")
  - Turnover tax on GSM operators: CFAF "1.4" billion ("0.03 percent of GDP")
  - Collection of tax arrears: CFAF "220.4" billion (percent of GDP entry shown as "0.40" in table)
  - Total identified potential impact: CFAF "38.4" billion ("0.70 percent of GDP") — as presented.
- Additional tax policy actions:
  - Modernize tax and customs administration; validate and implement POSAF.
  - Review and quantify revenue losses from exemptions; adopt time-bound strategy to minimize tax expenditures.
  - Recover tax arrears estimated at CFAF "107" billion at End-December 2016 (other mentions: CFAF "107.6" billion).

### Public investment management, GAP, and PPPs
- Government’s Action Program (GAP, 2016–21):
  - Adopted October 26, 2016; five-year public investment program worth CFAF "9,039" billion (US$"15.3" billion or "170 percent of GDP").
  - Sectoral allocation: Infrastructure "27 percent", Energy "11 percent", Agriculture "9 percent", Tourism "9 percent".
  - Financing composition: "61 percent" expected from private sector (PPPs); "39 percent" from public resources (CFAF "3,525" billion).
  - Public contribution profile: start at "14 percent of GDP in 2017" and decrease to "7 percent by 2021"; PPP funding projected to peak in 2019 at about "28 percent of GDP".
- IMF staff assessment:
  - Medium-term investment outlook underpinning the GAP judged overly ambitious and could lead to unsustainable debt.
  - Staff DSA scenario: NFPS debt could peak at "62.5 percent of GDP in 2020" under aggressive scaling-up.
  - Authorities agreed to scale back the investment envelope for 2017–19 from about CFAF "2,254" billion to CFAF "1,400" billion.
- Public Investment Management (Box 2) and flagship projects:
  - New mechanism for implementing and monitoring "45" flagship projects; oversight via Project Monitoring Committee (President) and Monitoring and Evaluation Committee (Minister of Planning).
  - Flagship project focuses: (i) agriculture (cashew, pineapples, corn and rice); (ii) tourism; (iii) infrastructure (port extension, new international airport, road network); (iv) energy (thermal and renewable).
  - World Bank Public Investment and Governance Support Project: "US$30 million" approved June 2016.
- PPP fiscal and accounting guidance:
  - Recommendations to fully and transparently disclose fiscal risks; apply IPSAS 32 throughout PPP life cycle; include PPP obligations in budget/MTFF as appropriate; compile future payment obligations by horizon and key contract provisions.

### Debt sustainability analysis (DSA) and debt strategy
- DSA findings and risk level:
  - DSA finds a "moderate risk of debt distress", higher than in the 2015 DSA.
  - In the baseline, all projected external debt burden indicators remain below policy-dependent thresholds; one indicator (PV of external debt to exports) exceeds its threshold under an extreme export shock.
- Quantitative highlights (selected):
  - External debt (percent of GDP): 2013: "16.7"; 2016: "22.7"; 2021: "27.7"; 2026: "31.4"; 2036: "32.9".
  - PV of PPG external debt (Billions of U.S. dollars): 2016: "1.7"; 2019: "2.2"; 2026: "3.7"; 2036: "7.8".
  - PV of public sector debt (percent of GDP): 2016: "35.1"; 2019: "46.7"; 2026: "37.8"; 2036: "29.0".
  - Gross financing need (percent of GDP): 2016: "12.2"; 2019: "15.6"; 2026: "9.4"; 2036: "4.7".
- Policy implications:
  - Limit PV of NFPS debt to no more than "50 percent of GDP".
  - Rely predominantly on concessional external borrowing; rebalance debt composition toward longer maturities and concessional terms.
  - Strengthen debt management: reorganize Treasury to complement Debt Directorate (CAA); prepare and publish a medium-term debt strategy; assess and monitor government guarantees and SOE debt.
  - Monitor contingent liabilities from PPPs using IMF-World Bank frameworks and integrate risks into debt strategy.

### Financial sector, microfinance, and supervision
- Financial soundness and vulnerabilities:
  - Capital adequacy (End-September 2016): "8.8 percent".
  - Minimum regulatory capital: "8 percent".
  - WAEMU average capital adequacy (End-June 2016): "11.4 percent".
  - Nonperforming loan ratio: estimated at "23 percent".
  - WAEMU average nonperforming loan ratio: "18.4 percent".
  - Provisioning ratio: "15 percent of risk-weighted assets in 2016".
  - Regulatory deadline: By End-June 2017, all banks required to achieve minimum equity capital of "CFAF 10 billion"; among 14 banks, "6" need to make efforts to reach target.
  - Concentration risks: three Nigerian-owned banks hold about "15 percent" of deposits and similar amount of loans; one bank under receivership.
- Microfinance sector:
  - "65.1 percent of authorized MFIs (with deposits of CFAF 88 billion at End-2015 out of a total of CFAF 93.2 billion)" are in good financial health.
  - Out of 721 microfinance initiatives surveyed in 2011, 495 were unauthorized; reduced to 332 by End-2015.
  - Policy: unauthorized MFIs will be regularized or closed; strengthen supervisory body by increasing number of supervisors, especially in rural areas.
- Structural reforms to deepen finance:
  - Establish and operationalize a credit bureau (Law on Credit Information Offices promulgated January 23, 2017); BIC to be operational by End-2017.
  - Facilitate use of collateral; promote electronic registration of land titles.
  - Accelerate adoption of regional banking resolution framework; resolve problem bank under receivership for three years.

### Governance, business environment, and structural reforms
- Constraints to higher growth:
  - "Infrastructure bottlenecks and a weak business environment" identified as main constraints.
  - Doing Business ranking improved from "158th in 2015 to 155th in 2016" with remaining weaknesses in access to electricity, paying taxes, and obtaining credit.
- Anti-corruption and judicial reforms:
  - Transparency International Corruption Perceptions Index ranking: "95 out of 175 countries in its 2016" report (following "83th and 80th in 2015 and 2014, respectively").
  - Measures: create commercial courts, computerize government transactions, strengthen asset declaration regime, implement anti-corruption action plan.
  - On March 3, 2017, the Supreme Court nominated new members of the National Anti-Corruption Authority.
- Procurement, audit, and SOE oversight:
  - Adopt procurement reforms, Open Contracting Data Standard, and publish SIGMap data.
  - Audit program for SOEs; publish audit findings and implement performance contracts; liquidation and restructuring of selected SOEs (12 entities listed for liquidation).
  - Strengthen internal and external audit and create an independent Court of Auditors.

### Risks, safeguards, and staff views
- Key risks identified:
  - Weak institutional capacity and resistance from vested interests that could delay reforms and weaken private sector response to rising public investment.
  - Unforeseen contingent liabilities from SOEs and PPPs.
  - Further negative spillovers from Nigeria should recovery fall short.
  - Adverse weather affecting agriculture; high dependence on informal trade with Nigeria (estimates: about "20 percent" of GDP related to informal trade; other notes indicate "about 80 percent" of imports informally re-exported to Nigeria in some passages).
  - Sharp rise in risk premia and cost of debt.
- Staff assessment and mitigations:
  - "Staff supports the authorities’ request" and finds LOI and MEFP set appropriate policies.
  - Program design includes reviews and conditionality; prior actions already implemented improve manageability of risks.
  - BCEAO safeguards: 2013 assessment found a continuing strong control environment; all recommendations implemented, including independent audits and adoption of IFRS starting FY 2015.

### Program monitoring, conditionality, and safeguards
- Prior actions implemented (selection):
  - Creation of Office of Analysis and Investigation (June 2016); approval of 2017–21 POSAF; integration of tax and customs control activities via IFU platform; establishment of cash flow monitoring framework.
- Quantitative performance criteria and indicative targets established for End-March, End-June, End-September, and End-December 2017 (selected TOFE and ceilings reproduced in TMU).
- Indicators of capacity to repay the Fund (selected Table 8 items):
  - Principal repayments (millions of SDRs): 2017: "10.8"; 2018: "15.0"; 2019: "14.8"; 2020: "13.8"; 2021: "11.7"; 2022: "7.4".
  - Charges and interest (millions of SDRs), annual pattern: "0.09"; "0.11"; "0.11"; "0.11"; "0.11"; "0.11".
  - Outstanding IMF credit (millions of SDRs), selected years: 2017: "99.8"; 2018: "116.7"; 2019: "133.7"; 2020: "135.8"; 2021: "124.2"; 2022: "113.5".
  - Net use of IMF credit (millions of SDRs): 2017: "21.0"; 2018: "16.9"; 2019: "17.0"; 2020: "-13.8"; 2021: "-11.7".
- Data and statistical capacity:
  - Significant weaknesses remain in compilation and dissemination of economic statistics despite improvements; participation in e-GDDS and completion of final national accounts for 2013 and 2014.
  - TA priorities: national accounts update, GFSM implementation, PFM strengthening, tax and customs modernization, external statistics, and PIM improvements.

### Staff appraisal: priorities and recommendations
- Macroeconomic stance:
  - Preserve macroeconomic stability and medium-term fiscal and public debt sustainability while implementing the public investment program.
- Fiscal policy recommendations:
  - Strengthen domestic revenue mobilization and improve quality of spending.
  - Modernize Tax and Customs Administrations; enhance coordination.
  - Prioritize rationalization of current spending to avoid accumulation of domestic payment arrears.
  - Conduct public expenditure review with World Bank assistance.
- Debt and public enterprise oversight:
  - Strengthen debt management capacity; rebalance debt toward longer maturities and concessional terms.
  - Monitor SOE financial position and contingent liabilities; reorganize Treasury to complement CAA.
- Financial sector and inclusion:
  - Pursue reforms for financial deepening and inclusion; operationalize credit bureau; strengthen MFI supervision.
- Business climate and governance:
  - Remove bottlenecks to private sector development; continue anti-corruption and procurement reforms.
- Program implementation:
  - Maintain observance of performance criteria and complete program reviews as scheduled to secure disbursements totaling SDR "111.42 million".

_Italic: Source — International Monetary Fund, cr17100 (IMF staff report, Letter of Intent, MEFP, TMU, DSA, and Annexes; March 23–24, 2017, as presented in the supplied content)._

### 2015. Inflation remained subdued at less than 1 percent in 2015 and turned negative in 2016.

### cr17100 - 2015. Inflation remained subdued at less than 1 percent in 2015 and turned negative in 2016.

### Recent economic developments
- Inflation:
  - "Inflation remained subdued at less than 1 percent in 2015 and turned negative in 2016."
  - Consumer price index (average): 2015: "1.0", 2016: "-1.1".
  - Consumer price index (end of period): 2015: "-1.8", 2016: "-0.8".
- Growth and output:
  - Economic growth decelerated to "2.1 percent" in 2015 and rebounded to "4 percent" estimated for 2016.
  - Growth rebound for 2017 and the medium term is projected to be driven mainly by agriculture and a significant increase in public investment.
- Fiscal developments:
  - "The fiscal deficit (including grants) narrowed to 6.2 percent of GDP in 2016 from 8 percent of GDP a year earlier."
  - The fiscal deficit (commitment basis, incl. grants) path in projections: 2016: "-6.2", 2017: "-7.9" (peak), convergence to below WAEMU criterion of "3 percent of GDP by 2019".
  - The deficit surge in 2015 reflected a significant increase in current transfers (notably subsidies to the cotton and electricity sectors) and a higher wage bill, alongside weakened tax revenues.
- External sector:
  - "The external current account deficit would remain high, reflecting investment-related imports."
  - Overall balance of payments projected to generate "small surpluses on the financial account position."
- Context and shocks:
  - Negative spillovers from Nigeria and unfavorable weather depressed 2015 outcomes; improved weather supported 2016 bumper crops.
  - Nigeria’s fuel subsidy cuts, combined with naira devaluation, contributed to lower domestic fuel prices—major CPI component.

### Program objectives and pillars
- Purpose:
  - The authorities requested a three-year arrangement under the Extended Credit Facility (ECF) to support a medium-term reform program.
- Program aims:
  - "Create fiscal space by stepping up domestic revenue mobilization and enhancing the efficiency of government spending."
  - "Increase gradually absorptive capacity to scale up investment."
  - "Strengthen public debt management."
  - "Promote private sector investment by strengthening institutions and improving the business environment while preserving debt sustainability."
- Investment-debt consistency:
  - Emphasis on ensuring scaled-up public investment is consistent with debt sustainability given recent borrowing that "significantly reduced available fiscal space".
  - Overarching macroeconomic policy goal: "limit the present value of non-financial public sector debt to no more than 50 percent of GDP."
  - "Current indicative projections for the 2018 and 2019 budgets will be reassessed in future program reviews against debt developments as assessed through the debt sustainability analysis."

### Program design, modalities, and expected outcomes
- Regional convergence:
  - Program is "consistent with achieving all the West African Economic and Monetary Union (WAEMU) convergence criteria by 2019, except for the revenue-to-GDP criterion of 20 percent."
  - Policies under the program will "contribute to building up regional reserves."
- Request specifics:
  - Authorities requested an ECF amount equivalent to "SDR 111.42 million (90 percent of quota)."
- Expected macro trajectory:
  - Growth: rebound in 2017 and medium term from agriculture and public investment.
  - Inflation: remain below WAEMU threshold of "3 percent".
  - Fiscal deficit: peak at "7.9 percent in 2017" then converge to below WAEMU criterion of "3 percent of GDP by 2019."
  - External current account: remain high due to investment-related imports; financial account: small surpluses.

### Risks and staff views
- Staff support:
  - "Staff supports the authorities’ request. The Letter of Intent (LOI) and Memorandum of Economic and Financial Policies (MEFP) set out appropriate policies to pursue the program’s objectives."
- Key identified risks:
  - "Weak institutional capacity and resistance from vested interests that could delay the structural and institutional reforms and weaken the private sector response to rising public investment."
  - "Unforeseen contingent liabilities associated with state-owned enterprises (SOEs)."
  - "Further negative spillovers from Nigeria should the expected recovery in 2017 fall short."
- Mitigations:
  - Program design takes these risks into account and includes reviews to address them should they materialize.

### Selected fiscal and macroeconomic figures (as presented)
- Inflation and prices:
  - GDP deflator: 2015: "1.4", 2016: "-0.2".
  - Consumer price index (average): 2015: "1.0", 2016: "-1.1".
  - Consumer price index (end of period): 2015: "-1.8", 2016: "-0.8".
- Growth:
  - GDP at constant prices (annual change): 2015: "7.2", 2016: "6.4", 2017: "2.1", 2018: "4.0".
- Fiscal:
  - Total revenue (percent of GDP): 2015: "10.1", 2016: "-1.9", 2017: "5.0".
  - Expenditure and net lending (percent of GDP): 2015: "16.7", 2016: "-3.7", 2017: "35.5".
  - Overall fiscal deficit (commitment basis, incl. grants) (percent of GDP): 2014: "-0.4", 2015: "-2.6", 2016: "-1.9", 2017: "-8.0", 2018: "-6.2", 2019: "-7.9", 2020: "-4.0", 2021: "-1.9", 2022: "-0.8".
- Public debt:
  - Total government debt (percent of GDP): 2014: "26.7", 2015: "25.3", 2016: "30.5", 2017: "42.4", 2018: "49.5", 2019: "54.3", 2020: "54.4", 2021: "52.3", 2022: "49.1".
  - Total non-financial public sector debt (percent of GDP): projected series includes "...50.3 55.1 55.2 53.1 49.8 46.1 41.7" (as reported).
- External sector:
  - Balance of goods and services (percent of GDP): 2014: "-12.0", 2015: "-12.8", 2016: "-15.2", 2017: "-12.9", 2018: "-11.8", 2019: "-13.8".
  - Current account balance (incl. grants) (percent of GDP): 2014: "-7.4", 2015: "-7.4", 2016: "-8.6", 2017: "-8.4", 2018: "-7.2", 2019: "-9.1".
- Other:
  - Nominal GDP (billions of CFA francs): 2016: "4,800"; 2017: "4,904"; 2018: "5,084"; 2019: "5,472".
  - Population (millions): 2016: "10.6", 2017: "10.9", 2018: "11.1", 2019: "11.4".

*Source: International Monetary Fund, March 23, 2017.*

### 6.7 percent in 2016 owing to the

### cr17100 - 6.7 percent in 2016 owing to the

### Recent economic performance and external position
- Growth and inflation
  - Real GDP: 2016 act. 4.0 percent; projections: 2017 5.4, 2018 6.0, 2019 6.3 (Text Table 2).
  - Inflation: 2016 act. -0.8; projections: 2017 2.0, 2018 2.1, 2019 2.0 (Text Table 2).
- Fiscal outcomes
  - Public revenues at 14.7 percent of GDP in 2016.
  - Fiscal deficit (incl. grants): 2016 act. -6.2 percent of GDP; projected: 2017 -7.9, 2018 -4.0, 2019 -1.9 (Text Table 2).
  - Basic Primary Balance: 2016 act. -3.0; projections: 2017 -3.1, 2018 -0.7, 2019 1.7 (Text Table 2).
  - Public investment: 2016 act. 5.9 percent of GDP; projections: 2017 10.1, 2018 7.6, 2019 6.2 (Text Table 2).
- External sector
  - External current account: declined in 2016 by 1.2 percentage points of GDP due to continued strong export performance.
  - Current Account (incl. grants): 2016 act. -7.2 percent of GDP; projections: 2017 -9.1, 2018 -7.0, 2019 -6.6 (Text Table 2).

### Composition of fiscal revenues (Text Table 1)
- 2011-14* Avg. | 2015 Act. | 2016
  - Tax revenues: 14.6 | 14.5 | 12.6
  - Tax on international trade: 7.7 | 7.0 | 5.7
  - Direct and indirect taxes: 7.0 | 7.5 | 6.9
  - Non tax revenues: 2.4 | 2.2 | 2.1
  - Total Revenues: 17.0 | 16.7 | 14.7
- Note: * Average. Sources: Beninese authorities and IMF staff calculations.

### Spillovers from Nigeria (Box 1)
- Growth spillovers
  - Staff estimate: a 1 percentage point reduction in Nigeria’s GDP growth rate is associated with 0.3 percentage point reduction in Benin’s growth rate.
- Channels of transmission
  - Informal trade
    - World Bank (2015) estimate: about 20 percent of Benin’s GDP is related to informal trade with Nigeria.
    - The Common External Tariff (CET) is expected to reduce tariffs in Nigeria gradually, likely leading to a decline in informal trade over time.
  - Fuel prices and subsidies
    - Estimated that 85 percent of the gasoline in Benin is from Nigeria.
    - Nigeria’s temporary cut of fuel subsidies in January 2012 triggered an immediate fuel price spike in Benin.
  - Fiscal revenue
    - Revenue collection from informal trade estimated at 2 percent of GDP, equivalent to 14 percent of total tax revenues.
  - Remittances
    - According to the World Bank, remittances from Nigeria accounted for 44.7 percent of all remittances in 2015.
  - Financial sector
    - Three banks with Nigerian ownership hold about 15 percent of total deposits and a similar amount of loans; one of these banks is under receivership.
- Footnotes and references preserved as in source.

### Medium-term program objectives and macro framework
- ECF arrangement objectives
  - Accelerate domestic revenue mobilization.
  - Improve the quality of spending.
  - Strengthen institutions for private sector development.
- Macro framework targets (Text Table 2 highlights)
  - Inflation forecast to remain below the WAEMU convergence criterion of 3 percent.
  - Program fiscal target: average deficit (including grants) of 4.6 percent of GDP consistent with fiscal and debt sustainability.
  - Program aim: limit the present value (PV) of non-financial public sector (NFPS) debt to no more than 50 percent of GDP.
  - Debt projection: NFPS debt projected to peak at 55.2 percent of GDP in 2018 (nominal terms statement).

### Revenue mobilization measures and identified 2017 measures
- Program aim: increase revenues by 2.1 percentage points of GDP to 16.8 percent by 2019.
- Key reforms and actions
  - Modernize tax and customs administration; validate and implement POSAF (Plan d’orientation stratégique de l’administration fiscale).
  - Accelerate tax policy reforms, review and quantify revenue losses from exemptions, adopt time-bound strategy to minimize tax expenditures.
  - Improve revenue administration, recover tax arrears estimated at CFAF 107 billion at End-December 2016.
  - Strengthen IT and taxpayer database sharing with Customs.
- Identified measures to increase revenues in 2017 (Text Table 3)
  - Tax on earnings from gambling: CFAF 10.0 billion (0.02 percent of GDP)
  - Tax on unprocessed agricultural prod: CFAF 40.0 billion (0.07 percent of GDP)
  - Tax on scrap metal export: CFAF 30.0 billion (0.05 percent of GDP)
  - Tax on four-wheel motor vehicles: CFAF 30.0 billion (0.05 percent of GDP)
  - Tax on seeds, fibers and cashew nuts: CFAF 40.0 billion (0.07 percent of GDP)
  - Turnover tax on GSM operators: CFAF 1.4 billion (0.03 percent of GDP)
  - Collection of tax arrears: CFAF 220.4 billion (percent of GDP entry shown as 0.40 in table)
  - Total identified potential impact: CFAF 38.4 billion (0.70 percent of GDP)
- Source: Beninese Authorities.

### Rationalizing and enhancing public investment efficiency
- Identified weaknesses
  - Multi-year budgeting, treasury management, and monitoring of project execution weaknesses noted by IMF, World Bank, and the 2014 PEFA assessment.
  - New PPP legal framework shortcomings and limited PPP management capacity.
- Measures to improve spending efficiency
  - Strengthen project selection through creation of a Unit responsible for implementation of flagship projects.
  - Implement procurement reform including transparent reporting and adopt Open Contracting Data Standard.
  - Improve monitoring and control of spending commitments to prevent domestic payment arrears; enhance cash forecasting and management; introduce a Treasury Single Account.
  - Broaden scope and frequency of budget reporting in line with PEFA requirements; develop multi-year project planning.
  - Conduct selective value-for-money audits, potentially with external audit companies.
  - Monitor contingent liabilities from PPPs using the IMF-World Bank framework and integrate risks into debt strategy.

### Public Investment Management (Box 2)
- GAP includes a new mechanism for implementing and monitoring 45 flagship projects; oversight via Project Monitoring Committee (President) and Monitoring and Evaluation Committee (Minister of Planning).
- Flagship projects focus: (i) agriculture (cashew, pineapples, corn and rice); (ii) tourism; (iii) infrastructure (port extension, new international airport, road network); (iv) energy (thermal and renewable).
- World Bank Public Investment and Governance Support Project
  - US$30 million project approved June 2016 to build capacity in PIM, governance, and results-based financing.
- In the ECF context, priority on speeding up spending processes, multi-year contracts, intra-year monitoring, end-of-year financial accountability, and program budgeting.

### Debt sustainability strategy and measures
- Debt targets and risks
  - Program aim: limit PV of NFPS debt to no more than 50 percent of GDP to maintain cushion against 56 percent PV threshold.
  - NFPS debt projected to peak at 55.2 percent of GDP in 2018 in nominal terms.
  - Given high share of domestic debt and regional borrowing with shorter maturities and higher interest rates, emphasis on relying mostly on concessional external borrowing.
- Specific measures
  - Strengthen debt management: reorganize Treasury to complement Debt Directorate (CAA); prepare and publish a medium-term debt strategy; assess and monitor government guarantees; improve monitoring of external debt incurred or guaranteed by government; publish detailed debt report.
  - Rebalance debt composition: pursue more balanced mix between external concessional and domestic debt; rely on longer maturity obligations when tapping regional financial market.
  - Monitor SOE debt and contingent liabilities: collect and analyze financial statements and questionnaire responses of all 22 SOEs and 140 autonomous agencies to assess indebtedness and contain contingent liabilities.
- Text Table 4 (selected public debt indicators, 2017–19)
  - 2015 act. | 2016 act. | 2017 proj.
    - Central Government Debt (average maturity, years): 3.5 | 3.8 | 4.6
    - External (average maturity, years): 1.0 | 1.0 | 1.6
    - Domestic (average maturity, years): 6.3 | 6.3 | 6.9
    - Central Government Debt (interest rate, percent): 8.9 | 8.9 | 8.9
    - External (interest rate, percent): 14.5 | 14.5 | 14.5
    - Domestic (interest rate, percent): 3.3 | 3.2 | 3.2
  - Sources: Beninese authorities and IMF staff calculations.

*Source: IMF staff report (cr17100).*

### 11.      Infrastructure bottlenecks and a weak business environment are the main

### 11.      Infrastructure bottlenecks and a weak business environment are the main constraints to higher growth.

### Constraints to growth
- Infrastructure bottlenecks and a weak business environment are identified as the main constraints to higher growth.
- The fast growth in microfinance institutions (MFIs) amounts to "10 percent of assets, 2.1 million clients" and is encouraging for inclusive growth but calls for enhanced supervision.
- Benin’s Doing Business ranking improved from "158th in 2015 to 155th ranking in 2016", with progress on starting business and resolving insolvency, but remaining weaknesses in access to electricity, paying taxes, and obtaining credit.

### Financial sector: barriers and vulnerabilities
- Key barriers to more efficient financial intermediation:
  - Lack of property titles.
  - Asymmetric information.
  - Weak judicial system.
- Financial institutions are reluctant to lend unless large guarantees are provided (Table 11).
- An insufficiently time-bound bank resolution regime leads to protracted resolutions during which banks continue to make losses.
- Financial soundness indicators do not present immediate stability concerns.
- Policy on MFIs: "All institutions that cannot be regularized will be closed so as to protect the popular trust in the sector."

### Measures to deepen finance and strengthen supervision (authorities’ commitments)
- Implement measures aimed at financial deepening:
  - Following adoption of the legislation for a credit bureau the authorities will establish a credit bureau and make it operational to facilitate bank access to credit information and, consequently, reduce lending risks.
  - Strengthen the judicial system’s capacity by extending training on commercial regulation and creating commercial courts and arbitration mechanisms.
  - Strengthen the business environment by: (i) advancing reforms to reduce red tape; (ii) improving tax and customs administration; and (iii) facilitating access to financing.
- Strengthen bank resolution:
  - Adoption of a new regional framework for banking resolution offers a roadmap for resolving banking crises in the WAEMU.
  - The authorities will accelerate the resolution of a problem bank that has been under receivership for three years.
- Step up supervision and regulation of MFIs:
  - Strengthen the supervisory body for microfinance by increasing the number of supervisors, especially in rural areas, necessary for timely supervision and enforcement of regulations.

### Strengthening the business environment and governance
- Improving the business environment is essential to promote a dynamic and vibrant private sector and to finance the GAP, including through PPPs.
- Major corruption challenge: Transparency International-ranking "95 out of 175 countries in its 2016 Corruption Perceptions Index" (published in early February 2017), following rankings of "83th and 80th in 2015 and 2014, respectively."
- The new government has made improving accountability in public administration a priority and will promote competitive procurement and effective audits (MEFP ¶¶ 39–40).
- Specific measures to promote good governance:
  - Adopt a strategy for the full computerization of government transactions to minimize the room for discretion; adopt implementing decrees for the Commercial Court, including the assignment of judges and clerks and the allocation of an operating budget.
  - Pursue a competitive procurement system by reducing direct tendering and practicing best practice disclosure on procurement outcomes, with TA from the World Bank.
  - Reform audit institutions to strengthen internal and external controls, including creating a truly independent and transparent audit system, including a Court of Auditors (Court des comptes).
  - Strengthen the anti-corruption and anti-money laundering and combatting the financing of terrorism (AML/CFT) regimes:
    - Bolster the framework for combating corruption and improve transparency by strengthening the asset declaration regime and preparing and implementing an anti-corruption action plan.
    - Strengthen and effectively implement the AML/CFT framework to assist anti-corruption efforts in public and private sectors, focusing on effective implementation of preventive measures (including for politically-exposed persons), improvement of suspicion transactions reporting and enhancement of national and international cooperation.
- On March 3, 2017, the Supreme Court has nominated the new members of the National Anti-Corruption Authority.

### Program context, projections, and fiscal framework (selected items)
- 2017 outlook:
  - Real GDP growth in 2017 would benefit from the expected improvement in the global economy, an expansion of agricultural output, and major capital spending.
  - Inflation is forecast to turn positive and remain below the WAEMU convergence threshold of "3 percent."
  - Fiscal program targets an increase in government revenue to "15.4 percent of GDP", while total expenditure is expected to grow by "3.3 percentage points of GDP to 24.7 percent of GDP", driven essentially by capital spending while current primary expenditure would decline by "1.2 percentage points of GDP."
  - Priority social spending will be protected (MEFP ¶8).
  - Overall deficit (including grants) would widen to "7.9 percent of GDP in 2017" and financed mostly with concessional borrowing.
  - Current account deficit (including grants) is projected to reach "9.1 percent of GDP in 2017".
- Fund support and financing:
  - Proposed access of "90 percent of quota (SDR 111.42 million)" is proposed, enough to cover one fourth of the financing gap.
  - Credit outstanding from the Fund once all disbursements under the ECF arrangement are made will be "109.7 percent of quota (SDR 135.82 million)."
  - Projected financing gap through April 2018 (about "1.4 percent of GDP") will be covered by budget support from the World Bank (about "CFAF 22.6 billion"), by the EU (about "CFAF 15.8 billion"), by the African Development Bank (about "CFAF 16.4 billion"), and by the proposed disbursements from the Fund under three-year ECF arrangement.

### Risks, safeguards, and statistical capacity
- Program risks:
  - (i) Weak institutional capacity and/or resistance from vested interests that could delay reforms, undermine investment quality, and weaken private sector response to rising public investment.
  - (ii) Unforeseen contingent liabilities associated with SOEs and other government contracts.
  - (iii) Further deepening of the recession in Nigeria.
- Safeguards assessment:
  - The 2013 assessment of the WAEMU regional central bank, BCEAO, found a continuing strong control environment. All recommendations from the assessment have been implemented, including appointment of an international firm with ISA experience for the audits of FY 2015–17, reinforcing the audit committee with external expertise, and adoption of IFRS starting with the financial year 2015.
- Statistical issues and capacity development:
  - Significant weaknesses remain in the compilation and dissemination of economic statistics despite recent improvements.
  - With IMF technical assistance, authorities have made good progress in improving national account statistics and participated in the Enhanced General Data Dissemination System (e-GDDS). The final national accounts for 2013 and 2014 have been completed and published.
  - Developing a framework to implement the Government Financial Statistics Manual (GFSM) 2001/2014 would provide a roadmap to improve fiscal data.
  - Capacity development priorities with IMF TA: improve national account statistics; consolidate public financial management by strengthening budget execution and control; make further progress on tax administration by minimizing tax expenditures and simplify taxes; modernize customs administration by improving management and governance; reinforce dissemination of statistics in the context of the e-GDDS (Annex III).

### Staff appraisal: priorities and recommendations
- Macroeconomic stance:
  - Adhere to policies that preserve macroeconomic stability and medium-term fiscal and public debt sustainability while implementing the public investment program.
  - The proposed program balances fiscal and debt sustainability with spending on priority sectors and investment scaling up.
- Fiscal policy recommendations:
  - Strengthen domestic revenue mobilization and improve the quality of spending.
  - Implement reforms to modernize the Tax and Customs Administrations, enhance their efficiency and strengthen their coordination to ensure durable improvement in revenue collection.
  - Prioritize rationalization of current spending to avoid accumulation of domestic payment arrears.
  - Conduct the planned public expenditure review with World Bank assistance to improve quality of public expenditure.
- Debt and public enterprise oversight:
  - Strengthen debt management capacity to effectively monitor debt development.
  - Strengthen surveillance of public enterprises’ financial position and contingent liabilities stemming from PPPs through enhanced monitoring and transparent reporting of all public debt.
  - Reorganize the Treasury to complement the recent reorganization of the Debt Directorate; rebalance public debt composition toward longer maturity and more concessional terms.
- Financial sector and inclusion:
  - Pursue structural reforms aimed at financial deepening and inclusion to boost private sector contribution to growth and increase rural population access to financial services.
  - Accelerate implementation of the new harmonized regional resolution framework.
  - Establish and operationalize the credit bureau after passage of the legislation.
  - Strengthen the supervisory body for microfinance by increasing the number of supervisors, especially in rural areas.
- Business climate:
  - Remove bottlenecks to private sector development and level the playing field for all investors.
  - Continue focus on fighting corruption, improving accountability in public administration, and competitive procurement for government contracts.
  - Build on 2016 Doing Business improvements by boosting access to electricity, facilitating paying taxes, and obtaining credit.
- Data and statistics:
  - Improve data quality and dissemination to support policymaking and private investment; underpin efforts with adequate financial and human resources.

*International Monetary Fund. CR17100 (Chapter 11): Infrastructure bottlenecks and a weak business environment are the main constraints to higher growth.*

### 30.      Staff supports the authorities’ request for program under the ECF arrangement

### 30. Staff supports the authorities’ request for program under the ECF arrangement

### Program endorsement and rationale
- Staff supports the authorities’ request for program under the ECF arrangement with access equivalent to SDR 111.42 million (90 percent of quota).
- The LOI and MEFP set out appropriate policies to pursue the program’s objectives.
- Risks to the program are manageable given the prior actions already implemented and Benin’s good track record of policy implementation under the ECF arrangement.

### Proposed schedule of disbursements under the ECF arrangement (Table 7)
- April 7, 2017 — SDR 15.917 million — Executive Board approval of the ECF arrangement.
- October 31, 2017 — SDR 15.917 million — Observance of end-June 2017 performance criteria, and completion of the first review under the arrangement.
- April 30, 2018 — SDR 15.917 million — Observance of end-December 2017 performance criteria, and completion of the second review under the arrangement.
- October 31, 2018 — SDR 15.917 million — Observance of end-June 2018 performance criteria, and completion of the third review under the arrangement.
- April 30, 2019 — SDR 15.917 million — Observance of end-December 2018 performance criteria, and completion of the fourth review under the arrangement.
- October 31, 2019 — SDR 15.917 million — Observance of end-June, 2019 performance criteria, and completion of the fifth review under the arrangement.
- March 23, 2020 — SDR 15.918 million — Observance of end-December 2019 performance criteria, and completion of the sixth review under the arrangement.
- Total — SDR 111.42 million.

### Indicators of capacity to repay the Fund (selected items from Table 8)
- Principal repayments (millions of SDRs), selected years:
  - 2017: 10.8
  - 2018: 15.0
  - 2019: 14.8
  - 2020: 13.8
  - 2021: 11.7
  - 2022: 7.4
- Charges and interest (millions of SDRs), annual: 0.09; 0.11; 0.11; 0.11; 0.11; 0.11 (repeated pattern in projections).
- Outstanding IMF credit (millions of SDRs), selected years:
  - 2017: 99.8
  - 2018: 116.7
  - 2019: 133.7
  - 2020: 135.8
  - 2021: 124.2
  - 2022: 113.5
- Net use of IMF credit (millions of SDRs):
  - 2017: 21.0
  - 2018: 16.9
  - 2019: 17.0
  - 2020: -13.8
  - 2021: -11.7
- Selected memorandum items (projections):
  - Nominal GDP (billions of CFA francs): 5,472; 5,919; 6,415; 6,977; 7,617; 8,246 (2017–2022 sequence).
  - Exports of goods and services (billions of CFA francs): 998; 1,158; 1,317; 1,432; 1,564; 1,693 (2017–2022 sequence).
  - Government revenue (billions of CFA francs): 844; 949; 1,076; 1,212; 1,361; 1,507 (2017–2022 sequence).
  - Debt service (billions of CFA francs): 212; 225; 258; 260; 250; 240 (2017–2022 sequence).
  - CFA francs/SDR (period average): 836.5; 837.4; 837.6; 837.6; 837.6; 837.6 (2017–2022 sequence).
  - Quota (millions of SDRs): 123.8 (repeated).

### Key fiscal and macro indicators (selected figures from Tables 1–6)
- Program-level fiscal balances (percent of GDP):
  - Total revenue: 17.4; 17.6; 16.3; 16.7; 17.6; 16.6; 14.7; 15.4; 16.0; 16.8; 17.4; 17.9; 18.3 (series shown across years in Table 4).
  - Total expenditure and net lending: 19.6; 21.0; 19.1; 25.3; 23.5; 21.8; 21.4; 24.7; 21.9; 19.7; 19.1; 18.7 (series shown across years in Table 4).
  - Overall fiscal deficit (commitment basis, excl. grants): -2.2; -3.5; -2.8; -8.6; -5.9; -5.1; -6.7; -9.3; -5.9; -3.6; -2.4; -1.2; -0.4 (series shown across years in Table 4).
  - Basic primary balance (percent of GDP), selected years: 0.6; 1.1; 0.0; -4.2; -1.1; -0.5; -3.0; -3.1; -0.7; 1.7; 2.5; 3.0; 3.8.
- External sector (percent of GDP), selected indicators from Table 5:
  - Current account balance (incl. budgetary assistance grants): -7.4; -7.4; -8.6; -8.4; -7.2; -9.1; -7.4; -7.2; -6.2; -5.7; -5.0 (series across years).
  - Balance of goods and services: -12.0; -12.8; -15.2; -12.9; -11.8; -13.8; -12.4; -12.1; -11.4; -10.5; -9.8.
  - Exports (percent of GDP): 7.0; 9.9; 10.9; 12.4; 12.8; 14.7; 16.1; 17.2; 17.0; 18.5; 19.3.
  - Imports (percent of GDP): -18.0; -20.0; -21.9; -20.8; -20.5; -23.3; -23.4; -24.2; -23.1; -23.6; -23.7.
- Monetary and credit indicators (selected from Table 6):
  - Broad money (M2) year levels (billions of CFA francs): 2,017.1; 2,353.5; 2,540.4; 2,691.4; 3,001.8; 3,321.6 (2013–2018 sequence).
  - Net foreign assets (billions of CFA francs): 952.3; 1,119.3; 1,217.2; 1,181.7; 1,234.0; 1,285.2 (2013–2018 sequence).
  - Broad money (M2) growth (change in percent of beginning-of-period broad money): 17.3; 16.7; 7.9; 5.9; 11.5; 10.7 (2014–2019 sequence shown).

### Risks and recommended policy responses (summarized from Table 10, Risk Assessment Matrix)
- External risks
  - Significant slowdown in EMs/frontier economies and China — Relative Likelihood: Medium; Impact if Realized: Medium.
    - Impact: Lower export demand may reduce revenue and net exports and increase fiscal risks; tighter global financial conditions could increase funding costs for the 2016–21 Government Action Plan.
    - Recommended response: Improve business environment to support diversification; rebuild fiscal buffers through domestic revenue mobilization; implement prudent public investment plans.
  - Structurally weak growth in key advanced and emerging economies — Relative Likelihood: High/Medium; Impact if Realized: Medium/High.
    - Impact: Adverse impact on growth through less FDI inflows; retreat from cross-border integration could reduce international aid, trade flows, and impede export market access.
    - Recommended response: Strengthen regional bond markets and trade secondary markets; reduce fiscal exposure, including consolidation of fiscal revenue collection.
  - Adverse developments in Nigeria — Relative Likelihood: Medium; Impact if Realized: High.
    - Impact: Trade liberalization or adverse security situation reduces trade revenues and growth; cutting subsidy can cause fuel price spikes.
    - Recommended response: Improve business environment; boost domestic revenue to reduce dependency.
- Domestic risks
  - Adverse weather conditions — Relative Likelihood: Medium; Impact if Realized: High.
    - Impact: Adverse effect on agricultural output and exports, lower tax revenues, need to expand subsidies.
    - Recommended response: Short run — relax fiscal position to mitigate impact on poor sectors through targeted spending; medium run — monitor inflation effects; long run — diversify the economy.
  - Sharp rise in risk premia and the cost of debt — Relative Likelihood: High; Impact if Realized: High.
    - Impact: Higher borrowing costs reduce economic activity.
    - Recommended response: Rely predominantly on concessional financing; optimize debt portfolio; adjust investment level if necessary; improve business environment and financial sector reform; improve taxpayer service and reduce tax distortion.
  - Protracted uncertainty regarding institutional reforms — Relative Likelihood: Medium; Impact if Realized: High.
    - Impact: Delays in reforms and business environment constraints can affect investor confidence and undermine business growth.

### Policy implications and priorities (drawn from program and RAM)
- Maintain observance of performance criteria and complete program reviews as scheduled to secure disbursements totalling SDR 111.42 million.
- Continue domestic revenue mobilization to rebuild fiscal buffers and reduce reliance on external financing.
- Prioritize prudent public investment planning and optimize the debt portfolio to contain borrowing costs.
- Strengthen the business environment and regional financial integration to diversify exports and attract FDI.
- Prepare targeted fiscal responses for adverse weather or external shocks while preserving medium-term fiscal sustainability.

*International Monetary Fund. Staff report and supporting tables for Benin ECF arrangement (as presented in the source content).*

### Annex I. Benin: Government’s Action Program, 2016–21

### Annex I. Benin: Government’s Action Program, 2016–21

### GAP objectives and structure
- Adopted by the Council of Ministers on October 26, 2016 and presented to the public in December 2016.
- Five-year public investment program worth CFAF 9,039 billion (US$15.3 billion or 170 percent of GDP).
- Inspired by the presidential vision “The New Start—Nouveau Départ”.
- Three pillars:
  - (i) strengthen democracy, the rule of law, and good governance;
  - (ii) foster the structural transformation of the economy;
  - (iii) improve the living conditions of the population.
- Sector focus and investment shares:
  - Infrastructure: 27 percent
  - Energy: 11 percent
  - Agriculture: 9 percent
  - Tourism: 9 percent
- Alignment: 2030 Agenda for Sustainable Development and COP21.

### Financing of the GAP and PPP role
- Funding composition:
  - 61 percent expected from the private sector in the form of PPPs.
  - 39 percent from public resources, including grants and borrowing (CFAF 3,525 billion).
- Temporal profile:
  - PPP funding projected to build up gradually and peak in 2019 at about 28 percent of GDP.
  - Public contribution projected to start at 14 percent of GDP in 2017 and decrease to 7 percent by 2021.
- Policy orientation:
  - GAP aims to redirect public resources from current to capital spending.
  - Emphasis on improving quality of spending and strengthening procurement procedures.
  - Structural reforms to improve business environment, financial sector development, and reforms in health, education, and the judiciary to enable private sector involvement.

### Macroeconomic implications and projections under the GAP
- IMF staff concluded the medium-term investment outlook underpinning the GAP was overly ambitious and could have led to unsustainable debt.
- Key projected outcomes (Text Table 1: Benin: Key Macroeconomic Indicators Under the GAP, 2016–19; all figures are percent unless otherwise noted):
  - Real GDP: 2016 Act. 4.0; 2017 5.1; 2018 6.0; 2019 6.3; 2020 6.3; 2021 6.3
  - Inflation: 2016 -0.8; 2017 3.0; 2018 4.6; 2019 4.7; 2020 4.7; 2021 4.7
  - Public Investment (percent of GDP): 2016 5.9; 2017 14.3; 2018 11.6; 2019 10.3; 2020 9.0; 2021 6.7
  - Total Revenues (percent of GDP): 2016 14.7; 2017 15.3; 2018 15.5; 2019 15.8; 2020 15.8; 2021 15.8
  - Fiscal Deficit (excluding grants, percent of GDP): 2016 -6.7; 2017 -13.9; 2018 -10.4; 2019 -8.6; 2020 -7.4; 2021 -5.2
  - Basic Primary Balance (percent of GDP): 2016 -3.0; 2017 -7.9; 2018 -5.0; 2019 -3.0; 2020 -2.2; 2021 -0.3
  - Current Account (excluding grants, percent of GDP): 2016 -7.2; 2017 -14.4; 2018 -13.6; 2019 -14.1; 2020 -13.1; 2021 -12.0
  - Non-Financial Public Sector Debt (percent of GDP): 2016 50.3; 2017 57.2; 2018 60.9; 2019 62.3; 2020 62.5; 2021 61.5
- Scenario with public investment scaling up equivalent to 10.4 percent of GDP annually (Text Table 1 reference):
  - Fiscal deficits (excluding grants) averaging 8.8 percent over a six-year period.
  - Public debt would peak at 62.5 percent of GDP in 2020, pushing the risk of external debt distress from low to high.
  - Current account deficit would average 12.7 percent of GDP over 2016–21.
  - Marginal impact on inflation because most capital goods will be imported; however, higher imports of capital goods would worsen the current account deficit.

### Policy response to macro-fiscal risks
- Authorities agreed to scale back the investment envelope for 2017–19:
  - Three-year envelope reduced from about CFAF 2,254 billion to CFAF 1,400 billion to preserve debt sustainability.

### PPPs: opportunities, risks, and recommended practices
- Opportunities:
  - PPPs can address infrastructure gaps and financing constraints.
  - Potential to increase efficiency, productivity, and focus government on outputs/results.
- Fiscal and operational risks:
  - Complex financial arrangements and high transaction costs (structuring, contracting, contract management, renegotiations, cancellations).
  - Risks of off-budget expenditure, off-balance sheet debt, and contingent/future liabilities.
  - Potential to limit fiscal flexibility and jeopardize macroeconomic viability if unexpected fiscal costs materialize.
- Management and governance recommendations (good international practices):
  - Fully and transparently disclose all fiscal risks associated with PPPs through proper budgeting, accounting, and reporting.
  - Budgeting rules:
    - If PPP asset is public: include PPP in the budget and medium-term fiscal framework as traditional public investments.
    - If PPP asset is private: include government charges for services in the budget and medium-term fiscal framework.
    - Selection and prioritization should be based on cost-benefit analyses and good quality/price ratio.
    - Monitor and report fiscal risks in a document attached to the budget.
  - Accounting: apply IPSAS 32 throughout PPP life cycle.
    - Construction phase: government recognizes an asset and a financial liability in the same amount; increases commitment-basis deficit and gross debt; no impact on cash-basis deficit.
    - Operational phase:
      - If financed by the state: expenses include depreciation, finance charges, and payments for services; cash-basis deficit increases by the same amount as expenses.
      - If a concession: expenses include depreciation; revenues accumulated during the contract term; amount of debt retirement equals amount of revenue; cash-basis deficit not impacted.
    - Final phase:
      - If PPP asset considered private: transfer of asset to government balance sheet increases revenue and expenditure (acquisition of nonfinancial asset); deficit remains unchanged.
      - If PPP asset considered public: no change because asset already recognized on government balance sheet.
  - Reporting: follow GFSM 2014 and PSDG 2011; fully disclose known and potential costs of all PPPs in medium-term fiscal framework and debt sustainability analysis.
    - Compile for each PPP:
      - Future payment obligations/revenues by horizon (1–5 years, 5–10 years, 10–20 years, >20 years).
      - Key contract provisions affecting budget cash flows.
      - Obligations borne by government or public financial institutions/enterprises.
      - Arrangements for transfer of assets upon contract completion.
      - All project financing or off-balance sheet items, including contingent liabilities of government-owned or controlled entities.

### Implementation support and technical assistance for PPPs
- Priority actions:
  - Seek World Bank assistance to strengthen the PPP legal and institutional framework to:
    - Better assess fiscal risk for each PPP project.
    - Enhance planning, review, approval, and monitoring across institutions handling public investment.
  - Request technical assistance to:
    - Undertake a Public Investment Management Assessment (PIMA).
    - Use the PPP Fiscal Assessment Model (PFRAM) developed by the IMF and World Bank to inventory and monitor fiscal risks from PPP projects.

### Capacity development strategy for FY 2017: priorities and constraints
- Overall assessment:
  - Benin faces capacity and institution building challenges as a low income country.
  - Key needs: enhance domestic revenue mobilization (revenue administration and tax policy), improve budget preparation and execution, strengthen economic governance, and improve real sector, government, and external sector statistics and oversight of public enterprises.
- Past TA achievements (examples):
  - Creation of a unique account for the treasury (2015), not yet fully implemented and operational.
  - Increased capacity to formulate economic and financial policies under the ECF program, including macroeconomic forecasts (2015–16).
  - Enhanced production of budget execution data and reports (2015–16).
  - Initiation of customs administration reforms, including risk management (2015–16).
- Binding constraints:
  - Data gaps, poor data management and analysis.
  - Turnover of senior officials and technical staff.
  - Lack of infrastructure and institutional coordination (notably at customs and tax administrations).
- Forward-looking TA priorities:
  - Revenue and customs administration.
  - Public Financial Management focusing on budget execution and control.
  - Debt management.
  - National accounts: update base year and move to 2008 SNA.
  - Government finance: expand to general government.
  - External statistics: improve current and financial account.
  - Dissemination of statistics: implement e-GDDS (launched in late February 2017).
  - Public investment management: streamline currently split administrative units for capacity, efficiency, and transparency in project selection and monitoring.
  - Strengthen oversight of state-owned enterprises and consolidate the recently created unit.
  - Strengthen internal audit and control methods, including external audit and full implementation of the Court of Auditors, using professional standards and a systematic risk-based approach.
- Principal implementation risk:
  - Weak absorptive capacity; mitigation through careful selection and design of TA tailored to local needs.
- Authorities’ stance:
  - Authorities agree with the strategy and consider it appropriately formulated and aligned with the GAP.
  - They recommended adjusting TA volume and mid-term priorities to match absorption capacity.

### Key terms of the IMF three-year ECF arrangement referenced
- Arrangement rights and amounts:
  - Benin has the right to obtain disbursements equivalent to SDR 111.42 million over three years, subject to PRG Trust availability.
  - Disbursement limits:
    - Not to exceed the equivalent of SDR 31.834 million during the first 12 months.
    - Not to exceed the equivalent of SDR 63.668 million during the first 24 months.
- Scheduled disbursements:
  - First disbursement: SDR 15.917 million available upon approval of the arrangement, at Benin’s request.
  - Second disbursement: SDR 15.917 million available on or after October 31, 2017, at Benin’s request and subject to conditionality.
  - Third disbursement: SDR 15.917 million available on or after April 30, 2018, at Benin’s request and subject to conditionality.
- Conditions on further disbursements and reviews:
  - Right to request further disbursements in years two and three is subject to phasing and conditions determined in reviews under the ECF.
  - Benin will not request the second or third disbursements if the Managing Director finds that:
    - For the second disbursement (data as of June 30, 2017) or the third disbursement (data as of December 31, 2017), any of the following were not observed as set out in Table 1 of the MEFP and TMU:
      - (i) the ceiling on the net domestic financing of the government;
      - (ii) the floor on the basic primary balance (excluding grants);
      - (iii) the floor on the total government revenue; or
    - Until the Trustee has determined that, respectively, the first program review (for the second disbursement) and the second program review (for the third disbursement) have been completed.

*Source: Beninese authorities; IMF staff estimates, projections, and program documentation as presented in the Annex.*

### 5. Benin will not request a disbursement under this arrangement if at any time during the period of

### 5. Benin will not request a disbursement under this arrangement if at any time during the period of

### Conditions that prohibit disbursement requests
- Disbursements will not be requested if any of the following ceilings, as set out in Table 1 of the MEFP and specified in the TMU, is not observed:
  - (a) the ceiling on the accumulation of external payments arrears;
  - (b) the ceiling on the present value of new external debt contracted or guaranteed by the government;
  - (c) the ceiling on the accumulation of domestic payments arrears; or
  - (d) the ceiling on government pre-financing contracts for public investments.
- Disbursements will also be prohibited if Benin:
  - (i) imposes or intensifies restrictions on the making of payments and transfers for current international transactions;
  - (ii) introduces or modifies multiple currency practices;
  - (iii) concludes bilateral payments agreements that are inconsistent with Article VIII; or
  - (iv) imposes or intensifies import restrictions for balance of payments reasons.

### Restoration of access and consultations
- When prevented from requesting disbursements because of the above conditions (paragraphs 4 and 5), disbursements may be made available only after:
  - consultation between the Trustee and Benin; and
  - understandings reached regarding the circumstances in which Benin may request the disbursements.
- Benin will provide the Trustee with such information as the Trustee requests concerning progress in implementing the policies and reaching program objectives (in accordance with Paragraphs 5 and 6 of the Letter).

### Ongoing consultation and post-arrangement obligations
- During the arrangement period, Benin shall remain in close consultation with the Trustee.
- Benin shall consult with the Trustee on the adoption of any measures that may be appropriate at the initiative of the government or whenever the Managing Director of the Trustee requests such a consultation.
- After the arrangement period, while Benin has outstanding financial obligations to the Trustee from loan disbursements under this arrangement, Benin will consult with the Trustee from time to time:
  - at the initiative of the government; or
  - whenever the Managing Director of the Trustee requests consultation on Benin’s economic and financial policies.
- These consultations may include correspondence and visits of officials of the Trustee to Benin or of representatives of Benin to the Trustee.

### Letter of Intent — key points and request for support
- Location and date: Cotonou, March, 23 2017.
- The government requests a three-year arrangement under the Extended Credit Facility (ECF) in an amount equivalent to SDR 111.42 million (US$150 million).
- Purpose of the arrangement:
  - to serve as an anchor for the government’s macroeconomic policies; and
  - to act as a catalyst for financial assistance from Benin’s technical and financial partners.
- Political and program context:
  - President Patrice Talon elected in March 2016 following transparent elections.
  - Government formed in April 2016 with 21 members.
  - President received 65 percent share of the votes.
  - Government introduced the Government’s Action Program (GAP) for 2016–21 on December 16, 2016.
- Government commitments:
  - The measures and policies in the attached MEFP are deemed adequate to achieve program objectives; the government will undertake additional measures as appropriate.
  - The government will consult with the Fund prior to any revision of policies outlined in the MEFP, in accordance with Fund consultation policies.
  - The government will furnish IMF staff with all information mentioned in the Technical Memorandum of Understanding to evaluate progress.
  - The government authorizes the IMF to publish the IMF staff report, this letter, the MEFP, the Memorandum, and the debt sustainability analysis performed by IMF and World Bank staff following approval of the new ECF arrangement by the IMF Executive Board.

### Recent economic developments (selected findings)
- Growth and inflation:
  - Benin achieved relatively dynamic growth rates of 6 percent on average between 2012 and 2014.
  - Economic growth slowed significantly in 2015 due primarily to contagion effects from the recession in Nigeria.
  - Economic growth strengthened in 2016 and reached 4 percent.
  - Inflation remained moderate and at a level below the WAEMU convergence threshold of 3 percent (medium-term objective).
- Poverty:
  - Proportion of population living below the poverty line rose from 36.2 percent in 2011 to 40.1 percent in 2015 (INSAE).
- Public finances and external environment:
  - The steep increase in public spending associated with the 2016 presidential elections led to a substantial rise in the budget deficit; the deficit (excluding grants) was 6.7 percent of GDP in 2016, 1.6 percentage points of GDP higher than budgeted.
  - The recession in Nigeria and depreciation of the naira affected activity in trade and industrial sectors.
  - Refined petroleum products imported informally from Nigeria experienced a rise in prices after Nigerian subsidy reduction; the effect on Benin’s overall prices was largely offset by a decline in the value of the Nigerian currency in the parallel market.
  - The current account deficit remained broadly stable between 2014 and 2015 despite expansionary fiscal policy in 2015.

### Government’s Action Program (GAP) and structural priorities
- GAP overview:
  - Adopted October 26, 2016; unveiled publicly December 16, 2016.
  - Centered on three pillars: (i) consolidation of democracy, the rule of law, and good governance; (ii) launching structural transformation of the economy; and (iii) improving living conditions.
  - Emphasis on developing value-added in agriculture and tourism and improving education quality.
  - Aligns with the 2030 Agenda for Sustainable Development and COP21.
- Policy measures and reforms:
  - Focus on creating fiscal space through increased mobilization of domestic resources and improved public spending effectiveness.
  - Strengthening selection, preparation, and execution of public investment projects and procurement mechanisms.
  - Creation of a favorable environment for private sector participation.
  - A law on public-private partnerships (PPP) was passed by parliament on October 11, 2016, enacted October 24, 2016; implementing decrees adopted.
  - Publication of GAP documentation including "Bénin Révélé—Benin Revealed," a summary, and a portfolio of projects is unprecedented in Benin.

### Medium-term macroeconomic objectives for 2017–19
- Program focus:
  - Boost mobilization of domestic revenues.
  - Improve quality and effectiveness of public spending.
  - Strengthen governance and institutions to promote private sector development.
- Macroeconomic targets and orientation:
  - Acceleration of economic growth with a lower level of investment than envisaged under the GAP to ensure public debt sustainability.
  - Inflation target: remain moderate and below the WAEMU convergence threshold of 3 percent.
  - The medium-term fiscal program calls for an overall budget deficit (on a commitment basis, including grants) (text truncated in source at this point).

*Source: Excerpt from IMF staff report and attachments (Letter of Intent and Memorandum of Economic and Financial Policies) for Benin, Cotonou, March, 23 2017.*

### 4.6 percent on average during the three years covered by the program. The achievement of the

### cr17100 - 4.6 percent on average during the three years covered by the program. The achievement of the

### Program objectives and macro-fiscal strategy
- Program aims to support sustained and inclusive growth with the aim of reducing poverty while ensuring the sustainability of public finances and debt.
- Financial assistance under the IMF ECF should help address the need for financing of Benin’s balance of payments.
- Structural reform pillars to support program goals:
  - (a) creating more fiscal space through the modernization of the tax and customs administrations and improvement in the quality of public spending;
  - (b) strengthening the management of public debt; and
  - (c) improving the business climate.

### Social protection and living standards
- Government program “Benin Revealed” prioritizes improved living standards and will entail a new policy on social safety nets and universal access to basic social services.
- State responsibility: ensure social protection for the most disadvantaged members of society.
- Support for income-generating activities via ongoing training, entrepreneurship, and microcredit to finance specific projects.
- Strategic pillars for improved living standards: strengthened basic social services and social protection.

### Public debt sustainability
- Government committed to maintaining total public debt, in terms of net present value, at a maximum of 50 percent of GDP.
- Regular debt sustainability analysis to include:
  - fiscal risks associated with public-private partnerships (PPPs);
  - the debt of state-owned enterprises (SOEs) after audit and evaluation;
  - guarantees issued by the government on behalf of SOEs.
- Policy to extend the maturity of financing to reduce the burden of short-term debt service for the large investment program.

### Increasing domestic revenue mobilization
- Objective: raise the tax/GDP ratio from 14.7 percent in 2016 to 16.8 percent in 2019.
- Note: primary sector under-taxation despite contributing more than one-third to value added.
- WAEMU convergence target: 20 percent of GDP.

### Strengthening tax and customs administrations
- 2017-2021 Strategic Plan for the Tax Administration (POSAF) adopted; next step: prepare annual operational and working action plans with IMF technical assistance.
- DGI committed to compiling and publishing a list of VAT collectors starting in 2017.
- Taxpayer base currently narrow: only one-third of the “large” taxpayers pay the value-added tax.
- Use of Single Taxpayer Identification Number (IFU) to create a comprehensive taxpayer database shared by tax and customs administrations; temporary IFUs prohibited since 2015.
- DGI commitments:
  - monitor and update the central database of active IFUs with verified taxpayer location information following on-site visits;
  - interconnect IFU platform with ASYCUDA (already operational) so customs can consult the platform.
- Structural benchmark: Starting in February 2017, an importer without an updated IFU must pay an additional charge of 10 percent on the value of its imports, in addition to the VAT and customs duties.
- Treasury connection to IFU platform planned in a second phase.

### Customs administration reforms and valuation
- Transition to ASYCUDA World experienced delays but operational problems resolved; expected to strengthen customs risk analysis.
- Value has been factored into customs operations since January 2017 through monitoring of valuation notices from the value unit.

### Improving the functioning of the expenditure chain
- Ministry of Finance completed an action plan to improve public spending management (PAAGFP).
- Remaining weaknesses per PEFA and PEMFAR (2014): absence of multi-year budgeting, cash flow management, monitoring of project execution.
- Structural Benchmark: review of public expenditure over the past five years with the World Bank to identify factors affecting expenditure quality.

### Strengthening cash flow management and Treasury Single Account (TSA)
- WAEMU directives require all public funds to be managed through an account with BCEAO.
- Current status: Treasury has a single account with BCEAO, but other entities’ accounts remain open; inventory of these accounts underway with results expected by End-March 2017.
- TSA timetable:
  - determination of the architecture and functioning of the TSA by End-July 2017;
  - adoption of an implementing text for the decree on public sector accounting standards in August 2017;
  - bringing the chart of accounts and the information system into line with the TSA architecture by End-November 2017;
  - closure of all the accounts opened at banks by End-December 2017;
  - adoption of measures for opening deposit accounts for administrative public agencies during 2018;
  - drafting and approval of procedural manuals regarding the TSA by February 2018;
  - training of personnel in new procedures and IT applications by April 2018;
  - putting the TSA into operation starting in July 2019.

### Cash flow management measures, arrears, and certified Treasury checks
- Current monthly cash plan has not yet significantly reduced domestic payment arrears or unpaid certified Treasury checks.
- Under the 2016-2020 PAAGF, measures to implement (structural benchmark):
  - establish mechanism for monitoring budgetary float and arrears within Cash Management Committee;
  - improve planning of cash requirements using commitment plans related to the state budget;
  - implement a system for regulating commitments accounting for actual mobilization of resources (budget revenues, disbursement of budget support, domestic financing);
  - strengthen Cash Management Committee capacities for monitoring and weekly allocation of cash resources.
- Payment arrears as of End-June 2016 are subject to an audit to be completed in September 2017; a plan to clear arrears will follow.
- Certified Treasury checks:
  - immediate payment of currently unpaid certified checks within an average period of 15 days;
  - process to deal with all outstanding certified Treasury checks to be completed by June 2017.

### Strengthening debt management
- Debt managed jointly by Treasury and Public Accounting Directorate (DGTCP) and the National Amortization Fund (CAA).
- October 2015 decree defined responsibilities to avoid fragmentation and overlaps.
- Since 2015, CAA reorganized around front, middle, and back office functions per international standards; Treasury reorganization to take effect by End-2017.
- DGTCP reorganization planned measures and timelines:
  - organization of departments and AOF of DGTCP in divisions and sections in the third quarter of 2017;
  - transfer and allocation of responsibilities across technical directorates in the first half of 2017;
  - preparation of manuals of procedures and other documents by End-August 2017;
  - dissemination of provisions governing the new organization chart by End-June 2017.
- Improvements in public debt information:
  - CAA website online;
  - quarterly statistical bulletin on public debt;
  - annual report on public debt management prepared;
  - medium-term debt management strategy appended to the 2017 budget law.
- Recommendation: explicitly include a public debt ceiling in the debt strategy and monitor guarantees and public enterprise debt.

### Multi-year budgeting and program-mode execution
- Transition to multi-year programming implemented for budget preparation at all ministries.
- 2017 pilot test of program-mode execution in five ministries: Ministry of Economy and Finance; Ministry of Infrastructure and Transport; Ministry of Nursery School and Primary School Education; Ministry of Secondary and Technical Education and Professional Training; Ministry of Foreign Affairs and Cooperation.
- Public expenditure budgeting and execution system expected to be fully operational in 2019 and expanded to all ministries (structural benchmark).

### Procurement modernization and transparency
- New Public Procurement Code and Integrated Public Procurement Management System (SIGMap) and public procurement web portal (www.marches-publics.bj) have improved procurement oversight.
- Ongoing needs: improved monitoring, transparency, and statistical publication regularity.
- ARMP and DNCMP to develop public procurement databases and strengthen regulation of statistical publications.
- Structural Benchmark: publish information drawn from SIGMap on the national website in line with the Open Contracting Data Standard (OCDS) initiative; request World Bank technical assistance.

### GAP project monitoring, institutional arrangements, and PPPs
- Institutional framework for GAP monitoring:
  - Council of Ministers sets guidelines and approves implementation reports;
  - Committee for the Monitoring of Flagship Projects (CSPP) under the President supervises major risks;
  - Monitoring and Evaluation Committee (CSE) chaired by the Minister of State for Planning;
  - Sectoral monitoring committees (CSSs) chaired by sectoral ministers.
- Specific mechanisms to strengthen monitoring and implement 77 priority GAP reforms:
  - creation of presidential GAP monitoring units by sector with monitoring and evaluation experts; some 20 monitoring officials recruited for launch;
  - creation of sectoral reform committees to implement allocated priority reforms under supervision of the Office of Analysis and Investigation (BAI).
- GAP financing: private investment planned to finance 61 percent of the total cost of the GAP.
- PPP framework:
  - PPP law enacted in October 2016; three implementing decrees approved in December 2016.
  - Support Unit for Public-Private Partnerships (CAPPP) under the Office of the President provides TA for PPP contracting.
  - Strategic support unit under the Minister of Finance to guide fiscal risk assessment for GAP projects financed through PPPs.
  - Structural Benchmark: assess fiscal risks of PPPs using PFRAME or another suitable model.

### State-Owned Enterprises (SOEs): oversight, audits, and rationalization
- Comprehensive survey of government SOE portfolio undertaken; efforts to strengthen boards’ professionalism and accountability.
- Managers to be selected on objective competency criteria and subject to performance contracts to be finalized for all enterprises during 2017.
- Creation in June 2016 of the General Directorate for State Holdings and Denationalization to improve SOE financial monitoring; planned recruitment of around 30 employees in 2017 to strengthen capacity.
- Audit program coordinated by the BAI for SOEs; findings will be included in a published report (structural benchmark) to limit cross-claims and debts and regulate financial flows between government and SOEs.
- Rationalization measures undertaken:
  - restructuring of ORTB and ONASA;
  - liquidation of twelve (12) entities including SONAPRA, ONS, CAI-SA, ADMA, and regional CARDERs;
  - leasing of district hospitals (Djidja, Cové, Djougou);
  - denationalization of factories for processing agricultural produce and rice mills in Malanville and Glazoué.

### Strengthening internal and external control and audits
- 2014 PEFA identified significant deficiencies in the audit function.
- Office of the Auditor General dissolved; General Inspectorate of Finance and other general inspectorates continue activities.
- BAI under the Office of the President tasked with coordinating reorganization of internal and external audit structures.
- New structure and plan for strengthening professionalism of auditors to be completed by End-September.

*Source: https://www.imf.org/-/media/files/publications/cr/2017/cr17100.pdf*

### 2017. The Office of Analysis and Investigation is also responsible for arranging for specific audits

### cr17100 - 2017. The Office of Analysis and Investigation is also responsible for arranging for specific audits

### Audits, transparency, and judicial follow-up
- The Office of Analysis and Investigation arranges specific audits to clarify the reform process or to assess the current state of affairs following the assumption of power by the government.
- The government chose to make public the summary audit reports presented to the Council of Ministers and to turn over to the justice system the cases that call for judicial investigations.
- The audit reports (regarding financial legal audits) for all public enterprises and the 30 largest administrative public agencies (EPA) will be published by 2020.

### Budget execution, accounting oversight, and Court of Auditors reform
- The draft Budget Execution Law for 2015 was submitted to the National Assembly by Decree No. 2016-617 of October 6, 2016, prior to the adoption of the 2017 budget law.
- The relevant report by the Accounting Chamber is posted on the Supreme Court’s website (www.coursupremebenin.com).
- The government supports creation of an independent Court of Auditors meeting international performance standards and plans to include creation of such an entity in forthcoming constitutional reform.

### Financial inclusion as a driver of growth
- The government identifies greater financial intermediation as necessary to support more robust economic growth and plans to limit bottlenecks in financial infrastructure.
- Major obstacles cited: lack of property titles, information asymmetry, and weakness of the judicial system.
- While financial soundness indicators “do not raise immediate concerns in terms of financial stability,” the quality of banks’ loan portfolios remains weak and limits lending to the private sector.

### Banking-sector soundness and key indicators (exact figures preserved)
- Capital adequacy figure for banks: 8.8 percent (End-September 2016).
- Minimum regulatory capital: 8 percent.
- WAEMU average capital adequacy: 11.4 percent at End-June 2016.
- Nonperforming loan ratio: estimated at 23 percent.
- WAEMU average nonperforming loan ratio: 18.4 percent.
- Provisioning ratio: 15 percent of risk-weighted assets in 2016.
- Regulatory deadline: By End-June 2017, all banks required to achieve a minimum equity capital figure of CFAF 10 billion.
- Bank recapitalization status: of 14 banks, there are 6 that need to make efforts to reach the CFAF 10 billion target.
- Vulnerabilities highlighted: concentration of loans primarily in the trade sector linked to trade with Nigeria; growing exposure to Treasury notes and bonds increasing sensitivity to deterioration in public finances and tightening of rates in the regional market.

### Structural reforms to improve credit access and stability
- Credit bureau (BIC):
  - The Law on Credit Information Offices (BIC) was adopted by the National Assembly and promulgated by the President of the Republic on January 23, 2017.
  - The law establishes the legal framework required to launch BIC activities.
  - Government will support the Central Bank and make the BIC operational by End-2017.
  - Expected effects: facilitate banks’ access to information about customers’ credit with other banks, reduce credit risks, allow reduction in credit costs, and support development of the financial system.
- Collateral and land-title reforms:
  - Measures to facilitate the use of collateral to obtain bank loans are planned.
  - Plan to promote electronic registration of land titles and extend it to cover the entire country.
  - Initiative in the amended 2016 budget law to eliminate registration fees led to an increase in the number of land titles registered.

### Crisis-resolution framework and microfinance supervision
- Strengthening banking-crisis resolution:
  - A new framework is being developed to accelerate resolution of one bank that was placed in receivership three years ago but remains in operation and is likely to create liabilities for the government.
- Microfinance sector:
  - The government considers the microfinance sector essential to promote access to the financial system for small business.
  - Plans to strengthen supervision and regulation of microfinance institutions (MFIs) to maintain their viability and credibility.

*Source: cr17100 - 2017. The Office of Analysis and Investigation is also responsible for arranging for specific audits*

### 65.1 percent of authorized MFIs (with deposits of CFAF 88 billion at End-2015 out of a total of

### 65.1 percent of authorized MFIs (with deposits of CFAF 88 billion at End-2015 out of a total of CFAF 93.2 billion)

### Microfinance sector: status and planned actions
- 65.1 percent of authorized MFIs (with deposits of CFAF 88 billion at End-2015 out of a total of CFAF 93.2 billion) are in good financial health; the condition of the other institutions is less sound.
- Strengthen the supervisory authority by increasing the number of supervisors, in particular in rural areas, to ensure timely oversight and enforcement of regulations.
- Out of a total of 721 microfinance initiatives surveyed in 2011, 495 were not authorized to operate; this number was reduced to 332 by End-2015 through public awareness efforts and support for potentially viable initiatives.
- Unauthorized MFIs will be brought into compliance with regulations or closed.
  - In 2017 a communication regarding clean-up of the microfinance sector, initiated jointly by the Ministry of the Economy and Finance and the Ministry in Charge of Social Affairs, will be submitted to the Council of Ministers to obtain government authorization to take tangible action against unauthorized MFIs.
  - Raise awareness among local elected officials in the departments of Zou, Collines, Borgou, and Alibori, and among religious denominations.
  - Close some MFIs for which the procedure for obtaining court rulings is sufficiently advanced.

### Business climate: challenges and reforms
- The business climate in Benin is not conducive to private sector development, though some progress has been made; Benin’s ranking in the Doing Business report has improved.
- Significant remaining challenges: poor governance and precarious generation and distribution of electricity.

### Governance: judicial and anti-corruption reforms
- Poor enforcement of contracts generates distrust between the private sector and government.
- GAP aims at radical reform of judicial system with technical and financial partners.
  - Creation of commercial courts provided for under amendments to Law No. 2001-37 of June 10, 2002, and Law No. 2008-07 enacted in September 2016 (structural benchmark).
  - Next steps to make courts operational:
    - (i) Identification of buildings to house the Trade Court of Cotonou and the Trade Appeals Court of Porto Novo;
    - (ii) Appointment of career and commercial court judges and official installation of the courts in these two jurisdictions no later than May 31, 2017.
- Strengthen the anti-corruption framework and provide the ANLC with necessary resources.
  - Introduce, by end-August 2017, legislative amendments to:
    - (i) ensure dissuasive sanctions for absence of asset declaration;
    - (ii) require comprehensive declaration of assets owned and beneficially owned, in Benin and abroad, by the high-level official, their family members and close associates;
    - (iii) allow for online publication of the asset declarations.
  - ANLC to introduce, by end-August 2017, an online system for monitoring judicial actions taken on the basis of reports from government oversight institutions.

### Energy policies: capacity, costs, and investments
- Aim: sufficient supply of high-quality electricity at affordable prices to support economic growth.
- By 2021, expected to satisfy total demand of 500 megawatts, half of which will be produced within the country.
- GAP provisions: construction of two thermal power stations in addition to the Djarala hydroelectric dam; improvements to distribution system.
- Received partner financing equal to 5.0 percent of the 2016 GDP over five years to improve distribution network quality.
- Measures to strengthen SBEE (Beninese Energy and Electricity Company):
  - Recruitment of new general manager and assistant manager through competitive hiring;
  - Appointment of board members according to objective criteria;
  - Establishment of a performance contract for the general manager;
  - Audit of SBEE’s debt and arrears, together with a restructuring plan;
  - Development of a new formula for adjustment of consumer prices; introduction of competition into electricity imports.
- Bridging mechanism: SBEE leased temporary production facilities.
  - A 70-megawatt production facility in service since 2014; another 80 megawatts to be added starting in January 2017.
  - Temporary production output costs: CFAF 120-150 per kilowatt-hour, compared to CFAF 58 per kilowatt-hour average import price.
  - Government decided to subsidize leasing and fuel costs of these temporary installations.

### Technical Assistance and Capacity Development
- Benin benefits from technical assistance from the IMF, the World Bank, and other development partners focused on:
  - Increasing mobilization of domestic resources;
  - Strengthening public financial management;
  - Improving statistics, in particular national accounts.
- IMF technical assistance directed at consolidating the macroeconomic framework and implementing structural reforms.
- Implementation capacity constraints: efforts to carry out previous TA recommendations remain uneven; principal structural reforms lagging owing to lack of implementation capacity.

### Program for 2017: outlook and required reforms
- 2017 growth in real GDP should benefit from expected improvement in the global economy, expansion of agricultural output, and medium- and long-term capital injections.
- Inflation should return to lower trend levels and remain below the WAEMU convergence threshold of 3 percent.
- To support growth, the structural reform program must be carried out in its entirety and within the established timeframe, including measures to:
  - boost mobilization of domestic revenues;
  - improve quality and effectiveness of public spending;
  - strengthen governance and institutions to promote private sector development.

### Macro-Fiscal Framework for 2017 (key targets and constraints)
- Medium-term goals for 2017:
  - Increase budget revenues by 0.7 percentage point of GDP to 15.4 percent.
  - Public spending to grow by 3.3 percentage points of GDP, reaching 24.7 percent of GDP.
  - Overall deficit projected at 9.3 percent of GDP.
  - Capital expenditures to rise to 10.1 percent of GDP in 2017, compared to 6.0 percent in 2016.
  - Current spending to decline by 1.2 percent of GDP.
- 2017 budget law as adopted by parliament in December 2016 set capital expenditures at 15.7 percent of GDP and public deficit at 14.4 percent of GDP.
- To ensure public debt sustainability:
  - Limit publicly funded capital expenditures to an amount not to exceed CFAF 550 billion, i.e. 68 percent of the amount approved.
- Financing strategy: greater mobilization of revenues, rationalization of current spending, bond issues in the regional market, and optimization of financing within public-private partnerships.

### Tax policy measures and expected revenue impact
- 2017 budget law calls for creation of several taxes and strengthening of tax and collection administrations, expected to generate additional resources estimated at CFAF 38.4 billion, or 0.7 percent of GDP (structural benchmark).
  - New taxes and estimated revenues:
    - tax on gambling: CFAF 1 billion;
    - special tax on unprocessed agricultural products: CFAF 4 billion;
    - tax on exports of scrap metal: CFAF 3 billion;
    - tax on four-wheel motor vehicles: CFAF 3 billion;
    - tax on seeds, fibers, and cashew nuts, and its extension to all unprocessed products: CFAF 4 billion;
    - turnover tax on GSM operators: CFAF 1.4 billion;
    - efforts to recover tax arrears: approximately CFAF 22 billion.
- Organizational and administrative tax administration reforms expected to generate around CFAF 60 billion on a full-year basis and safeguard tax resources over the medium term; measures include:
  - (i) establishment of a single database for taxpayers subject to the VAT;
  - (ii) implementation of a tax and customs data platform;
  - (iii) heightened tax supervision among sensitive sectors (Banking - Telecommunications - Insurance - Oil);
  - (iv) withholding of all of the VAT at the source for enterprises subject to the VAT;
  - (v) application of the transaction value in customs processing;
  - (vi) resumption of the import verification program mechanism, and efforts to combat fraud.
- Strategy to recover tax arrears based on diagnostic work by the January 2017 FAD TA mission: outstanding balances valued at CFAF 107.6 billion at End-December 2016; goal to reduce this stock by at least 30 percent by December 2017.
- Decision to eliminate transfer taxes to stimulate real estate market: estimated cost CFAF 12 billion in a full year.
- Creation of a Fiscal Policy Unit in 2017 under the General Tax Directorate (DGI); staff to be recruited in June 2017 and receive targeted training.
- Additional suggested revenue-improving approaches include:
  - (i) simplification of the personal income tax (IRPP);
  - (ii) simplification of the combined business tax;
  - (iii) protection of the corporate tax base against aggressive tax optimization (updating transfer pricing legislation);
  - (iv) management of tax exemptions;
  - (v) establishment of a tax mediator for small and medium-sized businesses.

### Tax expenditures: stock and containment strategy
- Tax expenditures reported as CFAF 128 billion in 2016, an increase of CFAF 11 billion compared to the previous year.
- Objective: contain the rise in tax expenditures by identifying and eliminating unjustified or legally unsupported expenditures.
- From now on, tax expenditures not provided for under the codes (investment, mining, and oil) may no longer be granted by sectoral ministries by discretionary decision without prior authorization of the Minister of Finance (Article 1103-1 of the 2017 budget law).
- 2017 budget law calls for elimination of exemptions for power companies.
- Expiration in June 2017 and 2018 of exemptions enjoyed by telecommunications companies with regard to GSM licensing facilitates efforts.
- Commitment to perform a comprehensive analysis of tax expenditures before End-2017 and design a containment/streamlining strategy; measures decided will be included in the 2018 budget law (structural benchmark).

### Program monitoring: prior actions, targets, and reviews
- Prior actions already undertaken (selection):
  - Creation in June 2016 of the Office of Analysis and Investigation, operational in September 2016, responsible for GAP implementation and monitoring, notably flagship projects component.
  - Approval by the Minister of Finance of the 2017–21 POSAF, following adoption by the Committee of Directors of the Ministry of Finance.
  - Effective integration of control activities of the tax and customs general directorates through a shared computer platform maintained by the GDI, the Single Taxpayer Identification No. (IFU), and imposition of penalties for importers without an updated IFU starting in February 2017.
  - Establishment of a framework for preparation and monitoring of the government’s cash flow plan.
  - Agreement on the 2017 budget in accordance with the program.
- Quantitative performance criteria and indicative targets established for End-June and End-December 2017 and indicative targets for End-March and End-September 2017 (Table 1).
  - Selected table figures (Billions of CFA francs):
    - Net domestic financing of the government (ceiling) — Est.: 232.8; Prog. March 31, 2017: 70.1; June 30, 2017: 116.1; September 30, 2017: 183.9; December 31, 2017: 177.7.
    - Basic primary balance (excluding grants) (floor) — Est.: -150.6; Prog. March 31, 2017: -64.7; June 30, 2017: -73.1; September 30, 2017: -139.0; December 31, 2017: -171.3.
    - Total revenue (floor) — Est.: 745.7; Prog. March 31, 2017: 182.9; June 30, 2017: 386.1; September 30, 2017: 602.9; December 31, 2017: 843.9.
    - Ceiling on the present value of new external debt contracted or guaranteed by the government — Est.: 211.5; all Prog. dates: 402.8.
    - Priority social expenditure (floor) — Est.: 84.8; Prog. March 31, 2017: 36.3; June 30, 2017: 85.0; September 30, 2017: 125.0; December 31, 2017: 160.0.
    - Memorandum item: Budgetary assistance — Est.: 11.6; Prog. March 31, 2017: 16.2; June 30, 2017: 16.2; September 30, 2017: 39.2; December 31, 2017: 55.0.
- All the prior actions have been implemented.
- The first and second program reviews are expected to be completed on or after October 31, 2017 and April 30, 2018, respectively.

*Source: Beninese authorities; IMF staff estimates and projections as presented in the provided content.*

### 1.      This Technical Memorandum of Understanding (“the Memorandum”) defines the

### Technical Memorandum of Understanding

### Program assumptions — Exchange rates
- CFAF/US$ 592.7
- CFAF/euro 655.96
- CFAF/SDR 836.57
- Note: Exchange rates are average for 2017.

### Definitions — Government and Debt
- Government: central government of the Republic of Benin; excludes political subdivisions, the central bank, or other public or government-owned entities with autonomous legal personality not included in the government’s flow-of-funds table (TOFE).
- Debt (per IMF Executive Board Decision No. 6230-(79/140), as amended by Decision No. 15688-(14/107)):
  - (a) Debt is a current (not contingent) liability under a contractual agreement requiring future payments in assets or services. Primary forms include:
    - i) loans (including deposits, bonds, debentures, commercial loans, buyers’ credits, repurchase agreements, official swap arrangements);
    - ii) suppliers’ credits (deferred payment contracts);
    - iii) leases (debt equals present value at inception of all lease payments expected, excluding payments covering operation, repair, or maintenance);
    - iv) Treasury bills and bonds issued in CFA francs on the WAEMU regional market are included in public debt for this Memorandum.
  - Arrears, penalties, and judicially awarded damages from failure to pay contractual obligations that constitute debt are debt.
  - (b) Present value of loans: discount future payments using OECD CIRRs — 10-year average of CIRRs for loans with maturities longer than 15 years; six-month average of CIRRs for loans with shorter maturities. Add OECD-established margin: 0.75 percent for repayment periods of less than 15 years, 1.00 percent for repayment periods of 15–19 years, 1.15 percent for repayment periods of 20–29 years, and 1.25 percent for repayment periods of 30 years or more.
  - (c) Domestic debt: debt denominated or serviced in CFA francs, unless contracted with another member state.
  - (d) External debt: debt denominated in any currency other than the CFA franc and debt in CFA francs contracted with another member state.

### Quantitative performance criteria — Overview
- Net domestic financing (NDF) of the government = (i) net bank credit to the government; plus (ii) net nonbank financing (including proceeds of sale of government assets, privatizations, Treasury bills, and other securitized obligations issued in CFA francs on the WAEMU regional market, and any BCEAO credit to the government, including drawings on the CFA franc counterpart of SDR allocation).
- Net bank credit: balance between government debts and claims vis-à-vis the central bank and national commercial banks. Government claims include CFA franc cash balance, postal checking accounts, subordinated debt (obligations cautionnées), and deposits with the BCEAO/commercial banks of government-owned entities (excluding EPIC and government corporations). Government debt to banking system includes all debt to central bank and national commercial banks, including Treasury bills and other securitized debt.
- Valid figures: NDF and Treasury bills/bonds in CFA francs on WAEMU market calculated by BCEAO; nonbank financing calculated by the Treasury of Benin.
- Gross external budgetary assistance: grants, loans, and non-earmarked debt relief operations (excluding project-related loans/grants, use of IMF resources, and HIPC/Multilateral Debt Relief Initiatives). Net external budgetary assistance = gross assistance minus total debt service on all external debt (interest + amortizations on all external loans, including interest and charges to IMF and on project-related loans, but excluding repayment obligations to the IMF) and all payments of external payment arrears.

### A. Ceiling on Net Domestic Financing of the Government (cumulative since January 1)
- Ceilings:
  - End-March 2017: CFAF 70.1 billion
  - End-June 2017: CFAF 116.1 billion
  - End-September 2017: CFAF 183.9 billion
  - End-December 2017: CFAF 177.7 billion
- Classification:
  - Performance criterion for End-June and End-December 2017.
  - Indicative target for End-September 2017.
- Adjustments if net external budgetary assistance deviates from program projections:
  - If net external budgetary assistance exceeds projected cumulative amounts by over CFAF 5 billion at end of a quarter, NDF ceiling lowered by excess minus CFAF 5 billion.
  - If net external budgetary assistance falls short of projected cumulative amounts at end of a quarter, NDF ceiling increased by the shortfall, limited to:
    - Not exceed CFAF 15 billion at End-June 2017
    - Not exceed CFAF 25 billion at End-December 2017
- Program projections for adjustment calculations (cumulative since January 1):
  - Gross external budgetary assistance:
    - End-March 2017: CFAF 16.2 billion
    - End-June 2017: CFAF 16.2 billion
    - End-September 2017: CFAF 39.2 billion
    - End-December 2017: CFAF 55.0 billion
  - External debt service obligations:
    - End-March 2017: CFAF 8.8 billion
    - End-June 2017: CFAF 24.8 billion
    - End-September 2017: CFAF 32.4 billion
    - End-December 2017: CFAF 50.4 billion

### B. Floor for Basic Primary Fiscal Balance (cumulative since January 1)
- Definition: basic primary fiscal balance = total fiscal revenue (tax and nontax) minus basic primary fiscal expenditure (payment order basis). Basic primary fiscal expenditure = fiscal (current + capital) expenditure minus (a) interest payments on domestic and external debt; and (b) capital expenditure financed by external grants and loans. Grants excluded from revenue; net government lending excluded from fiscal expenditure.
- Floors (balance not less than):
  - End-March 2017: CFAF -64.7 billion
  - End-June 2017: CFAF -73.1 billion
  - End-September 2017: CFAF -139.0 billion
  - End-December 2017: CFAF -171.3 billion
- Classification:
  - Performance criterion for End-June and End-December 2017.
  - Indicative target for End-September 2017.

### C. Floor for Total Government Revenue (cumulative since January 1)
- Definition: total government revenue includes tax and nontax revenue as shown in the TOFE; excludes external grants, revenue of autonomous agencies, and privatization receipts.
- Revenue floors (not less than):
  - End-March 2017: CFAF 182.9 billion
  - End-June 2017: CFAF 386.1 billion
  - End-September 2017: CFAF 602.9 billion
  - End-December 2017: CFAF 843.9 billion
- Classification:
  - Performance criterion for End-June and End-December 2017.
  - Indicative target for End-September 2017.

### D. Non-Accumulation of New Domestic Payments Arrears (continuous)
- Definition: domestic payments arrears = domestic payments due but not paid after a 90-day grace period, unless obligation specifies a longer grace period. National Amortization Fund (CAA) and the Treasury record/update data on accumulation and settlement.
- Commitment: government undertakes not to accumulate any new domestic payments arrears; continuously monitored.

### E. Non-Accumulation of External Payments Arrears (continuous)
- Definition: external public payments arrears = sum of payments due but not paid by government at contractual due date, taking applicable grace period into account, on external debt of or guaranteed by the government.
- Commitment: government undertakes not to accumulate any external public payments arrears, except arrears under renegotiation or rescheduling; continuously monitored.

### F. Present Value of New External Debt Contracted or Guaranteed (continuous)
- Scope: applies to debt defined in paragraph 4a and to commitments contracted or guaranteed by the government (including lease-purchase contracts) for which no value has been received; also applies to private sector debt guaranteed by the government (contingent liability). Excludes Treasury bills and bonds issued in CFA francs on the WAEMU regional market.
- Government scope for this criterion includes: government (paragraph 2), local governments, and all public enterprises, including EPA, scientific and technical public agencies, professional public agencies, and enterprises jointly owned by Beninese government with other governments.
- Ceiling changes may be made subject to IMF Executive Board approval based on joint World Bank–IMF debt sustainability analysis results.
- Performance criterion on contracting/guaranteeing new external debt maturing in one year or more will be continuously monitored.

### G. Ceiling on Pre-Financing Contracts for Public Investments (continuous)
- Definition: pre-financing contracts are contracts where:
  - (i) government entrusts private entity with executing public works financed by a loan to the entity from commercial bank(s);
  - (ii) government (including Minister of Finance) guarantees the loan and signs an unconditional and irrevocable agreement to replace the private entity to honor full principal and interest.
- Commitment: government refrains from entering into any pre-financing contracts during program; continuously monitored.

### Indicative targets — Priority social expenditures
- Definition: priority social expenditures determined relative to priority programs in the GAP; selected (nonwage) expenditures in health; energy, water, and mines; agriculture; livestock and fisheries; social affairs; education; and living standards. Execution monitored on payment order basis via SIGFiP.
- Indicative target: total amount (cumulative since January 1) of payment orders issued under specified budget lines (Table 1):
  - Budget codes and descriptions:
    - 36 Ministry of Health
    - 37 Ministry of Energy, Water, and Mines
    - 39 Ministry of Agriculture, Livestock, and Fisheries
    - 26 Ministry of Justice
    - 31 Ministry of Labor, the Civil Service, and Social Affairs
    - 44 Ministry of Higher Education and Scientific Research
    - 62 Ministry of Nursery School and Primary School Education
    - 63 Ministry of Secondary and Technical Education and Professional Training
    - 34 Ministry of Living Standards and Sustainable Development

### Information for program monitoring — Data submissions
- Monthly (deadlines relative to period end):
  - Any loan (terms and creditors) contracted or guaranteed by the government: in the first week after the end of the month.
  - Monthly consumer price index: within two weeks of the end of the month.
  - TOFE (including revenue; detailed net domestic financing data — bank and nonbank domestic financing, including claims held by nonbank private sector) and data on basic primary fiscal balance (including SIGFiP data): within six weeks of the end of the month.
  - Data on balance, accumulation, amount (stock), and repayment of public domestic and external payments arrears (including if arrears amount to zero): within six weeks of the end of the month.
  - Monetary survey: within eight weeks of the end of the month.
- Quarterly:
  - Data on amount of exceptional payment procedures or other exceptional measures: within six weeks of the end of the quarter.
  - Data on priority social expenditures: within six weeks of the end of the quarter.
- Other data provisions:
  - Monthly: banking supervision indicators for bank and nonbank financial institutions: within eight weeks of the end of the month.
  - Quarterly: data on implementation of public investment program (including detailed financing sources): within four weeks of the end of the quarter.
  - Quarterly: data on stock of external debt, external debt service, signing of external loans and disbursements: within twelve weeks of the end of the quarter.
  - Ad hoc (in the quarter when available): copy of the budget law and supplementary documents; most recent budget execution law; any decree or law pertaining to the budget or IMF-supported program implementation.

### Brief finding from the Debt Sustainability Analysis (DSA)
- The DSA for Benin finds a moderate risk of debt distress, higher than in the 2015 DSA.
- All projected external debt burden indicators in the baseline and most indicators under stress tests remain below policy-dependent thresholds.
- One indicator — the ratio of the present value of external debt to exports — exceeds its threshold in the case of an extreme shock to exports.
- The debt-to-GDP ratio and all debt service indicators remain below thresholds, reflecting Benin’s high historical export volatility.
- Improving debt management is essential to contain risk at the low level.

*Technical Memorandum of Understanding for the Republic of Benin’s ECF-supported program (IMF).*

### conclusion, the fixed primary balance scenario underscores that medium-term fiscal

### conclusion, the fixed primary balance scenario underscores that medium-term fiscal

### Background and key assumptions
- Real GDP growth averaged 4.2 percent in 2014–16 while inflation remained subdued.
- External debt increased from 19.8 to 22.7 percent of GDP from 2014 to 2016.
- Total public debt increased from 30.5 percent of GDP in 2014 to 50.3 percent of GDP in 2016.
- Comparators: WAEMU averages in 2014 — public debt about 47 percent of GDP and external debt about 30 percent of GDP.
- Growth projections:
  - 5.4 percent in 2017
  - 6.3 percent in 2019
  - Medium-term growth projected to remain at about 6 percent through 2022
  - Growth stabilizes at 6.6 percent in the long run (Box 1)
- Poverty remains high at about 50 percent.
- Public investment program (GAP 2016–21) totals FCFA 9,039 billion (US$15.3 billion or 170 percent of GDP) with sectoral allocation: infrastructure 27 percent, energy 11 percent, agriculture 9 percent, tourism 9 percent.
- Financing of GAP: 61 percent expected from private sector (PPPs) and 39 percent from public resources (grants and borrowing).
- Public contribution to investment: starts at 14 percent of GDP in 2017 and decreases to 7 percent by 2021 under plan assumptions.
- Gross investment expected to peak at 29.3 percent of GDP in 2017 as a result of scaled up investment plan.
- Domestic public debt rose from about 8.6 percent of GDP in 2013 to 27.6 percent of GDP in 2016; about 90 percent of government domestic liabilities are government securities issued to the regional bond market.
- Scaling up effect on growth: increasing investments by 1 percentage point is expected to increase growth by about 0.3 percentage points on average in 2017–22 compared with projections in the 2015 DSA.
- Key macro assumptions in Box 1:
  - Nominal exchange rate (FCFA/USD) assumed to appreciate slightly by about 3 percent over the baseline horizon and stabilize.
  - Nominal GDP expected to grow, on average, by 6.0 percent over 2017–19, decelerating to 6.5 percent in 2020–22.
  - CPI projected to increase by up to 1 percentage point during scaling up but remain below WAEMU convergence threshold of 3 percent.
  - Tax revenue projected to increase from 14.7 percent of GDP in 2016 to 16.8 percent of GDP in 2019.
  - Primary deficit rises temporarily with higher capital spending and then turns into a surplus in 2021.
  - Increase of central government investments of 9 percent of GDP predominantly financed by concessional resources, with some domestic financing and non-concessional PPG debt financing included.
  - Recent IMF staff analysis estimates scope to raise tax revenue by about 2 percent of GDP.

### Financing, fiscal program, and risks
- Projected financing gap for 2017: about 1.4 percent of GDP; to be covered by budget support from multilateral institutions and proposed disbursements from the Fund under the three-year ECF arrangement.
- ECF program envisages for 2017:
  - real GDP growth of 5.4 percent
  - inflation turning positive and remaining below 3 percent
  - government revenue target increases by 0.7 percentage points of GDP to 15.4 percent of GDP
  - total expenditure expected to grow by 3.3 percentage points of GDP to 24.7 percent of GDP, driven by capital spending
  - current primary expenditure would decline by 1.2 percentage points of GDP
  - overall deficit (including grants) would widen to 7.1 percent of GDP
  - current account deficit projected to reach 9.1 percent of GDP
- Authorities committed to discontinue use of pre-financing arrangements and opt for PPP instruments; PPP Law enacted in October 2016.
- Risks to the baseline are to the downside, including:
  - weak external demand and soft commodity prices
  - slowdown in Nigeria driven by lower oil prices
  - implementation risks for structural reforms to improve public financial management and the business environment
  - dependence on informal re-exports to Nigeria (recent estimates indicate about 80 percent of Benin’s imports are subsequently informally re-exported to Nigeria)
  - risk that private sector involvement in PPPs may not materialize as planned

### External debt sustainability (DSA) findings
- Under the baseline scenario, Benin’s debt dynamics are sustainable with a moderate risk of debt distress.
- In the baseline all external debt indicators remain below their relevant policy-dependent thresholds.
- PV of total PPG external debt:
  - about 17.4 percent of GDP in 2017
  - expected to average 18.3 percent of GDP for 2019–21
  - surges to 22.5 percent of GDP in 2036
  - remains below the corresponding threshold of 40 percent of GDP throughout the projection period.
- One stress outcome: the ratio of the PV of external debt to exports exceeds its threshold under an extreme shock to exports, while debt-to-GDP and debt service indicators remain below thresholds.
- Debt dynamics vulnerable to shocks in financing terms and a one-off FCFA depreciation, although indicators remain below thresholds in those stress scenarios.
- Overall risk of external debt distress: moderate; improving debt management is essential.

### Public debt sustainability (DSA) findings
- Total public (external and domestic) debt projected path:
  - PV of debt-to-GDP ratio projected to rise from 42.7 percent in 2016 to 46.7 percent in 2017 with surge in investment and then decline steadily.
  - Ratio remains below indicative benchmark of 56 percent (PV of total public debt to GDP) and below WAEMU convergence criterion of 70 percent of GDP.
  - In extreme shock scenario the peak PV of debt-to-GDP ratio exceeds 50 percent but remains below 56 percent.
- Overall dynamics consistent with a moderate risk of debt distress.
- Public DSA ratios include expected disbursements under the new ECF arrangement in an amount of SDR 111.42 million while the fiscal tables do not.

### Debt management capacity and policy implications
- Debt monitoring capacity considered “adequate” since 2016, an improvement from “weak” in 2015.
- Reforms include streamlining public debt management between the treasury and Caisse Autonome d'Amortissement (CAA), in line with IMF technical assistance recommendations.
- Plans to enhance CAA’s capacity for more comprehensive and timely debt recording and to extend coverage of debt monitoring, including key state-owned enterprises (SOEs) that undertake significant investment projects.
- Need to enhance capacity to fully analyze the impact of non-concessional borrowing to avoid increased risk of debt distress.
- Policy implications highlighted by the analysis:
  - Medium-term fiscal consolidation is needed to strengthen long-term fiscal sustainability.
  - Improve public financial management and procurement to enhance investment efficiency.
  - Enhance domestic revenue mobilization to reduce dependence on informal re-exports and improve fiscal buffers.
  - Strengthen PPP framework and institutional structures while managing contingent liability risks associated with PPPs.

*Prepared in collaboration with the Beninese authorities; Prepared by staffs of the International Monetary Fund (IMF) and the International Development Association (IDA). March 24, 2017.*

### CONCLUSION

### CONCLUSION

### Key findings on debt sustainability
- The updated DSA shows a moderate risk of debt distress for Benin.
- Under the baseline scenario, all debt burden indicators for external debt remain under their respective debt distress thresholds.
- One indicator—PV of debt-to-export ratio—exceeds its threshold in an extreme shock scenario; this outcome is confirmed when domestic public debt is included in the analysis.
- Risks to the baseline DSA are to the downside.

### Quantitative highlights (selected from DSA tables and projections)
- External debt (nominal):
  - 2013: 16.7 (percent of GDP)
  - 2016: 22.7 (percent of GDP)
  - 2021: 27.7 (percent of GDP)
  - 2026: 31.4 (percent of GDP)
  - 2036: 32.9 (percent of GDP)
- PV of PPG external debt (in Billions of U.S. dollars):
  - 2016: 1.7
  - 2019: 2.2
  - 2026: 3.7
  - 2036: 7.8
- PV of PPG external debt (in percent of exports) — selected projected values:
  - 2016: 88.1 (percent)
  - 2017: 92.4 (percent)
  - 2018: 95.5 (percent)
  - 2026: 84.8 (percent)
  - 2036: 75.0 (percent)
- PV of public sector debt (selected values):
  - 2016: 35.1 (percent of GDP)
  - 2019: 46.7 (percent of GDP)
  - 2026: 37.8 (percent of GDP)
  - 2036: 29.0 (percent of GDP)
- PV of public sector debt-to-revenue ratio (in percent):
  - 2016: 203.1 (percent)
  - 2019: 277.9 (percent)
  - 2026: 200.0 (percent)
  - 2036: 146.3 (percent)
- Gross financing need (selected values):
  - 2016: 12.2 (percent of GDP)
  - 2019: 15.6 (percent of GDP)
  - 2026: 9.4 (percent of GDP)
  - 2036: 4.7 (percent of GDP)
- Key macro assumptions (selected):
  - Real GDP growth (in percent): 2016: 4.3; 2019: 6.0; 2021: 6.7; 2026 average: 5.9; 2036 average: 4.8
  - Government revenues (excluding grants, in percent of GDP): 2016: 15.4; 2019: 17.4; 2021: 18.5; 2026 average: 19.5; 2036 average: 18.8
  - Grant element of new public sector borrowing (in percent): selected projections around 41.1–42.3 (percent) in near-term years, declining to 33.5 (percent) in later projections

### Policy implications and recommendations
- To maintain a sustainable debt position while implementing the proposed investment plan, Benin needs to:
  - Pursue prudent fiscal policies and medium-term fiscal consolidation to support long-term fiscal sustainability.
  - Implement pro-growth structural reforms, including measures to mobilize domestic revenue.
  - Improve public financial management (PFM) and the business environment to raise the efficiency of public investments.
- Borrowing strategy:
  - Emphasize prudence in borrowing, mainly through concessional financing.
  - Enhance debt management capacity to further minimize the risk of debt distress.

### Authorities’ stance and commitments
- The authorities agree with the staff’s conclusions that debt sustainability will depend crucially on:
  - The efficiency of public investments.
  - Progress in reforms to support competitiveness.
  - A sound fiscal policy, including enhanced mobilization of domestic sources of financing and prudent borrowing mainly through concessional financing.
- The authorities committed to enhancing debt management capacity.

_Italic: Source — CONCLUSION, cr17100 (IMF staff report conclusions and DSA tables)._

### Conclusion

### Conclusion

### Program request and objectives
- The Beninese authorities are requesting a three-year ECF arrangement to support the implementation of their economic program.
- The program aims at:
  - boosting the mobilization of domestic revenues,
  - improving the quality and effectiveness of public spending,
  - strengthening governance and institutions.

### Expected outcomes
- The policies and reform measures envisaged under the Fund-supported program will enable Benin to achieve sustained and inclusive growth with the aim of reducing poverty, while ensuring the sustainability of public finances and debt.

### Recommendation to Directors
- The staff would appreciate Directors’ favorable consideration of their request for a three-year arrangement under the ECF.

*Source: Conclusion (cr17100 - Conclusion).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2017/cr17100.pdf_