## cr18217 ## Source details **Canonical URL:** [cr18217](https://www.imf.org/-/media/files/publications/cr/2018/cr18217.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2018/cr18217.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2018/cr18217.pdf.json) --- ### Sustaining Domestic Resource Mobilization — Background and Recent Performance - Program performance under the ECF-supported program is satisfactory due to strong ownership since April 2017, close monitoring, and alignment with the Government’s Action Program (GAP), 2016–21. - Benin became a full participant in the G20 Compact with Africa (CWA) in October 2017 and submitted a policy matrix to the CWA Secretariat. - Political environment: Freedom House 2018 Country Scores of 82 out of 100; social tensions rose after a law banning strike action by public servants in essential services (late December 2017). - Economic activity and prices: - Real GDP growth for 2017 is estimated at 5.6 percent. - Inflation averaged 0.1 percent in 2017. - Current account deficit estimated to have widened in 2017 due to increased goods imports. - Fiscal: budget execution in 2017 better than initially programmed; overall fiscal deficit (excluding grants) was lower by 2.3 percentage points of GDP. - Financial sector vulnerabilities: - Capital to risk-weighted assets: 12,4 percent (since 2016). - Non-performing loans: 19.5 percent of total loans at end-2017. - Liquidity ratio (total loans/total deposits): 73 percent. - One small bank with operational difficulties was purchased by authorities at book-equity value. ### Outlook and Risks - Medium-term outlook assumptions and projections: - Staff assumes acceleration of real GDP growth to an average of 6.6 percent in 2019–22. - Inflation forecast to remain below the WAEMU convergence rate of 3 percent over the medium term. - Programmed fiscal consolidation expected to bring down the budget deficit (including grants) to below WAEMU convergence criterion of 3 percent of GDP by 2019. - External: average current account deficit projected at 8.6 percent of GDP in 2019–22. - Downside and upside factors: - Downward revisions to FDI due to delayed PPP Law enactment and limited CWA impact. - Upside potential from faster recovery in Nigeria (growth accelerating from 0.8 percent in 2017 to 2.1 percent in the following year) and stronger agricultural response to reforms. - Key risks highlighted (see Annex I): - External: intensification of regional/ global fragmentation (Relative likelihood: High; Impact: Medium). - Tighter global financial conditions (Relative likelihood: High; Impact: Low). - Adverse developments in Nigeria (Relative likelihood: Low; Impact: High). - Domestic: rise in regional interest rates (Relative likelihood: Medium; Impact: Medium); socio-political disturbances (Relative likelihood: Medium; Impact: High); intensification of financial sector risks (Relative likelihood: Low; Impact: Low). ### Key Fiscal and Revenue Developments (2017–2018 figures as reported) - Aggregate revenue and tax series (percent of GDP — Text Table 2): - Total Revenue: 15.4 (Original Prog. 2017), 16.8 (EBS/17/109 2017), 17.6 (Est. 2017); 16.0 (Original Prog. 2018), 17.5 (EBS/17/109 2018) - Tax revenue: 13.5 (Original Prog. 2017), 13.7 (EBS/17/109 2017), 13.3 (Est. 2017); 14.1 (Original Prog. 2018), 14.6 (EBS/17/109 2018) - Tax on international trade: 6.2; 6.2; 5.9 (2017 series); 6.4; 6.6 (2018 series) - Direct and indirect taxes: 7.3; 7.5; 7.4 (2017 series); 7.7; 8.0 (2018 series) - Nontax revenue: 1; 1.9; 3.2 (2017 series); 4.3 (Original Prog. 2018), 1.9 (EBS/17/109 2018), 2.8 (Est. 2018) - Note: 2017 estimates include a December payment of the first tranche (0.65% of GDP) of a royalty fee amounting to (1.3% of GDP) on a cell phone company. - Tax collection performance: - Tax-to-GDP ratio of 13.3 percent in 2017 — the lowest among WAEMU countries despite comparable tax rates. - Tax expenditures at 2.4 percent of GDP (2016). - Tax revenue in CFA francs (Developments in Tax Revenues, 2015-18): - Tax revenue: 713.1 (2015), 641.1 (2016), 712.8 (Est. 2017), 735.9 (Target 2017), 174.9 (Est. 2018), 187.7 (Target 2018) - Tax on international trade: 345.7 (2015), 288.5 (2016), 316.0 (Est. 2017), 333.4 (Target 2017), 77.9 (Est. 2018), 80.4 (Target 2018) - Direct and indirect taxes: 367.4 (2015), 352.6 (2016), 396.8 (Est. 2017), 402.5 (Target 2017), 97.0 (Est. 2018), 107.3 (Target 2018) ### Policy Findings and Recommendations — Revenue, Fiscal Consolidation, Inclusive Growth - A. Sustaining Revenue Mobilization and Improving Public Spending Efficiency - Findings: - Recent DRM improvements driven mainly by nontax revenue, which is less predictable. - Low tax compliance and substantial tax expenditures reduce tax collection efficiency. - Recommendations and measures: - Accelerate mobilization of tax revenue by implementing TA recommendations to strengthen revenue administration. - POSAF modernization: develop internal audit strategy; develop SIGTAS; update taxpayer file; strengthen tax-customs cooperation and I.T. information exchange. - Set up a fiscal reference system to better estimate and rationalize tax expenditures. - Reduce tax expenditures: no new exemptions; non-renewal in 2018 of GSM mobile phone company exemptions; rationalize exemptions for externally financed public tenders. - Endorse and implement October 2017 PIMA recommendations and an action plan to improve absorptive capacity and project implementation. - B. Pursuing Fiscal Consolidation to Preserve Long-Term Public Debt Sustainability - Findings: - Fiscal consolidation critical to reduce overall fiscal deficit to WAEMU criterion of 3 percent of GDP by 2019 and shift primary fiscal balance into surplus in 2021. - Updated DSA (December 2017) confirmed moderate risk of debt distress. - Rapid increase in domestic debt needs careful monitoring. - Recommendations and measures: - Extend maturity of domestic public debt and reduce cost via buyback/reprofiling of costly domestic debt (including debt owed to regional development bank) with World Bank support — ensure operations are voluntary and market-based. - Seek longer maturity obligations in regional financial markets to address roll-over risks. - Strengthen public debt management and the Autonomous Amortization Fund (CAA): implement the Treasury Single Account (TSA); strengthen CAA capacity for debt monitoring, risk assessment, and monitoring SOE/PPP contingent liabilities. - C. Inclusive Growth and Poverty Reduction - Findings: - Authorities committed to inclusive growth and poverty reduction, prioritizing rural investment and high value-added commercial crops. - ARCH flagship reform program expected to become operational in 2018 to protect poorest populations. - Recommendations and measures: - Consider devoting a percentage of total public investment to rural areas in the 2019 budget. - Accelerate operationalization of ARCH. - Continue collaboration with the Fund on SDG costing; prioritize SDG targets consistent with national and sectoral strategies. ### Public Investment Management — Box 2 (PIMA Roadmap and Measures) - PIMA mission proposed 48 measures organized under 4 pillars: - (i) improving institutional framework; - (ii) ensuring availability and sustainability of funding; - (iii) upgrading preparation and implementation of investment projects; - (iv) considering sustainability of investments. - Measures expected by end-2019 (selected): - Enact comprehensive legal framework covering PIM cycle. - Develop information system interfaces across ministries with an ex-ante prioritization module. - Ensure comprehensive publication and transparency. - Condition project inclusion on existence of preliminary feasibility study; revise and harmonize evaluation manuals; require standard mandatory evaluation file for large projects including cost-benefit and external evaluation; develop review and ex-post evaluation culture. - Systematically evaluate recurrent costs and include infrastructure maintenance allocations in eligible line ministry budgets. - Follow-up TA mission expected early 2019 to take stock of implementation. - Governance and anti-corruption context: - Transparency International CPI: Benin scored 39 out of 100 in 2017 (3 points higher than 2016; above SSA average of 32.9). - Authorities committed to pursue governance reforms; implementing action plan after 2016 National Integrity System assessment. - Anti-corruption and AML/CFT: - Strengthen internal audit bodies (steps in 2017; continued in 2018). - ANLC finalizing Handbook of Procedures and Users’ Guide. - Staff called for passage of AML/CFT draft law sent to Parliament in January 2018 ahead of January 2019 assessment. ### Financial Sector, Banking, and Microfinance - Progress and concerns: - Authorities launched a five-year plan (January 2018) to transition to Basel II/III standards. - Strengthened supervision of MFIs, tighter licensing; WAEMU Banking Commission (BC) to reinforce supervision of top ten MFIs. - On the ailing bank (BAIC): government purchased the bank at equity value (estimated CFAF 10 billion); mission urged a credible plan to recapitalize or restructure, avoid de facto bailouts of equity holders, and minimize Treasury cost. - ANSSFD microfinance strategy pillars for 2018: - (i) apply the law to all authorized DFSs; - (ii) apply the law to entities operating illegally; - (iii) strengthen stability and balanced operation of decentralized finance sector. - FNM strategic plan 2017–21 to facilitate DFS resource access, build capacity, and strengthen governance. - Financial inclusion: implementation of ARCH and planning FinScope survey as first stage of MAP process. ### Program Assessment, IMF Support, and Disbursement Schedule - Staff supports completion of the second review under the ECF arrangement, modification of a PC, and addition of two SBs; assessment: performance satisfactory and policies adequate; risks manageable. - Disbursement schedule under ECF (Table 7): - April 7, 2017: SDR 15.917 million - October 31, 2017: SDR 15.917 million - April 30, 2018: SDR 15.917 million - October 31, 2018: SDR 15.917 million - April 30, 2019: SDR 15.917 million - October 31, 2019: SDR 15.917 million - March 23, 2020: SDR 15.918 million - Total SDR 111.42 million ### Macroeconomic and Fiscal Projections (selected indicators from Tables 1–6) - GDP and prices (selected sequences as presented in Table 1 heading sequence): - "GDP at constant prices": 2.1; 4.0; 5.6; 5.6; 6.0; 6.3; 6.7; 7.1; 6.2. - "Consumer price index (average)": 0.3; -0.8; 0.6; 0.1; 2.3; 2.3; 2.2; 2.2; 2.2. - National accounts shares (percent of GDP): - "Gross investment": 25.6; 24.6; 28.6; 28.4; 28.4; 28.7; 29.4; 30.2; 30.6. - "Government investment": 7.7; 5.9; 9.3; 9.2; 8.6; 6.3; 6.0; 5.5; 5.3. - "Gross domestic saving": 13.5; 11.8; 15.0; 13.9; 14.3; 14.8; 16.5; 18.1; 19.2. - Fiscal aggregates (percent of GDP — Table 4): - "Total revenue": 16.7; 14.7; 16.8; 17.6; 17.6; 17.1; 17.7; 18.2; 18.6. - "Total expenditure and net lending": 25.3; 21.4; 24.4; 24.4; 23.7; 21.3; 20.5; 19.8; 19.4. - "Overall balance (commitment basis, incl. grants)": -8.0; -6.0; -6.1; -5.9; -4.7; -2.4; -1.1; -0.6; 0.3. - "Primary balance": -7.9; -5.5; -5.5; -5.0; -3.8; -1.6; -0.5; 0.5; 1.2. - "Basic primary balance": -4.2; -3.0; -2.4; -1.5; 0.1; 2.1; 2.9; 3.3; 4.0. - Levels and cash flows (billions of CFA francs — Table 2 selected): - "Total revenue": 819.5 (2018 EBS/17/109 Est.) rising to 1,511.0 (2022 projection). - "Total expenditure and net lending": 1,242.3 (2018) rising to 1,571.4 (2022). - "Overall balance (commitment basis, incl. grants)": -394.0 (2018) improving to 20.5 (2022). - "Overall balance (cash basis, excl. grants)": -422.8 (2018) improving to -70.4 (2022). - Public debt indicators (percent of GDP): - "Total government debt": 42.4; 49.5; 55.5; 54.4; 55.8; 53.9; 50.1; 46.5; 43.4. - "Total non-financial public sector debt (percent of GDP)": ...49.7; 55.6; 54.6; 56.8; 55.0; 51.2; 47.7; 44.5. ### External Sector and Balance of Payments (selected) - Current account and trade (billions of CFA francs — Table 5): - "Current account balance": -440.8; -478.7; -492.5; -595.1; -628.5; -583.6; -612.5; -623.1; -650.2. - "Exports, f.o.b.": 703.4; 656.4; 748.1; 803.2; 945.2; 1,095.4; 1,219.1; 1,371.6; 1,559.6. - "Imports, f.o.b.": -1,066.9; -1,082.1; -1,191.9; -1,293.2; -1,431.7; -1,531.3; -1,671.3; -1,780.1; -1,958.4. - Reserves and financing: - "WAEMU gross official reserves (in $US billions)" sequence includes: 12.7; 10.9; 12.4; 14.4; 16.0; 17.4; 19.2; 21.1. - "Overall balance" (billions of CFA francs): 46.6; -264.7; 87.3; 173.2; 157.3; 327.3; 351.5; 408.7; 430.2. - "Financing gap": 0.0; 0.0; 0.0; 0.0; 28.6; 44.8; 0.0; 0.0; 0.0. ### IMF Capacity-to-Repay and Financing Indicators (Table 8 selected) - "Principal" repayments (millions of SDRs): 10.7 (2018); 14.8 (2019); 13.8 (2020); 11.7 (2021); 9.0 (2022); 10.6 (2023); 7.4 (2024); 6.4 (2025); 6.4 (2026); 4.8 (2027); 0.0 (from 2028 onward in presented series). - "Outstanding IMF credit" (millions of SDRs) sequence includes: 116.7; 133.7; 135.8; 124.2; 113.5; 102.9; 87.5; 66.9; 44.6; 23.9; 9.6; 1.6; 0.0; 0.0; 1.0. - Memorandum items: - "Nominal GDP (billions of CFA francs)" sequence: 5,809; 6,312; 6,879; 7,518; 8,109; 8,784; 9,492; 10,266; 11,116; 12,050; 12,983; 14,011; 15,145; 16,421. - "Government revenue (billions of CFA francs)" sequence: 1,022; 1,081; 1,220; 1,371; 1,511; 1,659; 1,797; 1,949; 2,123; 2,315; 2,508; 2,722; 2,960; 3,232. ### Debt Sustainability — Annex IV (selected findings and exact figures) - Overall assessment: DSA confirms a moderate risk of debt distress for Benin; baseline debt indicators remain below policy-dependent thresholds. - PV of total PPG external debt: - about 13 percent of GDP in 2018; 14 percent on average for 2019–23; 17.3 percent of GDP in 2038. - Corresponding threshold: 40 percent of GDP. - Selected external debt figures (percent of GDP and ratios): - External debt (nominal): 2015: 21.3; 2016: 22.5; 2017: 22.1; 2018: 24.0; 2019: 25.6; 2020: 26.0; 2021: 25.7; 2022: 26.2; 2023: 26.4. - PV of external debt: 2018: 12.9; 2019: 13.0; 2020: 13.5; 2021: 13.5; 2022: 13.8; 2023: 13.8; 2038: 17.3. - PV of PPG external debt (percent of exports): 2018: 70.2; 2019: 66.3; 2020: 65.8; 2021: 65.8; 2022: 66.8; 2023: 65.9; 2038: 52.4. - PV of PPG external debt (percent of government revenues): 2018: 73.6; 2019: 74.0; 2020: 78.9; 2021: 77.9; 2022: 75.7; 2023: 76.0; 2038: 89.4. - Debt service-to-exports ratio: 2018: 5.4; 2019: 4.6; 2020: 5.1; 2021: 6.2; 2022: 5.6; 2023: 5.8; 2038: 3.7. - Public debt (total public sector) dynamics: - PV of total public debt to GDP: 45.4 percent in 2017. - Domestic public debt rose from about 8.6 percent of GDP in 2013 to 32.3 percent of GDP in 2017 (60 percent of total debt). - Public sector debt (selected Table A3 percent of GDP): 2015: 42.4; 2016: 49.5; 2017: 54.6; 2018: 56.8; 2019: 55.0; 2020: 51.2; 2021: 47.6; 2022: 44.4; 2023: 40.7. - PV of public sector debt: 2018: 45.4; 2019: 45.9; 2020: 42.9; 2021: 39.0; 2022: 35.6; 2023: 32.4; 2038: 25.3. - Sensitivity analysis: alternative scenarios (historical averages, one-time shocks) can raise PV of debt-to-GDP ratios; strict adherence to programmed fiscal consolidation emphasized. ### Capacity Development Strategy (Annex V) — Priorities for FY2018 - Overall assessment: - Implementation of macroeconomic policies generally satisfactory; lagging progress on governance, transparency, and accountability reforms due to limited political support. - CD priorities aligned with ECF program; absorptive capacity constraints and turnover of officials noted. - Key long-term CD priorities: - Enhancing domestic revenue mobilization (revenue administration and tax policy). - Improving budget preparation and execution. - Strengthening economic governance (PFM). - Improving real sector statistics and oversight of public enterprises. - FY2018 key priorities and objectives: - Tax Policy: minimize tax expenditures and simplify taxes. - Tax Administration: strengthen tax compliance. - Customs Administration: improve management and governance. - PFM: consolidate MTEF progress; enhance efficiency of public spending; improve risk assessment and monitoring of contingent liabilities (SOEs and PPPs); strengthen fiscal reporting and accounting. - Statistics: rebase national accounts to 2008 SNA; improve external statistics and enhance e-GDDS. - Implementation context: - Authorities approve CD orientation and recommend adjusting volumes and medium-term priorities to absorptive capacity. ### Program Monitoring, Performance Criteria, and Indicative Targets (selected operational details) - Net Domestic Financing (NDF) ceilings (cumulative since January 1): - 2017: CFAF 70.1 billion (end-March); CFAF 116.1 billion (end-June); CFAF 183.9 billion (end-September); CFAF 183.7 billion (end-December). - 2018: CFAF 22.0 billion (end-March); CFAF 190.9 billion (end-June); CFAF 103.0 billion (end-September); CFAF 118.8 billion (end-December). - Basic primary fiscal balance floors (cumulative since January 1): - 2018 floors (not less than): minus CFAF 69.7 billion (end-March); minus CFAF 47.5 billion (end-June); minus CFAF 20.3 billion (end-September); CFAF 3.9 billion (end-December). - Total government revenue floors (cumulative since January 1): - 2018 floors (not less than): CFAF 204.8 billion (end-March); CFAF 445.5 billion (end-June); CFAF 707.1 billion (end-September); CFAF 1,021.6 billion (end-December). - Non-accumulation of new domestic payments arrears: continuous performance criterion. - Ceiling on new external borrowing contracted or guaranteed by government in 2018: present value not to exceed cumulative CFAF 468.9 billion. - Indicative targets — priority social expenditures (cumulative since January 1): - 2018: CFAF 15.0 billion (end-March); CFAF 50.0 billion (end-June); CFAF 101.0 billion (end-September); CFAF 167.0 billion (end-December). - Reporting requirements to IMF staff (timelines): - Monthly: data on government loans contracted/guaranteed (first week after month), monthly CPI (within two weeks), TOFE and basic primary fiscal balance data (within six weeks), balance and accruals of domestic/external payments arrears (within six weeks), monetary survey (within eight weeks). - Quarterly: data on exceptional payment orders (within six weeks), priority social expenditures (within six weeks), public investment program implementation (within four weeks), stock of external debt and disbursements (within twelve weeks). ### Selected Program Measures and Implementation Notes - Reprofiling/buyback: authorities plan to buy back costly domestic debt owed to domestic creditors, including the regional development bank, with World Bank support (details contingent on World Bank consideration of Second Fiscal Reform and Growth DPF scheduled for July 2018). - Financial sector resolution: one small bank purchased at book-equity value by the authorities. - Data and monitoring: SOEs’ debt included in total public debt; CAA website online; quarterly public debt statistical bulletin published; medium-term debt strategy appended to 2017 Budget Law. - Public enterprise reforms: - Audits of key enterprises (CNCB, COBENAM, Post Office, Autonomous Port of Cotonou). - Recruitment of firms/experts to map SOE risks; expedite appointment of auditors for 189 public enterprises and offices. - Conclude performance contracts with key public enterprises by end-2018 (structural benchmark); apply to all public enterprises by end-2019. _International Monetary Fund, Benin staff report excerpt._ ### 1. Sustaining Domestic Resource Mobilization ____________________________________________________ 8 ### 1. Sustaining Domestic Resource Mobilization ### Background and recent performance - Program performance under the ECF-supported program is satisfactory due to: strong ownership since April 2017; close monitoring; and alignment with the Government’s Action Program (GAP), 2016–21. - Benin became a full participant in the G20 Compact with Africa (CWA) in October 2017 and submitted a policy matrix to the CWA Secretariat (Annex III). - Political environment: ranked among stable democracies in SSA with an aggregate Freedom House 2018 Country Scores of 82 out of 100; social tensions rising after a law banning strike action by public servants in essential services (late December 2017). - Economic activity and prices: - Real GDP growth for 2017 is estimated at 5.6 percent. - Inflation averaged 0.1 percent in 2017. - The current account deficit is estimated to have widened in 2017 due to increased goods imports (scaling-up of investment and higher food imports). - Fiscal: budget execution in 2017 was better than initially programmed; the overall fiscal deficit (excluding grants) was lower by 2.3 percentage points of GDP, driven by stronger domestic revenue performance and contained public spending. - Financial sector vulnerabilities: - Capital to risk-weighted assets reached 12,4 percent (since 2016). - Non-performing loans were 19.5 percent of total loans at end-2017. - Liquidity ratio (total loans/total deposits) stands at 73 percent. - One small bank with operational difficulties was purchased by authorities at the value of its equity. ### Outlook and risks - Medium-term outlook: - Staff assumes acceleration of real GDP growth to an average of 6.6 percent in 2019–22, driven by policy-induced increases in agricultural production and rising private investment. - Inflation is forecast to remain below the WAEMU convergence rate of 3 percent over the medium term. - The programmed fiscal consolidation path is expected to bring down the budget deficit (including grants) to below the WAEMU convergence criterion of 3 percent of GDP by 2019. - External: average current account deficit projected at 8.6 percent of GDP in 2019–22. - Downward revisions to FDI due to delayed PPP Law enactment and limited CWA impact; increased WAEMU banks’ interest in Benin debt issuance would boost portfolio investment. - Risks to the outlook remain those identified in the first review; upside potential exists from faster recovery in Nigeria (growth accelerating from 0.8 percent in 2017 to 2.1 percent in the following year) and stronger agricultural response to reforms. ### Key fiscal and revenue developments - Domestic revenue performance in 2017 strong but driven mainly by non-tax revenue. - Tax and revenue figures (as presented in Text Table 2): - Total Revenue: 15.4 (Original Prog. 2017), 16.8 (EBS/17/109 2017), 17.6 (Est. 2017); 16.0 (Original Prog. 2018), 17.5 (EBS/17/109 2018) - Tax revenue: 13.5 (Original Prog. 2017), 13.7 (EBS/17/109 2017), 13.3 (Est. 2017); 14.1 (Original Prog. 2018), 14.6 (EBS/17/109 2018) - Tax on international trade: 6.2 (Original Prog. 2017), 6.2 (EBS/17/109 2017), 5.9 (Est. 2017); 6.4 (Original Prog. 2018), 6.6 (EBS/17/109 2018) - Direct and indirect taxes: 7.3 (Original Prog. 2017), 7.5 (EBS/17/109 2017), 7.4 (Est. 2017); 7.7 (Original Prog. 2018), 8.0 (EBS/17/109 2018) - Nontax revenue: 1 (Original Prog. 2017), 1.9 (EBS/17/109 2017), 3.2 (Est. 2017); 4.3 (Original Prog. 2018), 1.9 (EBS/17/109 2018), 2.8 (Est. 2018) - Note: 2017 estimates include payment in December of the first tranche (0.65% of GDP) of a royalty fee amounting to (1.3% of GDP) levied on a cell phone company. - Tax collection performance and composition: - Tax-to-GDP ratio of 13.3 percent in 2017 — the lowest among WAEMU countries despite comparable tax rates. - Tax expenditures at 2.4 percent of GDP (2016). - Tax revenue in CFA francs (Developments in Tax Revenues, 2015-18): - Tax revenue: 713.1 (2015), 641.1 (2016), 712.8 (Est. 2017), 735.9 (Target 2017), 174.9 (Est. 2018), 187.7 (Target 2018) - Tax on international trade: 345.7 (2015), 288.5 (2016), 316.0 (Est. 2017), 333.4 (Target 2017), 77.9 (Est. 2018), 80.4 (Target 2018) - Direct and indirect taxes: 367.4 (2015), 352.6 (2016), 396.8 (Est. 2017), 402.5 (Target 2017), 97.0 (Est. 2018), 107.3 (Target 2018) ### Policy discussions — findings and recommendations - A. Sustaining Revenue Mobilization Efforts and Improving the Efficiency of Public Spending - Findings: - Recent improvements in DRM came mainly from nontax revenue, which is less predictable than tax revenue. - Low tax compliance and substantial tax expenditures reduce tax collection efficiency. - Policy recommendations and measures: - Accelerate mobilization of tax revenue by implementing TA recommendations to strengthen revenue administration. - Tax administration modernization under POSAF: develop internal audit strategy; develop SIGTAS (tax management I.T. system); update taxpayer file to improve compliance; strengthen tax-customs cooperation and I.T. information exchange. - Set up a fiscal reference system to better estimate and rationalize tax expenditures. - Reduce tax expenditures: no new exemptions; non-renewal in 2018 of GSM mobile phone company exemptions; rationalize exemptions to public tenders financed externally. - Public investment management: endorse and implement recommendations of the October 2017 PIMA mission and an action plan to improve absorptive capacity and project implementation. - B. Pursuing Fiscal Consolidation to Preserve Long-Term Public Debt Sustainability - Findings: - Adherence to fiscal consolidation is critical to reduce overall fiscal deficit to WAEMU criterion of 3 percent of GDP by 2019 and shift the primary fiscal balance into surplus in 2021. - Updated debt sustainability analysis (December 2017) confirmed moderate risk of debt distress. - Rapid increase in domestic debt needs careful monitoring to contain domestic debt service burden. - Policy recommendations and measures: - Extend the maturity of domestic public debt and reduce cost via buyback/reprofiling of costly domestic debt (including debt owed to the regional development bank) with World Bank support — ensure operations are voluntary and market-based. - Seek longer maturity obligations when tapping regional financial markets to address roll-over risks. - Strengthen public debt management and the Autonomous Amortization Fund (CAA): implement the Treasury Single Account (TSA) to improve cash flow management; strengthen CAA capacity for debt monitoring, risk assessment, and monitoring contingent liabilities from SOEs and PPPs. - C. Inclusive Growth and Poverty Reduction - Findings: - Authorities committed to inclusive growth and poverty reduction, prioritizing rural investment and high value-added commercial crops. - ARCH (Insurance for Strengthening Human Capital) flagship reform program expected to become operational in 2018 to protect poorest population segments. - Policy recommendations and measures: - Consider devoting a percentage of total public investment to rural areas in the 2019 budget. - Accelerate operationalization of ARCH to make meaningful progress in reducing poverty. - Continue collaboration with the Fund on SDG costing; prioritize SDG targets in line with national and sectoral strategies to focus poverty reduction efforts. ### Specific operations and implementation notes - Reprofiling/buyback: - Authorities plan to buy back costly domestic debt owed to domestic creditors, including the regional development bank, with World Bank support (details to be known after World Bank consideration of Second Fiscal Reform and Growth Development Policy Financing scheduled for July 2018). - Financial sector resolution: - One small bank in operational difficulty was purchased at book-equity value by the authorities (MEFP ¶30). - Data and monitoring: - SOEs’ debt is now included in total public debt; progress made in availability of public debt data (MEFP ¶13). *International Monetary Fund, Benin staff report excerpt.* ### Box 2. Making Public Investment More Efficient ### Box 2. Making Public Investment More Efficient ### PIMA roadmap and overall approach - The PIMA mission report, finalized in January 2018, proposed 48 measures to improve the efficiency of public investment in Benin. - The measures are organized under 4 pillars: - (i) improving the institutional framework; - (ii) ensuring the availability and sustainability of funding; - (iii) upgrading of the preparation and implementation of investment projects; and - (iv) considering the sustainability of investments. - Authorities fully endorsed the PIMA recommendations and proposed a timeline for implementation (MEFP ¶22). ### Measures expected by end-2019 - Improving the institutional framework: - (i) enacting a comprehensive legal framework through the finalization and adoption of a high-level regulatory text that encompasses all phases of the public investment management cycle; - (ii) developing the information system and their interfaces including in line ministries and integrating a module that allows an ex-ante prioritization of projects; - (iii) ensuring comprehensive publication and transparency of information; - Ensuring the sustainability of domestic financing: - strengthening the tools of the sectoral distribution of the public investment envelop; - Upgrading the preparation and implementation of investment projects: - (i) conditioning inclusion to the public investment program on the existence of a preliminary feasibility study to strengthen ex-ante selection of projects; - (ii) revising and harmonizing existing methodological evaluation manuals, both at the Ministry of Planning and in line ministries; - (iii) for projects with a cost above a certain threshold, define a standard mandatory evaluation file including a cost-benefit analysis with a specific requirement for large-scale projects to have an external evaluation; - (iv) developing a culture of review and ex-post evaluations; - Improving the sustainability of investments: - (i) systematically evaluating the recurrent costs associated with investment projects; - (ii) including in the budgets of eligible line ministries a specific allocation for infrastructure maintenance. ### Follow-up technical assistance - A follow-up TA mission in early 2019 is expected to take stock of progress on implementation of the PIMA recommendations. ### Governance and anti-corruption context - Transparency International’s 2017 Corruption Perception Index (CPI): Benin scored 39 points out of 100. - This was 3 points higher than the 2016 score and above the SSA average score of 32.9. - World Bank Worldwide Governance Indicators (WGI) indicated progress in “Control of Corruption” in 2016 (Text Figure 1). - Authorities recognized limitations of the CPI, welcomed the improvement, and committed to pursue reforms to improve governance and reduce corruption. ### Strengthening anti-corruption and AML/CFT frameworks - Staff urged authorities to strengthen anti-corruption agencies and discussed measures to enable effective responsibilities. - Actions taken and planned: - Steps in 2017 to strengthen internal audit bodies and continued strengthening of internal control systems in 2018 (MEFP ¶14). - Implementing an action plan following the 2016 assessment of the National Integrity System by Transparency International (MEFP ¶16). - National Anti-Corruption Authority (ANLC) is finalizing a Handbook of Procedures and a Users’ Guide to raise awareness to fight corruption. - Considering Benin’s upcoming AML/CFT assessment in January 2019, staff called for the passing of the AML/CFT draft law proposal sent to Parliament in January 2018. ### Strengthening audit institutions - Staff urged completion of the plan for reforming government internal and external audits and creation of an independent and transparent audit system. - Commercial courts were created and made operational in 2017 (MEFP ¶15). ### Business environment priorities - The weak business environment is a major impediment to private sector development. - Key reform areas identified: - Facilitating paying taxes and enforcing contracts; - Improving access to electricity; - Adopting policies to improve competitiveness (boost education and productivity, improve labor market efficiency, promote production diversification); - Addressing conflict of interest by enforcing laws on public officials’ participation in private sector activity; - Enforcing contract enforcement and reducing bureaucratic inefficiency and corruption. - Benin moved up from 155th in 2017 to 151st in 2018 in the World Bank’s DBI. - New investment promotion agency established in 2017 and institutional framework for implementing Doing Business reforms expected to become fully operational in 2018 (MEFP ¶27–28). ### Financial inclusion, supervision, and banking sector issues - Authorities promoting resource mobilization by microfinance institutions (MFIs) and launched a five-year plan in January 2018 to transition to Basel II/III standards. - Strengthening supervision of MFIs, including tightened licensing requirements; WAEMU Banking Commission (BC) expected to reinforce supervision of the top ten MFIs. - Judicial capacity strengthened via training on commercial regulation and creation of commercial courts and arbitration mechanisms. - On the ailing bank: government announcement to buy the ailing bank prevented a run, but a de facto bail out of current equity holders would be undesirable. Mission urged preparation of a credible plan to recapitalize or restructure the bank in connection with the BC’s authorization and to minimize costs to the Treasury. ### Capacity development and data issues - TA priorities under the capacity building framework for 2018–19 agreed as tax and customs administration and PFM, including public investment management; support to improve real sector statistics will target national account statistics (Annex V). - Rebasing of the national accounts initiated in 2017 is yet to be completed (MEFP ¶34). - Despite participation in e-GDDS, data dissemination has been untimely; staff encourages more resources to the national statistics office, expedited rebasing, and measures to improve data quality and timeliness. ### Program implementation, risks, and financing - Performance under the program remains strong: all continuous and end-December 2017 QPCs met (MEFP, ¶8 and Table 1), as were all SBs (MEFP, Table 2). - Budget execution through end-March 2018: slight overperformance of total revenue and significant under-execution of total spending, particularly capital outlays; programmed budget deficit was halved and all ITs for March 2018 appear to have been met (Table 3). - Based on tax revenue performance through end-April 2018, the total revenue target for the year is within reach; authorities stand ready to adjust non-priority spending if needed. - Program implementation risks include: - (i) possible tightening of financing conditions in regional and international markets; - (ii) removal of oil subsidies by Nigeria in response to rising international oil prices; - (iii) growing social tensions (¶3). - Impact illustrative example: An increase of 200 basis points in interest rates in the regional market in 2018 could add about CFAF 3.1 billion (0. 3 percent of government revenue) that year and on average CFAF 4.7 billion annually over the next two years (Text Table 3). (Assuming the rate increase takes effect on July 1st, 2018.) - The program is fully financed through June 2019, with good prospects of external support to cover residual financing needs for the remainder of the ECF arrangement (Text Table 4). - Capacity to repay the Fund is assessed to be adequate; Benin has a track record of meeting Fund obligations and the risk of debt distress is moderate. ### Staff appraisal highlights and policy priorities - Macroeconomic and structural policies going forward should focus on: - (i) creating more fiscal space for growth-enhancing and priority social sector spending; - (ii) adhering to the fiscal consolidation path to contribute to the stability of the WAEMU region; - (iii) reinvigorating reforms to promote private sector activity. - Adherence to the programmed fiscal consolidation path is essential, including reducing the overall fiscal deficit below the WAEMU convergence criterion of 3 percent of GDP by 2019. - Sustain strong revenue performance through tax and customs administration reforms aiming to broaden the tax base, reduce tax expenditures, and improve compliance. - Public debt management: CAA should strengthen debt management capacity and closely monitor public debt developments; the plan to reprofile public debt with World Bank assistance is positive, provided reprofiling is voluntary and market-based. - Inclusive growth: prioritize public rural investment and policies to increase agricultural value added; continue increasing spending in priority social sectors and ensure ARCH becomes operational. - Business environment: further progress needed to address weaknesses and improve public perception of corruption by decisively combatting impunity and reducing bureaucratic inefficiencies to leverage CWA participation and attract private financing for the GAP. - Financial sector: welcome transition to Basel II/III standards and focus on strengthening MFIs for financial inclusion; remove barriers to efficient financial intermediation and consolidate information on MFIs. - Resolution of the ailing bank should be based on a credible plan that avoids bailing out equity holders and minimizes cost to the Treasury. *Source: Box 2. Making Public Investment More Efficient.* ### 39. Staff supports the authorities’ request for completion of the second review under the ### cr18217 - 39. Staff supports the authorities’ request for completion of the second review under the ### Program assessment and staff recommendation - Staff supports the authorities’ request for: - Completion of the second review under the ECF arrangement. - Modification of a PC. - Addition of two SBs. - Assessment: - "Performance under the program is satisfactory and the macroeconomic policies and structural reforms outlined in the MEFP are adequate to pursue the program’s objectives." - "Risks to program implementation are manageable." ### Macroeconomic outlook (selected indicators and projections) - GDP and prices: - "GDP at current prices": 2.2; 3.7; 6.0; 5.7; 8.2; 8.7; 9.0; 9.3; 7.8 (as presented in Table 1 heading sequence). - "GDP at constant prices": 2.1; 4.0; 5.6; 5.6; 6.0; 6.3; 6.7; 7.1; 6.2. - "GDP deflator": 0.1; -0.3; 0.4; 0.0; 2.0; 2.2; 2.2; 2.1; 2.0. - "Consumer price index (average)": 0.3; -0.8; 0.6; 0.1; 2.3; 2.3; 2.2; 2.2; 2.2. - "Consumer price index (end of period)": 2.3; -2.7; 2.8; 3.0; 1.7; 2.8; 1.7; 2.6; 1.9. - National accounts shares (percent of GDP): - "Gross investment": 25.6; 24.6; 28.6; 28.4; 28.4; 28.7; 29.4; 30.2; 30.6. - "Government investment": 7.7; 5.9; 9.3; 9.2; 8.6; 6.3; 6.0; 5.5; 5.3. - "Gross domestic saving": 13.5; 11.8; 15.0; 13.9; 14.3; 14.8; 16.5; 18.1; 19.2. - "Consumption": 86.5; 88.2; 85.0; 86.1; 85.7; 85.2; 83.5; 81.9; 80.8. ### Fiscal developments and projections (central government) - Key aggregates (percent of GDP, Table 4): - "Total revenue": 16.7; 14.7; 16.8; 17.6; 17.6; 17.1; 17.7; 18.2; 18.6. - "Total expenditure and net lending": 25.3; 21.4; 24.4; 24.4; 23.7; 21.3; 20.5; 19.8; 19.4. - "Current expenditures": 17.2; 15.4; 15.1; 15.3; 15.1; 14.9; 14.5; 14.3; 14.1. - "Capital expenditure and net lending": 8.1; 6.0; 9.3; 9.3; 8.6; 6.3; 6.0; 5.5; 5.3. - "Overall balance (commitment basis, incl. grants)": -8.0; -6.0; -6.1; -5.9; -4.7; -2.4; -1.1; -0.6; 0.3. - "Primary balance": -7.9; -5.5; -5.5; -5.0; -3.8; -1.6; -0.5; 0.5; 1.2. - "Basic primary balance": -4.2; -3.0; -2.4; -1.5; 0.1; 2.1; 2.9; 3.3; 4.0. - Levels and cash flows (Table 2, selected billions of CFA francs): - "Total revenue": 819.5 (2018 EBS/17/109 Est.) rising to 1,511.0 (2022 projection). - "Total expenditure and net lending": 1,242.3 (2018) rising to 1,571.4 (2022). - "Overall balance (commitment basis, incl. grants)" (billions CFA francs): -394.0 (2018) improving to 20.5 (2022). - "Overall balance (cash basis, excl. grants)": -422.8 (2018) improving to -70.4 (2022). - Public debt: - "Total government debt": 42.4; 49.5; 55.5; 54.4; 55.8; 53.9; 50.1; 46.5; 43.4 (percent of GDP). - "Total non-financial public sector debt (percent of GDP)": ...49.7; 55.6; 54.6; 56.8; 55.0; 51.2; 47.7; 44.5 (Table 1, notes). ### External sector and balance of payments (selected) - Current account and trade (Table 5): - "Current account balance": -440.8; -478.7; -492.5; -595.1; -628.5; -583.6; -612.5; -623.1; -650.2 (billions of CFA francs). - "Balance of goods and services": -593.5; -652.9; -730.5; -779.2; -816.2; -803.6; -860.3; -870.4; -919.9. - "Trade balance": -363.5; -425.7; -443.8; -490.0; -486.5; -435.9; -452.2; -408.5; -398.8. - "Exports, f.o.b.": 703.4; 656.4; 748.1; 803.2; 945.2; 1,095.4; 1,219.1; 1,371.6; 1,559.6. - "Imports, f.o.b.": -1,066.9; -1,082.1; -1,191.9; -1,293.2; -1,431.7; -1,531.3; -1,671.3; -1,780.1; -1,958.4. - Reserves and financing: - "WAEMU gross official reserves (in $US billions)": 12.7; 10.9; 12.4; 14.4; 16.0; 17.4; 19.2; 21.1 (Table 5 sequence). - "Overall balance": 46.6; -264.7; 87.3; 173.2; 157.3; 327.3; 351.5; 408.7; 430.2 (billions of CFA francs for years listed). - "Financing gap": 0.0; 0.0; 0.0; 0.0; 28.6; 44.8; 0.0; 0.0; 0.0. - "Expected Financing" (memorandum): 28.6; 44.8; (World Bank) 11.7; (Bilateral) 16.9 / 33.1 (Table 5 entries). ### Monetary and financial sector (selected) - Monetary aggregates (Table 6): - "Net foreign assets": 1,207.0; 1,037.5; 1,183.4; 930.8; 1,112.2; 1,491.9 (selected sequence). - "Net domestic assets": 974.2; 1,142.4; 1,095.9; 1,292.0; 1,579.9; 1,369.3. - "Broad money (M2)": 2,102.8; 2,110.3; 2,279.2; 2,133.6; 2,692.6; 2,961.8. - "Broad money (M2) growth": 6.1; 0.4; 7.8; 1.1; 21.5; 6.1. - Financial soundness indicators (Table 9, selected): - "Regulatory capital to risk-weighted assets": 12.5; 12.8; 12.9; 12.7; 12.6; 9.5; 12.4 (2011–2017). - "Gross NPLs to Total loans": 15.9; 16.0; 15.5; 14.4; 14.4; 21.4; 19.5 (2011–2017). - "Provisioning rate": 64.2; 63.4; 61.0; 62.8; 62.8; 63.2; 66.5. - "After-tax return on average assets (ROA)": 1.2; 0.9; 0.9; 1.1; 1.2 (select years). ### Financing under the ECF arrangement (disbursement schedule) - Schedule of disbursements under the ECF (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" ### IMF capacity-to-repay indicators (selected, Table 8) - "Principal" repayments (millions of SDRs, selected years): 10.7 (2018); 14.8 (2019); 13.8 (2020); 11.7 (2021); 9.0 (2022); 10.6 (2023); 7.4 (2024); 6.4 (2025); 6.4 (2026); 4.8 (2027); 0.0 (from 2028 onward in presented series). - "Outstanding IMF credit" (millions of SDRs): 116.7; 133.7; 135.8; 124.2; 113.5; 102.9; 87.5; 66.9; 44.6; 23.9; 9.6; 1.6; 0.0; 0.0; 1.0 (sequence). - Memorandum items: - "Nominal GDP (billions of CFA francs)" sequence: 5,809; 6,312; 6,879; 7,518; 8,109; 8,784; 9,492; 10,266; 11,116; 12,050; 12,983; 14,011; 15,145; 16,421. - "Government revenue (billions of CFA francs)" sequence: 1,022; 1,081; 1,220; 1,371; 1,511; 1,659; 1,797; 1,949; 2,123; 2,315; 2,508; 2,722; 2,960; 3,232. ### Key risks and implementation considerations (as stated) - "Performance under the program is satisfactory." - "The macroeconomic policies and structural reforms outlined in the MEFP are adequate to pursue the program’s objectives." - "Risks to program implementation are manageable." *Source: IMF staff report and associated tables in cr18217.* ### Annex I. Risk Assessment Matrix ### Annex I. Risk Assessment Matrix ### Methodology and Definitions - The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path (the scenario most likely to materialize in the view of IMF staff). - The relative likelihood is the staff’s subjective assessment of the risks surrounding the baseline: - "low" is meant to indicate a probability below 10 percent, - "medium" a probability between 10 and 30 percent, - "high" a probability between 30 and 50 percent. - The RAM reflects staff views on the source of risks and overall level of concern as of the time of discussions with the authorities. - Non-mutually exclusive risks may interact and materialize jointly. - “Short term (ST)” and “medium term (MT)” are meant to indicate that the risk could materialize within 1 year and 3 years, respectively. ### External Risks - Intensification of the risks of fragmentation /security dislocation in part of the Middle East, Africa, and Europe. - Relative likelihood: High - Impact if realized: Medium - Recommended policy response: Improve capacity to deal with migrant flows from neighboring countries. - Noted consequence: Increased migrant flows if neighboring countries are affected. - Tighter global financial conditions. - Relative likelihood: High - Impact if realized: Low - Recommended policy response: Reduce nonpriority spending to preserve programmed fiscal targets. - Noted consequence: Benin’s banking system is integrated in WAEMU which would only be marginally affected (see interest rate shock scenario). - Adverse developments in Nigeria, including removal of oil subsidies. - Relative likelihood: Low - Impact if realized: High - Recommended policy response: Accelerate the structural transformation of the economy to lessen its dependency on Nigeria; improve the business environment to support private sector growth and diversification. - Noted consequences: Adverse security situation reduces trade revenues, and growth; cutting subsidy can cause fuel price spikes. ### Domestic Risks - Rise in interest rate in regional financial markets. - Relative likelihood: Medium - Impact if realized: Medium - Recommended policy response: Rely predominantly on concessional financing; optimize debt portfolio, and reduce borrowing needs; adjust investment level, if necessary. - Noted consequence: Higher costs of borrowing for government and business reduce economic activity. - Socio-political disturbances, including protracted strike by civil servants. - Relative likelihood: Medium - Impact if realized: High - Recommended policy response: Build coalition of stakeholders to support the program and implement offsetting cuts in non-priority in case of non-programmed wage increases. - Noted consequence: Interruptions in the reform agenda, increase in current expenditures and resulting deterioration of fiscal position. - Intensification of financial sector risks. - Relative likelihood: Low - Impact if realized: Low - Recommended policy response: Strengthen bank resolution and step up supervision and regulation of MFIs. - Noted consequence: A surge in non-performing loans could affect banking sector stability. _Annex I. Risk Assessment Matrix_ ### Annex IV. External and Public Debt Sustainability ### Annex IV. External and Public Debt Sustainability ### A. Underlying Assumptions in the DSA - Baseline scenario consistent with medium-term macroeconomic framework under the ECF arrangement. - Global environment: - Nominal exchange rate (FCFA/USD) is assumed to appreciate slightly by about 3 percent over the baseline horizon and stabilize in the medium and long term. - External demand from Benin’s trading partners projected to be stable. - Growth impact: - Real GDP expected to grow, on average, by 6.4 percent over the horizon 2018–20. - Growth expected to stabilize at 6.6 percent in 2021-2022. - Inflation: - Inflation projected to an average of 2.2 percent in 2018–22 (below WAEMU convergence threshold of 3 percent). - Fiscal impact: - Total government revenue projected to increase from 14.7 percent of GDP in 2016 to 17.7 percent of GDP in 2020. - Primary deficit remains below initially programmed levels and turns into a surplus in 2021. - Budget deficit (including grants) expected to be below WAEMU convergence criterion of 3 percent of GDP by 2019 and shift to a surplus in 2022. - Current account impact: - Current account deficit (including grants) projected to peak in 2017, decline to 10.8 percent of GDP in 2018, and average 9.4 percent of GDP for 2019-22. - Financing: - Central government investment expected to lower from 9.2 percent in 2017 to 8.6 percent in 2018 and average 5.8 percent over 2019-22. - Investment financed by concessional resources and domestic financing; non-concessional PPG debt financing is included. - FDI in construction, manufacturing, and services projected to continue increasing; Doing Business ranking improved from 155th in 2017 to 151st in 2018. ### B. External Debt Sustainability Analysis - Overall assessment: - DSA confirms a moderate risk of debt distress for Benin. - In the baseline, all debt indicators remain below policy-dependent thresholds. - Key baseline projections and ratios: - PV of total PPG external debt: - about 13 percent of GDP in 2018; - 14 percent of GDP on average for 2019–23; - 17.3 percent of GDP in 2038. - Corresponding threshold: 40 percent of GDP (PV of debt-to-GDP ratio remains below this threshold throughout). - One indicator—the PV of external debt to exports—exceeds its threshold temporarily under an extreme shock to exports (small margin, less than 10 percent), while debt-to-GDP and debt service indicators remain below thresholds. - Historical scenario: - Ratios of PV of debt-to-GDP, PV of debt-to-exports, and PV of debt-to-revenue show breaches to thresholds. - Selected exact figures from Table A1 (historical and projections; percent of GDP unless noted): - External debt (nominal): 2015: 21.3; 2016: 22.5; 2017: 22.1; 2018: 24.0; 2019: 25.6; 2020: 26.0; 2021: 25.7; 2022: 26.2; 2023: 26.4; 2028 average: 26.9; 2024-2038 average: 26.2. - PV of external debt: 2018: 12.9; 2019: 13.0; 2020: 13.5; 2021: 13.5; 2022: 13.8; 2023: 13.8; 2028 average: 14.2; 2024-2038 average: 14.5; 2038: 17.3. - PV of PPG external debt (in percent of exports): 2018: 70.2; 2019: 66.3; 2020: 65.8; 2021: 65.8; 2022: 66.8; 2023: 65.9; 2028: 66.5; 2038: 52.4. - PV of PPG external debt (in percent of government revenues): 2018: 73.6; 2019: 74.0; 2020: 78.9; 2021: 77.9; 2022: 75.7; 2023: 76.0; 2028: 76.8; 2038: 89.4. - Debt service-to-exports ratio (in percent): 2018: 5.4; 2019: 4.6; 2020: 5.1; 2021: 6.2; 2022: 5.6; 2023: 5.8; 2028: 5.8; 2038: 3.7. - Total gross financing need (Billions of U.S. dollars): annual values include 2018: 0.7; 2019: 0.7; 2020: 0.8; 2021: 0.8; 2022: 0.7; 2023: 0.7; 2028: 0.7; 2038: 0.7. - Key macroeconomic assumptions (real GDP growth in percent): 2015: 2.1; 2016: 4.0; 2017: 5.6; 2018: 4.2; 2019: 1.8; 2020: 6.0; 2021: 6.3; 2022: 6.7; 2023: 7.1; 2018-23 average: 6.2; 2024-2038 average: 6.1; 2028-2038 average: 4.4; 2038: 5.0. - Sensitivity analysis (Table A2) highlights scenarios where key ratios rise: - Example PV of debt-to-GDP ratio (projections): Baseline 2018–2023 shows values: 13, 14, 14, 14, 14, 15, 16, 17 (by 2038). - Alternative and bound tests produce higher ratios (e.g., A1 historical averages or A2 less favorable loan terms). ### C. Public Debt Sustainability Analysis - Overall assessment: - Total public (external and domestic) debt projected to peak in 2018 and decline thereafter, conditional on strict adherence to programmed fiscal consolidation under the ECF-supported program. - Overall dynamics consistent with a moderate risk of debt distress. - Recent dynamics and composition: - PV of total public debt to GDP: 45.4 percent in 2017. - Domestic public debt increased from about 8.6 percent of GDP in 2013 to 32.3 percent of GDP in 2017, accounting for 60 percent of total debt. - Staff urged authorities to remain steadfast in implementing fiscal reforms to achieve the programmed fiscal consolidation path and preserve long-term debt sustainability. - Benchmarks and thresholds: - PV of debt-to-GDP ratio remains consistently below indicative benchmark of 56 percent. - Debt level also remains below WAEMU convergence criterion of 70 percent of GDP. - In the most extreme shock scenario, peak PV of debt-to-GDP ratio remains well below the 56 percent threshold. - Historical scenario shows a breach of the PV of debt-to-GDP threshold. - Selected exact figures from Table A3 (percent of GDP unless noted): - Public sector debt: 2015: 42.4; 2016: 49.5; 2017: 54.6; 2018: 56.8; 2019: 55.0; 2020: 51.2; 2021: 47.6; 2022: 44.4; 2023: 40.7; 2018-23 average: 34.6; 2024-38 average: 34.3. - PV of public sector debt: 2018: 45.4; 2019: 45.9; 2020: 42.9; 2021: 39.0; 2022: 35.6; 2023: 32.4; 2028: 28.8; 2038: 25.3. - PV of public sector debt-to-revenue and grants ratio (in percent): 2018: 243.6; 2019: 241.2; 2020: 227.8; 2021: 201.2; 2022: 185.1; 2023: 164.9; 2028: 145.4; 2038: 127.8. - Gross financing need (Billions of dollars and percent of GDP): reported as 14.7 (2018), 12.1 (2019), 13.6 (2020), 13.2 (2021), 10.6 (2022), 8.5 (2023); projections show decline toward 3.8 (2038). - Debt service-to-revenue and grants ratio (in percent): 2018: 14.4; 2019: 18.2; 2020: 35.9; 2021: 42.1; 2022: 42.6; 2023: 37.5; 2028: 33.3; 2038: 25.3. - Primary deficit that stabilizes the debt-to-GDP ratio: 2018: -4.7; 2019: -2.3; 2020: -1.1; 2021: 0.2; 2022: 1.7; 2023: 2.6; 2028: 2.0; 2038: 1.2. - Sensitivity analysis (Table A4): - PV of Debt-to-GDP Ratio (projections, baseline): 2018: 46; 2019: 43; 2020: 39; 2021: 36; 2022: 32; 2023: 29; 2028: 24; 2038: 25. - Alternative scenarios (e.g., A1 Real GDP growth and primary balance at historical averages) produce higher PV of Debt-to-GDP Ratios (e.g., 46, 45, 45, 44, 44, 44, 51, 53). - Bound tests include one-time 30 percent real depreciation in 2019 and a 10 percent of GDP increase in other debt-creating flows in 2019, both raising debt indicators. - Policy recommendation emphasized: - Strict adherence to the programmed fiscal consolidation path to preserve long-term debt sustainability and support the public debt anchor. *Source: Annex IV. External and Public Debt Sustainability (IMF staff estimates and projections).* ### Annex V. Capacity Development Strategy for FY 2018 ### Annex V. Capacity Development Strategy for FY 2018 ### Overall assessment of capacity development - Implementation of macroeconomic policies in Benin has generally been satisfactory. - Authorities showed ownership of the program and underlying reform agenda. - Progress is lagging in implementing governance, transparency, and accountability reforms due largely to lack of political support in parliament. - Coordination issues and limited resources allocation weigh on the overall impact of capacity development (CD) activities. - The CD program in Benin and the associated TA delivery are intrinsically interweaved with the ECF arrangements’ priorities. - As a fragile low-income country, Benin faces capacity and institution building challenges addressed with tailored technical assistance. - Key long-term priorities to preserve debt sustainability and improve governance: - Enhancing domestic revenue mobilization (revenue administration and tax policy). - Improving budget preparation and execution. - Strengthening economic governance (public finance management systems). - Improving real sector statistics, government, and external sector statistics, including oversight of public enterprises and other public entities. - Past program contributions and key achievements include: - Creation of a Single Treasury Account; - Increased capacity to formulate economic and financial policies under the ECF-supported program, including macroeconomic forecasts (2015–17); - Enhanced production of budget execution data and reports (2015–17); and - Better performance of the tax and customs administrations, resulting in stronger revenue mobilization outcomes. - Remaining gaps and constraints: - Need to increase the efficiency of public expenditures and strengthen further public debt management. - TA implementation compromised by data gaps (lack of relevant and timely indicators), including poor data management and data analysis. - Turnover of senior officials and technical-level staff has compromised absorption capacity and TA delivery. - Lack of appropriate infrastructure and institutional coordination—particularly at customs and tax administrations—has impeded effective technical delivery. ### Forward-looking priorities and policy focus - The TA strategy for Benin should focus on: - Revenue and customs administration; - Public Financial Management (PFM)—focusing on budget execution; - Debt management; - National accounts and tax policy; - Enhancing the quality of macroeconomic data. - Specific areas for strengthening: - Public Investment Management (PIM): improve efficiency and transparency in investment project selection and monitoring. - State-Owned Enterprises (SOEs): an SOEs unit was created in 2017, but oversight is weak and needs to be strengthened and consolidated. - Internal audit and control: strengthen methods using professional standards and systematic risk-based approaches—particularly related to budget execution control and external audit including full implementation of the Court of Accounts. - Financial stability: continue strengthening risk-based supervision of banks and microfinance institutions and reinforce the crisis resolution framework. - Data and statistics priorities: improve timeliness and quality of government and external sector statistics to support TA and policy design. ### FY 2018 key priorities and objectives - The main risk to capacity development is weak absorptive capacity; mitigation: carefully select and design TA programs tailored to the local audience’s needs. - Priorities and associated objectives (as stated): - Tax Policy - Minimize tax expenditures and simplify taxes - Tax Administration - Strengthen tax compliance - Customs Administration - Improve management and governance - Public Financial Management - Consolidate progress on the medium-term expenditure framework - Enhance the efficiency of public spending - Improve risk assessment and monitoring of contingent liabilities (SOEs and PPPs) - Strengthen fiscal reporting and accounting - Statistics - National account: update base year and move to 2008 SNA, including rebasing of national accounts; - External statistics: improve both current and financial account data collection and quality - Enhance e-GDDS ### Implementation context and authorities’ views - Authorities approve the orientation of the capacity building strategy and consider the strategy and objectives appropriate and consistent with the strategic orientations of the GAP, 2016–21 (presented by the authorities in December 2016). - Given current absorptive capacity, the authorities recommended that volumes and medium-term priorities be adjusted appropriately to achieve effective delivery. *Source: Annex V. Capacity Development Strategy for FY 2018* ### 12. Reforms have been undertaken to ensure that public expenditure is strictly monitored. They ### 12. Reforms have been undertaken to ensure that public expenditure is strictly monitored. They ### Public expenditure monitoring reforms - Census-payment operations for active and retired government employees carried out with the aid of biometrics. - Direct deposit of university scholarships and aid. - Systematic direct deposit of periodic benefits of active employees and of pensions of CFAF 50,000 or more. - New policy on provision of public services emphasizing construction and completion of administrative buildings to reduce rents and building occupancy expenses. - Establishment of the Official Travel Unit (CVO) for improved foreign travel planning and better tracking and rationalization of travel funds. ### Public debt data and monitoring - CAA website is now online; a statistical bulletin on public debt is published quarterly; an annual report on public debt management was prepared; a medium-term strategy document was appended to the 2017 Budget Law. - Next steps: improve the medium-term debt strategy document by incorporating a public debt ceiling as recommended by the LOLF (budget framework law). - Aim: public debt monitoring to cover all guarantees granted by the government as well as the debt of public enterprises. - A thorough inventory of data on the debt of public enterprises and their contingent liabilities was carried out. - Next steps: implement the adopted monitoring system and include public enterprise debt guaranteed by the government in the medium-term debt strategy. ### Governance, internal control, and anti-impunity measures - December 2017: committee for reform of government's administrative control bodies appointed; proposed measures to improve institutional and regulatory framework of internal audit bodies. - Arrangement proposed giving managers of sectoral ministries primary responsibility for analysis of operational risks and proposal of corrective measures. - Reform objectives: specialize audit bodies, professionalize auditors, address shortage of human and material resources affecting auditor performance. - Proposed measures to be adopted by the government by end-June 2018 and implemented in the latter half of 2018. - Expected outcome: improved quality of reporting at general government, public enterprise, and government agency levels; publication each year of a report on follow-up of audit missions. ### Justice and anti-corruption - Major justice reforms: creation and inauguration in 2017 of Commercial Court of Cotonou and Court of Commercial Appeals of Porto Novo (identification of buildings, appointment of professional and consular judges, official installation). - National Anti-Corruption Authority (ANLC) plans to further implement asset declaration regime under the 2011 Anticorruption Law, including: - ensuring penalties if assets are not declared for individuals covered by the Law; - permitting online declaration of assets. - Ratifications: United Nations Convention against Corruption on July 11, 2005; African Union Convention Against Corruption; ECOWAS anti-corruption protocol. - Implementation of an action plan following the 2016 assessment of the National Integrity System by Transparency International with EU support. - Vigorous pursuit of legal and regulatory framework for combating money laundering and the financing of terrorism. ### Financial sector stability and reforms - Law on Credit Information Bureaus (CIB) adopted by the National Assembly and promulgated on January 23, 2017. - Ministerial decree authorizing opening of a branch office of “CREDITINFO-VOLO” in Benin signed on February 1, 2018. - Annex to the agreement governing the WAMU Banking Commission amended by Decision No. 10 of 29/09/2017/CM/UMOA: BC now responsible for resolution of credit institutions; BC has a Resolution College. - Government objectives: finalize establishment of a credit bureau and a regulatory framework for timely bank resolution; facilitate use of collateral to obtain bank loans; advance electronic recording of land titles countrywide. - 2016 Supplementary Budget Law initiative to eliminate recording fees was successful; number of land titles recorded has grown. - New regulatory framework for MFIs to strengthen supervision. ### Program for 2018: objectives and macro-fiscal framework - Program objective: lay foundation for accelerated and inclusive growth in a context of inflation control; accelerate reforms to (i) mobilize more resources, (ii) enhance efficiency of public expenditure, particularly investments, (iii) increase share of resources allocated to social programs, and (iii) improve the business environment. - Macroeconomic framework: - Projected real GDP growth in 2018: 6 percent, supported by agricultural sector (particularly cotton), increased private investment, and positive effects of Nigeria’s economic recovery. - Inflation projected at 2.3 percent on average in 2018 following jump in food and oil prices in Q4 2017. - External current account deficit (including grants) projected to shrink to 0.3 of a percentage point in 2018. - December 2017: NA passed the 2018 Budget Law in accordance with government draft. - Fiscal deficit, including grants, expected to narrow from 5.9 percent of GDP in 2017 to 4.7 percent in 2018. - Government revenue expected to stabilize at 17.6 percent of GDP. - Total expenditure contained at 23.7 percent of GDP, down from 24.5 percent in 2017. ### Fiscal policy measures for 2018 - Revenue mobilization target: CFAF 1,021.6 billion, or 17.6 percent of GDP. - Revenue administration reforms to be pursued: modernize tax and customs administrations; adopt standard declaration form for imports; monitor declarations for all taxes; launch campaign to control VAT credits; mandatory use of I.T. tool; appoint and train investigators to combat fraud. - Customs measures: promote synergies between customs, Webb Fontaine, and Benin Controls SA; step up transit oversight and IFU control; facilitate trade by improving customs clearance times and service standards; increase availability of information. - 2018 Budget Law measures include: - 50 percent increase in the departure fee included in the price of business class tickets; - 10-20 percent increase in the rate of withholding at source on monthly rentals of CFAF 50,000 or more by tenants other than individuals; - creation of the taxe professionnelle synthetique (TPS) for all firms with a turnover less than CFAF 50 million; - elimination of certain VAT exemptions. - Expected revenue impact: these measures plus tax and customs administration reforms expected to increase tax revenue by 1.3 percent of GDP compared to 2017 (excluding exceptional non-tax revenue). - Decision not to renew tax exemptions of GSM telecommunications enterprises expiring in June 2018. - Plan to prepare a strategy in 2018 to further reduce tax expenditure following establishment of a reference tax system with IMF technical assistance; will consider revision of certain tax treaties. ### Public expenditure efficiency and public investment management - Priority: improve quality of public investment to achieve sustained growth while ensuring public debt sustainability. - October 2017: public investment management assessment (PIMA) with IMF technical assistance; government agreed with diagnoses and begun implementing recommendations. - Implementation plan four actions: (i) strengthen institutional framework; (ii) ensure availability and sustainability of financing; (iii) better prepare and implement projects; (iv) ensure sustainable investments. - Awaiting World Bank response to request for a public expenditure review. ### Public debt management actions - Program to optimize short-term domestic debt portfolio via reprofiling operation: repurchase some short-term loans from local creditors at high costs with proceeds of longer-term loans from international commercial creditors at lower interest rates. - Objectives: (i) extend maturity of portfolio and obtain external liquidity to alleviate pressure on local market; (ii) reduce overall debt service due to lower interest rate on new loans; (iii) improve debt monitoring. - Receiving World Bank assistance for reprofiling operation. - Measures to promote implementation of projects given unpredictability of foreign borrowing disbursement: - Better incorporation of data on implementation of projects in SIGFIP. - Systematic reviews every three (3) months of projects financed by development partners. - Note: government deliberately chose in 2016 to put a number of foreign borrowing disbursements on hold to review them and make reallocations. ### Public enterprise reforms and financial reporting - Data collection and analysis under IMF program: debt of state-owned companies to commercial banks amounted to CFAF 50.9 billion (1 percent of GDP) in 2017. - Public enterprises’ fiscal contribution and support over last four years: - Contributed – taxes, fees, and dividends – 0.3 percent of GDP to national budget. - Received 1.5 percent of GDP in grants and subsidies. - Identified causes of reliance on public resources: ad hoc cross-debt offsetting settlements between government and enterprises; poor economic and financial performance; few enterprises submit budgets and financial statements as required by law. - Actions planned/underway: - Audits of key enterprises: CNCB, COBENAM, Post Office of Benin, Autonomous Port of Cotonou. - Recruitment of firms and experts to map risks of public enterprises. - Expedite appointment of auditors for the 189 public enterprises and government offices. - Remind enterprises of legal obligation to submit budgets and financial statements to the Ministry of Economy and Finance within legal timeframes. - Define dividend policy tailored to each enterprise to promote responsibility and accountability. - Conclude performance contracts with key public enterprises by end-2018 (structural benchmark); already with Autonomous Port of Cotonou and soon with Société Béninoise d'Energie Electrique (SBEE) with Millennium Challenge Account support. - Apply performance contracts to all public enterprises by end-2019. ### Monitoring public-private partnerships (PPP) - Legal and regulatory framework for PPP established by Law (No 2016-24 of June 28, 2017); implementing decrees adopted reflecting new institutional framework for investment promotion. - Institutional framework to enter into force in 2018 with World Bank TA. - Analysis of financing options for GAP projects under way; expected to lead to compilation of a catalog of PPP projects. - GAP projects being prioritized to identify those that will generate revenue; government aims to select revenue-generating projects to grant usage rights and user revenue. ### Business environment and investment promotion - 2017: new investment promotion mechanism formalized; creation of inter-ministerial committee for investment promotion. - APIEX restructured to serve as: - one-stop window for business creation; - technical body for reviewing applications under Investment Code; - Executive Secretariat of the PPP Support Unit; - focal point for Doing Business reforms; - administrative authority for Special Economic Zones; - export information and facilitation center. - Two draft laws being prepared: one amending the Investment Code; one on promotion and development of micro-, small, and medium-sized enterprises (MPME). - Innovations in new Investment Code include: - Simplification of approval mechanisms (three mechanisms with clear incentives during start-up and operating periods; two variant mechanisms to encourage investors in priority sectors). - Professionalization of processing of approval applications and limitation of technical decision period. - Improvement of investment monitoring system. - Incorporation of international best practices and UNCTAD comments. - Structuring of incentives to make Benin more competitive regionally and consistent with exemptions for special economic zones and government assistance to promote national entrepreneurship. ### Law on Micro-, Small, and Medium-Sized Enterprises (MPME) - Purpose: transpose WAEMU community charter for MPMEs (December 2015) into national legislation. - Key innovations: - Establish system for identification and categorization of MPMEs eligible for specific government assistance. - Create by law an agency responsible for implementing national policy on MPME promotion. - Provide MPMEs with assistance and support including market access facilities, protection against government payment delays, and incentives to co-contract with large enterprises. - Tax facilities and incentives for creation and maintenance of MPMEs, MPMEs that process local raw materials, and compensation of prepayments of corporate income tax at customs frontier for business incubators. - Measures to promote and finance MPMEs (technical assistance, access to land and developed sites, specific financing and guarantee mechanisms or institutions). - Measures to support troubled MPMEs. *Excerpt from IMF staff report chapter.* ### 30. The African Bank for Industry and Commerce (BAIC) is dealing with operational difficulties ### 30. The African Bank for Industry and Commerce (BAIC) is dealing with operational difficulties ### BAIC operational difficulties and government response - BAIC is facing operational difficulties that could lead to the closing of its doors and the revocation of its license by the WAEMU Banking Commission (BC). - The government decided to purchase the bank at its equity value, estimated at CFAF 10 billion. - The rescue operation requires the support of the BC; subject to BC approval, the government will prepare a restructuring plan with a divestment strategy and a timetable that could be discussed during the third review. ### Financial inclusion and microfinance sector strategy - Government intentions to promote financial inclusion (inter alia): - Create permanent mechanisms for the mobilization of resources by DFSs (decentralized financial systems). - Step up the promotion and coordination of the microfinance sector. - Priority action: strengthening the surveillance of DFSs and money laundering. ### Supervision and operational measures (ANSSFD actions) - In 2018 the National Decentralized Financial Systems Surveillance Agency (ANSSFD) will continue implementing the microfinance sector rehabilitation strategy based on three pillars: - (i) application of the law to all authorized DFSs; - (ii) application of the law to all entities operating illegally; - (iii) continued strengthening of the stability and balanced operation of the decentralized finance sector with a view to its long-term sustainability. - A national census of microfinance initiatives will be carried out to update the list of institutions operating on the fringes of regulation. ### National Microfinance Fund (FNM) and related initiatives - FNM prepared a new strategic plan for 2017–21 founded on three strategic pillars: - (i) facilitating DFS access to appropriate financial resources; - (ii) building operational capacity and promoting social and technological interventions; - (iii) strengthening the governance and sustainability of FNM actions. - The government, through the Ministry responsible for social affairs and microfinance (MASM), has begun preparing for the FinScope survey, the first stage in the Making Access to Financial Service Possible (MAP) process, which culminates in a national financial inclusion strategy aligned with the regional strategy developed by the BCEAO. - Financial inclusion will be strengthened with the implementation in the coming months of the ARCH (assurance, human capital building) project. ### Re-basing of the national accounts (SNA 2008) - The government has undertaken to update the national accounts and implement the 2008 System of National Accounts (SNA 2008). - Expected improvements include: - (i) updating a series of decades-old core national accounts data; - (ii) including in the GDP estimate major activities that have not been monitored or insufficiently assessed. - Finalization expected with approval of an AFRITAC West mission originally planned for end-2017 but was unable to visit Cotonou until March 2018 because of scheduling problems; delay also due to late approval of a number of completed studies. ### Program timing and reviews - Quantitative performance criteria set for end-June and end-December 2018; indicative targets for end-March and end-September 2018. - The third and fourth program reviews are expected to be completed on or after October 31, 2018 and April 30, 3019, respectively. ### Selected program assumptions and technical definitions (Attachment II) - Program exchange rates (2018 exchange rates as at August 18, 2017): - CFAF/US$ 557.6 - CFAF/euro 655.96 - CFAF/SDR 785.4 - Definitions and methodological notes: - “Government” refers to the central government of the Republic of Benin, excluding local governments, the central bank, or other autonomous public entities not in the government’s flow-of-funds table (TOFE). - Debt definitions follow IMF Executive Board Decision No. 6230-(79/140), as amended by Decision No. 15688-(14/107). - Present value of loans generally calculated using a single discount rate set at 5 percent, with specified exceptions for variable-rate debt (program reference rate for six-month USD LIBOR is 2.63 percent). - External debt: debt denominated in any currency other than the CFA franc and debt in CFA francs contracted with another member state. - Domestic debt: debt denominated in CFA francs, unless contracted with another member state. - Net domestic financing (NDF) of the government is defined as the sum of: - (i) net bank credit to the government (balance between government debts and claims vis-à-vis the central bank and local commercial banks); and - (ii) net nonbank financing of the government, including proceeds of the sale of government assets, Treasury bills, and other securitized obligations issued in CFA francs on the WAEMU regional market, and any BCEAO credit to the government. *Summary derived from IMF staff report text.* ### 8. Gross external budgetary assistance is defined as grants, loans, and non-earmarked debt ### 8. Gross external budgetary assistance is defined as grants, loans, and non-earmarked debt ### Definitions: External Budgetary Assistance and Net External Assistance - Gross external budgetary assistance: grants, loans, and non-earmarked debt relief operations (excluding project-related loans and grants, use of IMF resources, and debt relief under the Heavily Indebted Poor Countries (HIPC) and Multilateral Debt Relief (MDRI) Initiatives). - Net external budgetary assistance: gross external budgetary assistance minus - total debt service obligations on all external debt (sum of interest payments and amortizations on all external loans, including interest payments and other charges to the IMF and on project-related loans, but excluding repayment obligations to the IMF); and - all payments of external arrears. ### Performance Criteria and Indicative Targets — Net Domestic Financing (NDF) Ceilings - NDF ceiling (cumulative since January 1 of the same year) — 2017: - CFAF 70.1 billion at end-March 2017 - CFAF 116.1 billion at end-June 2017 - CFAF 183.9 billion at end-September 2017 - CFAF 183.7 billion at end-December 2017 - The ceilings are performance criteria for end-June and end-December 2017, and an indicative target for end-September 2017. - NDF ceiling (cumulative since January 1 of the same year) — 2018: - CFAF 22.0 billion at end-March 2018 - CFAF 190.9 billion at end-June 2018 - CFAF 103.0 billion at end-September 2018 - CFAF 118.8 billion at end-December 2018 - The ceilings are performance criteria for end-June and end-December 2018, and an indicative target for end-September 2018. ### Adjustments to the NDF Ceiling (Triggers and Limits) - Adjustment trigger for excess net external budgetary assistance: - If, at the end of a quarter, net external budgetary assistance exceeds the total projected amounts (cumulative since January 1 of the same year) by more than CFAF 5 billion, the NDF ceiling will be lowered by an amount equivalent to that excess, minus CFAF 5 billion. - Adjustment trigger for shortfall in net external budgetary assistance: - If, at the end of a quarter, net external budgetary assistance falls short of the projected amounts (cumulative since January 1 of the same year), the NDF ceiling will be increased by an amount equivalent to this shortfall, within the following limits: - increase may not exceed CFAF 15 billion at end-June 2017 - increase may not exceed CFAF 25 billion at end-December 2017 - The same rule applies for 2018. ### Program Projections Used for NDF Adjustments (cumulative since January 1 of the same year) - Gross external budgetary assistance projected in the program — 2017: - CFAF 16.2 billion at end-March 2017 - CFAF 16.2 billion at end-June 2017 - CFAF 39.2 billion at end-September 2017 - CFAF 55 billion at end-December 2017 - Gross external budgetary assistance projected in the program — 2018: - CFAF 22.6 billion at end-March 2018 - CFAF 22.6 billion at end-June 2018 - CFAF 39.6 billion at end-September 2018 - CFAF 55.4 billion at end-December 2018 - External debt service obligations projected in the program — 2017: - CFAF 8.8 billion at end-March 2017 - CFAF 24.8 billion at end-June 2017 - CFAF 32.4 billion at end-September 2017 - CFAF 70.6 billion at end-December 2017 - External debt service obligations projected in the program — 2018: - CFAF 9.7 billion at end-March 2018 - CFAF 29.3 billion at end-June 2018 - CFAF 38.9 billion at end-September 2018 - CFAF 60.6 billion at end-December 2018 ### B. Floor of the Basic Primary Fiscal Balance - Definition: - Basic primary fiscal balance = total fiscal revenue (tax and nontax) minus basic primary fiscal expenditure (on a payment order basis). - Basic primary fiscal expenditure = fiscal (current plus capital) expenditure minus: - (a) interest payments on domestic and external debt; and - (b) capital expenditure financed by external grants and loans. - Grants are excluded from revenue and net government lending is excluded from fiscal expenditure. - Performance criteria and indicative targets — basic primary fiscal balance (cumulative since January 1 of the same year): - 2017 floors (not less than): - CFAF 64.7 billion at end-March 2017 - CFAF 73.1 billion at end-June 2017 - CFAF 139.0 billion at end-September 2017 - CFAF 142.6 billion at end-December 2017 - Floors for end-June and end-December 2017 are performance criteria; end-September 2017 is an indicative target. - 2018 floors (not less than): - minus CFAF 69.7 billion at end-March 2018 - minus CFAF 47.5 billion at end-June 2018 - minus CFAF 20.3 billion at end-September 2018 - CFAF 3.9 billion at end-December 2018 - Floors for end-June and end-December 2018 are performance criteria; end-September 2018 is an indicative target. ### C. Floor of Total Government Revenue - Definition: - Total government revenue includes tax and nontax revenue, as shown in the TOFE, but excludes external grants, revenue of autonomous agencies, and privatization receipts. - Performance criteria and indicative targets — total government revenue (cumulative since January 1 of the same year): - 2017 floors (not less than): - CFAF 182.9 billion at end-March 2017 - CFAF 386.1 billion at end-June 2017 - CFAF 602.9 billion at end-September 2017 - CFAF 907.5 billion at end-December 2017 - Floors for end-June and end-December 2017 are performance criteria; end-September 2017 is an indicative target. - 2018 floors (not less than): - CFAF 204.8 billion at end-March 2018 - CFAF 445.5 billion at end-June 2018 - CFAF 707.1 billion at end-September 2018 - CFAF 1,021.6 billion at end-December 2018 - Floors for end-June and end-December 2018 are performance criteria; end-September 2018 is an indicative target. ### D. Non-accumulation of New Domestic Payments Arrears - Definition: - Domestic payments arrears: domestic payments due but not paid by the government after a 90-day grace period, unless payment arrangements specify a longer repayment period. - The Autonomous Amortization Fund (CAA) and the Treasury record and update data on accumulation and reduction of domestic payments arrears. - The definitions of debt (paragraph 4a), domestic debt (paragraph 4e), and government (paragraph 3) apply. - Continuous performance criterion: - Government undertakes not to accumulate any new domestic payments arrears. - Non-accumulation will be continuously monitored throughout the program. ### E. Non-Accumulation of External Payments Arrears - Definition: - External public payments arrears: payments due but not paid by the government as of the due date specified in the contract, taking into account any applicable grace periods, on external debt of the government or external debt guaranteed by the government. - Definitions of debt (paragraph 4a), external debt (paragraph 4c), and government (paragraph 3) apply. - Continuous performance criterion: - Government undertakes not to accumulate any external public payments arrears, except arrears related to debt that is the subject of renegotiation or rescheduling. - This performance criterion will be continuously monitored throughout the program. ### F. Ceiling on the Amount of New External Debt Contracted or Guaranteed by the Government (maturity ≥ 1 year) - Definition: - Applies to debt as defined in paragraph 4a and to commitments contracted or guaranteed by the government (including lease-purchase contracts) for which no value has been received. - Applies to private sector debt guaranteed by the government (contingent liability). - External debt excludes Treasury bills and bonds issued in CFA francs on the WAEMU regional market (paragraph 4c). - Coverage of “government” for this criterion: - Includes the government (paragraph 3), local governments, and all public enterprises, including administrative public agencies (EPA), scientific and technical public agencies, professional public agencies, and enterprises jointly owned by the Beninese government with governments of other countries. - Continuous performance criterion: - Present value of new external borrowing contracted or guaranteed by the government in 2018 will not exceed a cumulative amount of CFAF 468.9 billion. - Changes to this ceiling may be made (subject to approval by the IMF Executive Board) based on results of the public debt sustainability analysis prepared jointly by the staffs of the World Bank and the IMF. ### G. Ceiling on Pre-financing Contracts for Public Investments - Definition: - Pre-financing contracts: contracts where the following steps are taken concurrently: - (i) government entrusts a private entity with responsibility for executing public works, financed by a loan to the entity from a domestic commercial bank or group of commercial banks; - (ii) the Minister of Finance guarantees this loan and signs an unconditional and irrevocable agreement to replace the private entity to honor the full amount of principal and interest of the loan, which are automatically paid from the Treasury’s account at the BCEAO. - The concept of government used is the one defined in paragraph 3. - Continuous performance criterion: - Government undertakes not to enter into any pre-financing contracts during the program. - This performance criterion will be continuously monitored throughout the program. ### H. Indicative Target — Floor for Priority Social Expenditures - Definition: - Priority social expenditures: selected (nonwage) expenditures in sectors identified in the GAP, including health; energy, water, and mines; agriculture; livestock and fisheries; social affairs; education; and living standards. - Execution monitored on a payment order basis through the Integrated Government Finance Management System (SIGFIP). - Indicative target defined as total amount (cumulative since January 1 of the same year) of payment orders issued under the specified budget lines. - Priority social expenditure budget codes and descriptions: - 25 Ministry of Economy and finance - 26 Ministry of Justice - 27 Ministry of Planning and Development - 31 Ministry of the Labor, the Civil Service, and Social Affairs - 34 Ministry of Living Standards and Sustainable Development - 36 Ministry of Health - 37 Ministry of Energy, Water, and Mines - 39 Ministry of Agriculture, Livestock, and Fisheries - 40 Ministry of Tourism, Culture, and Sports - 41 Ministry of Social Affairs and Microfinance - 44 Ministry of Higher Education and Scientific Research - 46 Ministry of Small and Medium-Sized Enterprises and Employment Promotion - 51 Ministry of Infrastructure and Transports - 60 Ministry of Interior and Public safety - 62 Ministry of Nursery School and Primary School Education - 63 Ministry of Secondary and Technical Education and Vocational Training - Indicative targets for priority social expenditures (cumulative since January 1 of the same year): - 2017: - CFAF 36.3 billion at end-March 2017 - CFAF 85.0 billion at end-June 2017 - CFAF 125.0 billion at end-September 2017 - CFAF 160.0 billion at end-December 2017 - 2018: - CFAF 15.0 billion at end-March 2018 - CFAF 50.0 billion at end-June 2018 - CFAF 101.0 billion at end-September 2018 - CFAF 167.0 billion at end-December 2018 ### Information for Program Monitoring — Data on Performance Criteria and Indicative Targets - Monthly reporting to IMF staff: - Data on 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 - The TOFE, including revenue, detailed data on net domestic financing of the government (bank and nonbank domestic financing, including claims held by the nonbank private sector); and data on the basic primary fiscal balance, including data generated by SIGFIP, within six weeks of the end of the month - Data on the balance, accumulation, amount (stock), and repayment of public domestic and external payments arrears, including in the event that these arrears amount to zero, within six weeks of the end of the month - The monetary survey, within eight weeks of the end of the month - Quarterly reporting to IMF staff: - Data pertaining to the amount of exceptional payment orders or other exceptional measures, within six weeks of the end of the quarter - Data pertaining to priority social expenditures, within six weeks of the end of the quarter ### Other Information for Program Monitoring - Monthly: - Bank supervision indicators for bank and nonbank financial institutions within eight weeks of the end of the month - Quarterly: - Data on the implementation of the public investment program, including detailed information on sources of financing, within four weeks of the end of the quarter - Data on the stock of external debt, external debt service, the signing of external loan agreements and disbursements of external loans, within twelve weeks of the end of the quarter - Ad hoc / When available in the quarter they become available: - A copy of the budget law and its supplementary documents; a copy of the most recent budget review law; as well as any decree or law pertaining to the budget or the implementation *Source: cr18217 - 8. Gross external budgetary assistance is defined as grants, loans, and non-earmarked debt* --- _Source: https://www.imf.org/-/media/files/publications/cr/2018/cr18217.pdf_