## 1. Medium-Term Growth in Benin ## Source details **Canonical URL:** [1. Medium-Term Growth in Benin](https://www.imf.org/-/media/files/publications/cr/2019/1benea2019001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2019/1benea2019001.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2019/1benea2019001.pdf.json) --- ### Background and development challenges - GDP per capita: $829 in 2017 (below SSA weighted average of $1,574). - Human Development: Benin in the bottom quartile of the 2017 Human Development Index. - Poverty: about 40 percent of the population. - Large development gaps in health staffing, sanitation, electricity, and literacy. - SDG additional expenditure needs estimated at around 20 percent of GDP by 2030. - Authorities’ strategic frameworks: 2018-25 national development plan; 2016-21 Government Action Plan (GAP); membership in the Compact with Africa (CwA). - Structural bottlenecks: small domestic market, high informality, governance weaknesses. ### Recent macroeconomic developments (selected indicators and facts) - Real GDP growth: - 2017: 5.8 percent. - 2018 (estimate): 6.7 percent — driven by strong agriculture and port activity. - Cotton production: - 2017: 598,000 tons. - 2018: expected to exceed 700,000 tons. - Port activity: volume of merchandise at the Port of Cotonou increased by over 8.5 percent in 2018. - Inflation: 1 percent in 2018. - Fiscal performance: - 2017 fiscal deficit: 5.9 percent of GDP. - 2018 fiscal deficit (estimate): 4.0 percent of GDP (lower than 4.7 percent anticipated at third review). - 2019 commitment-based fiscal deficit revised from 2.7 to 3.0 percent of GDP after audit uncovered arrears. - Spending on priority social sectors in 2018: CFAF 202.4 billion (above end-December floor CFAF 167.0 billion). - Current account: - 2017 (including grants): deficit 10.0 percent of GDP. - 2018 (including grants): deficit 8.3 percent of GDP — improvement driven by cotton and cashew exports. - Financial sector vulnerabilities: - Aggregate capital adequacy ratio (CAR): 11.9 percent at end-2017 to 7.6 percent at end-June 2018. - Regulatory threshold: 8.6 percent. - Note: Using new definition of capital, aggregate CAR at end-2017 would have been 8.4 percent. - Non-performing loans (NPLs): 19.4 percent of total loans in 2017 to 18.9 percent in June 2018. - Credit concentration: credit to five largest borrowers rose from 91.6 percent of banks’ capital at end-2017 to 103.3 percent in June 2018. - Banking sector recorded aggregated losses for three consecutive years in 2015-17. - Program performance: All end-June and end-December QPCs met since program start in 2017, except non-accumulation of new domestic arrears over March-June 2018 due to institutional oversight. ### Medium-term outlook and risks - 2019 growth forecast: 6.7 percent (revised up). - Potential growth: estimated above 6½ percent. - Medium-term drivers: strong agriculture, transportation, rising private investment, lagged effect of public investment scaling-up. - Inflation: expected to stay below the 3 percent WAEMU regional limit over the forecast horizon. - Public debt and financing: - Public debt ratio expected to start declining from 2019 after five years of increase due to fiscal consolidation and strong growth. - 2019 developments affecting debt projection: - Arrears from previous governments added to 2019 debt stock; to be repaid in cash over three years at 0.1 percent of GDP per year. - March 2019 Eurobond issuance: €500 million (5.2 percent of GDP); domestic financing reduced by same amount; total borrowing for 2019 unchanged but external share increased. - Public investment ratio: 5.9 percent of GDP in 2016; 9.1 percent in 2017; projected to return gradually to 6.0 percent by 2024. - Current account medium-term: gradual convergence towards about 5 percent of GDP (assumes fiscal consolidation and agricultural expansion). - Downside risks (short-term and medium-term): - Political discontent following April 2019 Parliamentary elections disrupting reform momentum. - Lower-than-expected growth in Nigeria weakening Benin’s exports, fiscal position, and growth. - Further deterioration in bank profitability weighing on credit and formal-sector activity. - Medium-term dependence on revival of private investment and attraction of foreign investors. - Tightening of international and regional financial conditions raising debt servicing costs. ### Medium-term growth estimation (Box 1) - Statistical filter (Hodrick-Prescott): trend output growth at 6.5 percent (for 2018). - Econometric Growth-at-Risk (GaR) model: medium-term growth between 6.4-6.8 percent depending on specification. - Production function approach: - Uses ILO demographic data, capital accumulation projections, and alternative TFP scenarios (25th, 50th, 75th percentiles of productivity growth over 2008-18). - Places growth in the range of 5.5 and 7.3 percent at the end of the forecast horizon, with a mid-point at 6.6 percent. ### Policy discussions — five key components of a medium-term strategy - Overall objective: put Benin on the path towards achieving the SDGs through stable, inclusive, and diversified growth. A. Creating fiscal space for development programs (revenue mobilization) - 2018 tax-to-GDP ratio: 14.0 percent of GDP (below SSA median 15.1 and non-resource-rich LIDCs median 15.4 percent of GDP). - Measures taken: - Elimination of some tax expenditures for GSM mobile phone companies in mid-2018 — budgetary savings for 2019 estimated at 0.3 percent of GDP. - 2019 budget removed 0.9 percent of GDP of tax exemptions. - Strategy and projections: - Baseline projections over 2020-24 assume fiscal consolidation will rely on scaling down public investment toward pre-scaling-up levels. - Preferred medium-term fiscal strategy should focus on revenue mobilization to avoid compressing public investment and to create sustained budgetary space for development programs. - Universal health insurance system: pilot phase started; objective to be fully operational by 2022; staff emphasized the system should be fully financed and technical/capacity shortfalls addressed before generalization. - Revenue potential from consumption taxes and compliance improvements: - Closing VAT policy and compliance gaps could generate around 3 percent of GDP. - Aligning the excise revenue-to-GDP ratio with the SSA average could raise 0.5 percent of GDP. - Such a large revenue effort could be achieved over a decade at a pace of ¼-½ percent of GDP per year; this effort is not included in current baseline projections. - Tax incentives and special economic zones: - Authorities contemplating creation of special economic zones to support food processing industry. - Staff cautioned that targeted incentives can have large budgetary costs, be redundant, or distortive when offsets place excessive burden on other narrow tax bases. - Recommendation: tax incentives must be carefully designed, periodically assessed for budgetary impact, and accommodated by revenue-raising measures. ### Universal Health Insurance System (Box 2) - ARCH overview: - Legal framework adopted May 2017 establishing ARCH covering universal health insurance, training, credit provision, and pension insurance for the informal sector. - Health insurance main component; pilot phase started in 2019 in three regions targeting about 300,000 extreme poor. - Expected to be fully operational by 2022. - Financing and fiscal cost: - Pilot phase (2019 budget): 0.06 percent of GDP. - When generalized: expected to reach 0.5 percent of GDP, according to preliminary estimates. - Planned financing for the public subsidy when generalized: to be covered with additional taxes generated by the medium-term revenue mobilization strategy (Selected Issues Paper III). ### Microfinance Institutions (MFIs) - Role and stance: - MFIs can foster financial inclusion and support development if well regulated. - Staff encouraged formalizing viable and closing unviable unauthorized MFIs. - Strengthen human resources of the National Surveillance Agency to detect risks early and enforce regulations. - Sector structure and key statistics (2018): - 112 licensed entities. - Serving over 20 percent of the country’s population. - CFAF 107 billion in deposits collected (1.8 percent of GDP). - CFAF 158 billion in loans issued (2.7 percent of GDP). - Unauthorized MFIs: 2011 census recorded 495 unauthorized entities; 240 unauthorized MFIs formalized and 17 nonviable MFIs closed over 2013-2018. - Mobile money expansion: - Active mobile money account holders increased from 393,000 to 2.5 million between 2015 and 2018. - Policy actions and planned measures: - Enhanced licensing measures enacted in 2018. - Strengthened supervisory activities and implemented digital collection of financial information. - Planning another census by end-2019. - Exploring synergies between MFIs and mobile money providers via the National Fund for Microfinance. ### Governance, anti-corruption, and related reforms (selected findings and recommendations) - Corruption: described as the second most problematic factor for doing business per the 2018 Global Competitiveness Report. - Fiscal governance recommendations: - Shift more resources towards audit, control, and risk monitoring in revenue administration. - Consolidate the TSA and strengthen public investment management, project selection, and procurement oversight. - Regulatory and business environment recommendations: - Simplify and shorten customs procedures. - Ensure efficiency of Commercial Courts and transparent enforcement of court fees. - Anti-corruption and AML recommendations: - Strengthen asset declaration regime. - Provide full independence to the anti-corruption agency and publish annual reports. - Adopt an anti-corruption strategy with priorities, action plan, timelines, and identified resources. - Strengthen AML regime and address recommendations of the upcoming FATF evaluation. ### Program context, financing, disbursements, and fiscal framework (selected figures preserved exactly) - IMF ECF disbursement schedule (SDR amounts and dates): - 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. - Eurobond: The Eurobond of FCFA 325 billion is used for budget financing; March 2019 Eurobond issuance: €500 million (5.2 percent of GDP). - Fiscal outcome and projections (overall fiscal deficit, commitment basis, incl. grants, percent of GDP): - -5.9 (2017), -4.7 (2018), -4.0 (2019), -2.7 (2020), -3.0 (2021), -2.5 (2022), -2.0 (2023), -1.7 (2024), -1.5 (2025), -1.3 (2026). - Government debt (central government debt, percent of GDP): - 54.3 (2017), 54.4 (2018), 56.1 (2019), 53.8 (2020), 54.1 (2021), 52.0 (2022), 49.8 (2023), 47.8 (2024), 46.0 (2025), 44.2 (2026). - Current account balance (incl. grants, percent of GDP): - -10.0 (2017), -8.9 (2018), -8.3 (2019), -8.4 (2020), -7.8 (2021), -7.1 (2022), -6.5 (2023), -6.2 (2024), -5.6 (2025), -5.1 (2026). - Exports (percent of GDP, memorandum): - 16.1 (2017), 18.2 (2018), 18.7 (2019), 20.4 (2020), 20.9 (2021), 22.6 (2022), 24.0 (2023), 25.2 (2024), 26.0 (2025), 26.6 (2026). - Imports (percent of GDP, memorandum): - -23.7 (2017), -24.1 (2018), -23.6 (2019), -25.0 (2020), -24.6 (2021), -24.8 (2022), -25.1 (2023), -25.6 (2024), -26.2 (2025), -26.9 (2026). ### Debt sustainability, DSA findings and risks - DSA conclusion: Benin remains at moderate risk of external debt distress (rating unchanged from November 2018 DSA). - Debt levels and dynamics: - Total public debt rose from 30.5 percent in 2014 to 56.8 percent in 2018. - Domestic debt grew from 10.6 percent of GDP in 2014 to 32.4 percent of GDP in 2017; domestic debt estimated at 30.3 percent of GDP in 2018 after reprofiling. - External debt increased by 6.7 percent of GDP over 2014-18, reaching 26.5 percent of GDP in 2018. - Eurobond issuance details and implications: - Eurobond issued in March 2019 for EUR 500 million (equivalent to 5.2 percent of 2019 GDP), yield 6 percent, weighted maturity 6 years; two times oversubscribed with EUR 1.1 billion demand. - Authorities reduced domestic financing by the same amount; 2019 borrowing plan unchanged. - Short- to medium-term exchange rate risk considered small given the FCFA peg to the euro; refinancing risks to be monitored as Eurobond approaches maturity. - Key DSA indicators (selected): - PV of PPG external debt-to-GDP ratio: 18.2 (2019), 24.8 (2020), 24.6 (2021), 24.3 (2022), 24.2 (2023), 23.8 (2024), 16.5 (2029), 9.9 (2039). - PV of PPG external debt-to-exports ratio: 82.4 (2019), 102.6 (2020), 95.9 (2021), 90.8 (2022), 87.4 (2023), 86.7 (2024), 56.8 (2029), 33.9 (2039). - Debt service-to-revenue ratio: 64.7 (2018); projected 50.7 (2019), 52.5 (2020), 54.7 (2021), 41.1 (2022), 35.1 (2023), 33.3 (2024). ### Financial sector and prudential measures - Basel II and III implementation effective January 2018 introduced new capital and provisioning definitions; regulatory capital adequacy ratio in 2019 should not be below 8.625 percent. - At end-June 2018, 5 of the 12 reporting banks making loans were below the regulatory threshold. - Provisioning rate (percent): 66.4 (2017), 70.0 (2018, June). - Liquid assets to total assets (percent): 14.5 (2017), 14.4 (2018, June). - Measures to improve bank profitability and credit: cadaster and land registry reforms, decree to facilitate conversion of occupancy permits into real estate titles, role of the CDC to lower cost of term deposits. ### Public financial management, debt management and public enterprises - NDF ceilings (cumulative since January 1 of the same year) for 2019: - CFAF 15 billion at end-March 2019. - CFAF -38.0 billion at end-June 2019. - CFAF -158.5 billion at end-September 2019. - CFAF – 289.0 billion at end-December 2019. - Floor of Total Government Revenue (cumulative since January 1 of the same year) for 2019: - CFAF 235.1 billion at end-March 2019. - CFAF 505.5 billion at end-June 2019. - CFAF 762.5 billion at end-September 2019. - CFAF 1112.4 billion at end-December 2019. - Priority social expenditure indicative targets: - CFAF 37.2 billion at end-March 2019. - CFAF 82.5 billion at end-June 2019. - CFAF 140.7 billion at end-September 2019. - CFAF 180.0 billion at end-December 2019. - Caisse Autonome d’Amortissement (CAA) reforms: capacity building, reorganization, loan repayment mechanism, portfolio managers, daily due date monitoring table. - Non-guaranteed commercial debt of public enterprises: CFAF 49.9 billion, or 0.86 percent of GDP at end-December 2018. ### Program implementation, performance criteria and monitoring - Program implementation satisfactory: all QPCs at end-December 2018 met; all structural benchmarks met at end-March 2019. - Selected QPC outcomes: - Net domestic financing (NDF) of the government: CFAF -51.4 billion (ceiling: CFAF 118.8 billion). - Basic primary fiscal balance: CFAF 17.6 billon (floor: CFAF 3.9 billion). - Total government revenue: CFAF 1,028.6 billion (floor: CFAF 1,021.6 billion). - Data reporting and requirements: monthly, quarterly, and ad hoc submission schedules specified for monitoring. ### Implementation of past IMF recommendations (Annex I) - Economic development: Promote diversification, improve agricultural productivity, promote private sector investment — In progress. - Fiscal policy: Meet WAEMU fiscal convergence criterion — Good; broaden tax base — Good; modernize tax and customs administrations — In progress. - Debt management: Ensure programmed fiscal consolidation — Good; seek longer maturity obligations on regional market — In progress. - Financial sector: Address stability risks from unauthorized MFIs — In progress. - Governance: Strengthen audit institutions and anti-corruption framework — In progress. - Data: Improve quality and timeliness of economic data and address gaps — Low. ### Capacity development, statistics and forward-looking priorities (FY2020) - Key CD priorities: enhance domestic revenue mobilization; increase efficiency of public expenditures; improve budget preparation and execution; improve cash management; strengthen economic governance; improve statistical oversight. - Statistics: National accounts rebasing to SNA 2008 and 2015 base year; final revised estimates expected no later than summer of 2019. - Public investment management: improve project selection, ex ante assessment, procurement, information systems, and cost assessment. - Tax administration: implement VAT gap analysis, VAT forecasting, digitalization of procedures, and full rollout of SIGTAS and electronic filing. *Source: IMF staff report — 1. Medium-Term Growth in Benin.* ### 1. Medium-Term Growth in Benin ________________________________________________________________ 7 ### 1. Medium-Term Growth in Benin ### Background and development challenges - GDP per capita: $829 in 2017 (below SSA weighted average of $1,574). - Human Development: Benin in the bottom quartile of the 2017 Human Development Index. - Poverty: about 40 percent of the population. - Large development gaps in health staffing, sanitation, electricity, and literacy. - SDG additional expenditure needs estimated at around 20 percent of GDP by 2030. - Authorities’ strategic frameworks: 2018-25 national development plan; 2016-21 Government Action Plan (GAP); membership in the Compact with Africa (CwA). - Structural bottlenecks: small domestic market, high informality, governance weaknesses. ### Recent macroeconomic developments (selected indicators and facts) - Real GDP growth: - 2017: 5.8 percent. - 2018 (estimate): 6.7 percent — driven by strong agriculture and port activity. - Cotton production: - 2017: 598,000 tons. - 2018: expected to exceed 700,000 tons. - Port activity: volume of merchandise at the Port of Cotonou increased by over 8.5 percent in 2018. - Inflation: 1 percent in 2018. - Fiscal performance: - 2017 fiscal deficit: 5.9 percent of GDP. - 2018 fiscal deficit (estimate): 4.0 percent of GDP (lower than 4.7 percent anticipated at third review). - 2019 commitment-based fiscal deficit revised from 2.7 to 3.0 percent of GDP after audit uncovered arrears. - Spending on priority social sectors in 2018: CFAF 202.4 billion (above end-December floor CFAF 167.0 billion). - Current account: - 2017 (including grants): deficit 10.0 percent of GDP. - 2018 (including grants): deficit 8.3 percent of GDP — improvement driven by cotton and cashew exports. - Financial sector vulnerabilities: - Aggregate capital adequacy ratio (CAR): 11.9 percent at end-2017 to 7.6 percent at end-June 2018. - Regulatory threshold: 8.6 percent. - Note: Using new definition of capital, aggregate CAR at end-2017 would have been 8.4 percent. - Non-performing loans (NPLs): 19.4 percent of total loans in 2017 to 18.9 percent in June 2018. - Credit concentration: credit to five largest borrowers rose from 91.6 percent of banks’ capital at end-2017 to 103.3 percent in June 2018. - Banking sector recorded aggregated losses for three consecutive years in 2015-17. - Program performance: All end-June and end-December QPCs met since program start in 2017, except non-accumulation of new domestic arrears over March-June 2018 due to institutional oversight. ### Medium-term outlook and risks - 2019 growth forecast: 6.7 percent (revised up). - Potential growth: estimated above 6½ percent. - Medium-term drivers: strong agriculture, transportation, rising private investment, lagged effect of public investment scaling-up. - Inflation: expected to stay below the 3 percent WAEMU regional limit over the forecast horizon. - Public debt and financing: - Public debt ratio expected to start declining from 2019 after five years of increase due to fiscal consolidation and strong growth. - 2019 developments affecting debt projection: - Arrears from previous governments added to 2019 debt stock; to be repaid in cash over three years at 0.1 percent of GDP per year. - March 2019 Eurobond issuance: €500 million (5.2 percent of GDP); domestic financing reduced by same amount; total borrowing for 2019 unchanged but external share increased. - Public investment ratio: 5.9 percent of GDP in 2016; 9.1 percent in 2017; projected to return gradually to 6.0 percent by 2024. - Current account medium-term: gradual convergence towards about 5 percent of GDP (assumes fiscal consolidation and agricultural expansion). - Downside risks (short-term and medium-term): - Political discontent following April 2019 Parliamentary elections disrupting reform momentum. - Lower-than-expected growth in Nigeria weakening Benin’s exports, fiscal position, and growth. - Further deterioration in bank profitability weighing on credit and formal-sector activity. - Medium-term dependence on revival of private investment and attraction of foreign investors. - Tightening of international and regional financial conditions raising debt servicing costs. ### Box 1 — Medium-Term Growth estimation approaches and results - Statistical filter (Hodrick-Prescott): trend output growth at 6.5 percent (for 2018). - Econometric Growth-at-Risk (GaR) model: medium-term growth between 6.4-6.8 percent depending on specification. - Production function approach: - Uses ILO demographic data, capital accumulation projections, and alternative TFP scenarios (25th, 50th, 75th percentiles of productivity growth over 2008-18). - Places growth in the range of 5.5 and 7.3 percent at the end of the forecast horizon, with a mid-point at 6.6 percent. ### Policy discussions — five key components of a medium-term strategy - Overall objective: put Benin on the path towards achieving the SDGs through stable, inclusive, and diversified growth. A. Creating fiscal space for development programs (revenue mobilization) - 2018 tax-to-GDP ratio: 14.0 percent of GDP (below SSA median 15.1 and non-resource-rich LIDCs median 15.4 percent of GDP). - Measures taken: - Elimination of some tax expenditures for GSM mobile phone companies in mid-2018 — budgetary savings for 2019 estimated at 0.3 percent of GDP. - 2019 budget removed 0.9 percent of GDP of tax exemptions. - Strategy and projections: - Baseline projections over 2020-24 assume fiscal consolidation will rely on scaling down public investment toward pre-scaling-up levels. - Preferred medium-term fiscal strategy should focus on revenue mobilization to avoid compressing public investment and to create sustained budgetary space for development programs. - Universal health insurance system: pilot phase started; objective to be fully operational by 2022; staff emphasized the system should be fully financed and technical/capacity shortfalls addressed before generalization. - Revenue potential from consumption taxes and compliance improvements: - Closing VAT policy and compliance gaps could generate around 3 percent of GDP. - Aligning the excise revenue-to-GDP ratio with the SSA average could raise 0.5 percent of GDP. - Such a large revenue effort could be achieved over a decade at a pace of ¼-½ percent of GDP per year; this effort is not included in current baseline projections. - Tax incentives and special economic zones: - Authorities contemplating creation of special economic zones to support food processing industry. - Staff cautioned that targeted incentives can have large budgetary costs, be redundant, or distortive when offsets place excessive burden on other narrow tax bases. - Recommendation: tax incentives must be carefully designed, periodically assessed for budgetary impact, and accommodated by revenue-raising measures. ### Financial sector and governance priorities - Financial sector vulnerabilities warrant close monitoring and corrective measures to safeguard credit provision and macroeconomic stability. - Governance reforms: critical to improve business climate, diversify growth engines, and attract private and foreign investment. *Source: IMF staff report — 1. Medium-Term Growth in Benin.* ### Box 2. The Universal Health Insurance System ### Box 2. The Universal Health Insurance System ### Program overview - In May 2017, the government of Benin adopted the legal framework establishing a new social protection system (Assurance pour le Renforcement du Capital Humain, ARCH) aimed at ensuring effective and affordable social insurance to the Beninese population, especially the poor (40 percent of the total population). - ARCH contains four services: universal health insurance, training, credit provision, and pension insurance for people in the informal sector. - The health insurance is the main component of ARCH and its implementation is the most advanced. ### Implementation status - In 2019, the government started a pilot phase in three regions by identifying and testing the system on the poorest populations. - The insurance is expected to be progressively expanded to the rest of the population and become fully operational by 2022. ### Financing and fiscal cost - Studies about financing and implementation are being conducted with the assistance of USAID and the World Bank. - The system is expected to be self-financed, except for poor populations who will benefit from a public subsidy to cover their insurance premium. - Budgetary cost estimates: - Pilot phase (2019 budget): 0.06 percent of GDP (tested on a small sample of the population, about 300,000 extreme poor). - When generalized: expected to reach 0.5 percent of GDP, according to preliminary estimates. - Planned financing for the public subsidy when generalized: to be covered with additional taxes generated by the medium-term revenue mobilization strategy (Selected Issues Paper III). *Box 2. The Universal Health Insurance System* ### 35. Microfinance institutions (MFIs) can also play an important role in fostering financial ### Microfinance Institutions (MFIs) in Benin ### Role and policy stance - MFIs can play an important role in fostering financial inclusion and supporting economic development, provided that they are well regulated. - Staff encouraged the government to continue formalizing viable and closing unviable unauthorized MFIs. - The human resources of the National Surveillance Agency (Agence nationale de surveillance des systems financiers décentralisés) could be strengthened to better detect risks early on and enforce regulations, including through timely closure. ### Sector structure and key statistics (Box 4) - 112 licensed entities in 2018. - Serving over 20 percent of the country’s population. - CFAF 107 billion in deposits collected (1.8 percent of GDP). - CFAF 158 billion in loans issued (2.7 percent of GDP). - Large number of unauthorized MFIs: latest available census (2011) recorded 495 unauthorized entities. - Over the 2013-2018 period: - 240 unauthorized MFIs were formalized. - 17 nonviable MFIs were closed. - Mobile money expansion: - Active mobile money account holders increased from 393,000 to 2.5 million between 2015 and 2018. - Policy actions and planned measures: - Enacted enhanced measures governing issuance of MFI licenses in 2018. - Strengthened national supervisory activities, including implementing a digital collection of financial information from supervised entities. - Planning another census by end-2019 to obtain a better purview of the current MFI sector. - Initiated reforms to enhance capacity of supervisory personnel at the National Surveillance Agency but face significant retention problems. - Exploring synergies between MFIs and mobile money providers via the National Fund for Microfinance (Fonds National de Microcrédit) and developing technological infrastructure to support mobile micro-credit. - Joint assessment with BCEAO of risks for mobile money operators (e.g., lack of interoperability and liquidity problems). ### Authorities’ views on MFIs and related financial sector measures - Authorities committed to continuing cleaning up the MFI sector and supporting synergies between MFIs and mobile money operators. - Measures to improve bank profitability (noting non-bank institutions context): - Decree adopted to tackle practical issues with formalization of real estate guarantees (MEFP¶ 23). - Cadaster and land registry reforms to help evaluate real estate assets owned by banks. - Role of the CDC to lower the cost of term deposits and encourage greater mobilization of resources (MEFP¶ 53-54). - Authorities face significant problems retaining qualified supervisory staff. ### Governance, anti-corruption, and related reforms (selected findings and recommendations) - Perception and impacts: - Corruption described as the second most problematic factor for doing business in Benin per the 2018 Global Competitiveness Report. - Benin performs better than the SSA average in most international governance rankings, with progress in recent years. - Fiscal governance recommendations: - Revenue administration: shift more resources towards audit, control, and risk monitoring functions. - Public financial management: consolidate the TSA and strengthen public investment management, project selection, and procurement oversight. - Regulatory and business environment recommendations: - Trade facilitation: simplify and shorten customs procedures to reduce risks of negotiations and illegal payments. - Enforcement of contracts and property rights: ensure efficiency of Commercial Courts, transparent enforcement of court fees, and publication of judgements. - Anti-corruption and AML recommendations: - Strengthen asset declaration regime to better detect acts of corruption. - Provide full independence to the anti-corruption agency and publish its annual reports. - Adopt an anti-corruption strategy with priorities, action plan, timelines, and identified resources. - Strengthen AML regime by enhancing capacity of the financial intelligence unit, reinforcing supervision of regulated sectors, and addressing recommendations of the upcoming evaluation against FATF standards. ### Program context, financing, and macro outlook (selected figures relevant to financial stability) - Eurobond inclusion in financing: - 2019 external financing ceiling updated and increased by the amount of the Eurobond (5.2 percent of GDP); domestic financing ceiling revised down by the same amount. - Financing assurances: - Program fully financed up to April 2020. - At end-April 2019, outstanding Fund credit (including the GRA) was around 91.00 percent of quota or SDR 112.44 million. - Macro outlook and fiscal framework: - Preliminary estimate: 2018 growth accelerated to 6.7 percent. - Medium-term growth projected "above 6½ percent" over 2019-24. - Maintaining fiscal deficit below 3 percent of GDP is key for debt sustainability; authorities are expected to comply with the WAEMU 3 percent of GDP deficit ceiling in the year of the report. - Debt ratio projected to decline in 2019 after five years of continuous increase. - Eurobond may lengthen debt maturity but could generate new vulnerabilities that require monitoring. *Source: 1benea2019001 - 35.* ### 59. Staff recommends that the next Article IV Consultation be held on the 24-month cycle. ### 1benea2019001 - 59. Staff recommends that the next Article IV Consultation be held on the 24-month cycle. ### Staff recommendation - Staff recommends that the next Article IV Consultation be held on the 24-month cycle. ### Recent economic developments (high-level findings from figures and text) - Growth has increased since 2016, pulled primarily by the tertiary sector. - Inflation has remained subdued. - The fiscal deficit has improved significantly under the program. - Industrial production has picked up since mid-2017. - The large structural gap between exports and imports is narrowing. - The current account deficit improved in 2018. - Cotton production rose in recent years, and cotton prices trended up until mid-2018. - While the CFA franc depreciated against the US dollar in 2018, the real effective exchange rate remained stable. ### Key fiscal outcomes and projections (selected figures preserved exactly as presented) - Overall fiscal deficit (commitment basis, incl. grants): -5.9 (2017), -4.7 (2018), -4.0 (2019), -2.7 (2020), -3.0 (2021), -2.5 (2022), -2.0 (2023), -1.7 (2024), -1.5 (2025), -1.3 (2026) (percent of GDP). - Total revenue (percent of GDP): 26.6 (2017), 8.2 (2018), 8.9 (2019), 8.9 (2020), 8.1 (2021), 10.0 (2022), 8.7 (2023), 8.7 (2024), 8.7 (2025), 8.7 (2026). [Note: table presents dual formats; listed as in source.] - Government debt (central government debt, percent of GDP): 54.3 (2017), 54.4 (2018), 56.1 (2019), 53.8 (2020), 54.1 (2021), 52.0 (2022), 49.8 (2023), 47.8 (2024), 46.0 (2025), 44.2 (2026). - Government debt (total nonfinancial public sector debt, percent of GDP): 54.4 (2017), 54.4 (2018), 56.4 (2019), 54.0 (2020), 54.7 (2021), 52.5 (2022), 50.3 (2023), 48.3 (2024), 46.4 (2025), 44.6 (2026). - Government investment (percent of GDP): 9.1 (2017), 8.2 (2018), 7.7 (2019), 7.2 (2020), 7.2 (2021), 6.6 (2022), 6.5 (2023), 6.3 (2024), 6.1 (2025), 6.0 (2026). - Improved tax revenues combined with a scaling down of public investment led to a stronger fiscal position in 2018. ### External sector and balance of payments (selected figures preserved exactly) - Current account balance (incl. grants, percent of GDP): -10.0 (2017), -8.9 (2018), -8.3 (2019), -8.4 (2020), -7.8 (2021), -7.1 (2022), -6.5 (2023), -6.2 (2024), -5.6 (2025), -5.1 (2026). - Balance of goods and services (percent of GDP): -12.5 (2017), -11.3 (2018), -10.6 (2019), -10.3 (2020), -9.6 (2021), -9.0 (2022), -8.2 (2023), -8.0 (2024), -7.4 (2025), -6.9 (2026). - Exports (percent of GDP, memorandum): 16.1 (2017), 18.2 (2018), 18.7 (2019), 20.4 (2020), 20.9 (2021), 22.6 (2022), 24.0 (2023), 25.2 (2024), 26.0 (2025), 26.6 (2026). - Imports (percent of GDP, memorandum): -23.7 (2017), -24.1 (2018), -23.6 (2019), -25.0 (2020), -24.6 (2021), -24.8 (2022), -25.1 (2023), -25.6 (2024), -26.2 (2025), -26.9 (2026). - Overall balance of payments (billions of CFA francs): 3.2 (2017), 6.1 (2018), 3.7 (2019), 4.3 (2020), 6.4 (2021), 4.2 (2022), 4.4 (2023), 4.5 (2024), 4.6 (2025), 4.8 (2026). ### Monetary and financial sector (selected figures preserved exactly) - Broad money (M2, change in percent of beginning-of-period broad money): 1.0 (2017), 6.9 (2018), 5.5 (2019), 8.4 (2020), 8.3 (2021), ... (as reported). - Net foreign assets (monetary survey, billions of CFA francs): 994.9 (2017), 1,369.1 (2018), 1,185.4 (2019), 1,661.7 (2020), 1,609.0 (2021), 1,914.2 (2022). - Credit to the nongovernment sector (year-on-year change of end-December credit stock, percent): 1.9 (2017), 2.1 (2018), 19.0 (2019), 11.5 (2020), 9.8 (2021), 7.3 (2022). ### IMF program financing and disbursements (selected figures preserved exactly) - Schedule of disbursements under the ECF arrangement (dates and amounts): - 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. - Table notes: The upward revision in 2019 relative to EBS/18/364 is due partly to the Eurobond issuance. - Eurobond: The Eurobond of FCFA 325 billion is used for budget financing. ### Financing needs and external requirement (selected figures preserved exactly) - Gross external requirement (percent of GDP): Total financing requirement 8.8 (2019), 8.3 (2020), 7.8 (2021). - Current account deficit (excluding grants, percent of GDP): 8.2 (2019), 7.5 (2020), 6.9 (2021). - Total financing sources (percent of GDP): 13.7 (2019), 11.5 (2020), 11.7 (2021). - Increase in gross reserves (percent of GDP): 5.8 (2019), 3.9 (2020), 4.3 (2021). - Total financing needs (percent of GDP): 0.9 (2019), 0.7 (2020), 0.5 (2021). ### Fiscal financing composition and operations (selected operational details) - Consolidated central government operations (billions of CFA francs, selected lines): - Total revenue (excluding grants): 944.4 (2017 Act.), 1,021.7 (2018 Est.), 1,028.6 (2019 Prog.), rising in projections to 1,707.3 (2026 Prog.). - Total expenditure and net lending: 1,318.1 (2017 Act.), 1,346.2 (2018 Est.), 1,305.9 (2019 Prog.), rising in projections to 1,954.4 (2026 Prog.). - Capital expenditure and net lending: 497.9 (2017), 475.0 (2018), 448.2 (2019), projected 569.7 (2026). - Overall balance (commitment basis, incl. grants): -316.5 (2017), -270.1 (2018), -230.1 (2019), projected -121.9 (2026) (billions of CFA francs). - Financing composition changes reflect issuance of the eurobond and related reduction in domestic borrowing. ### Financial stability indicators (selected observations) - Gross NPLs to total loans (percent): 18.6 (2012), 21.2 (2013), 21.5 (2014), 22.1 (2015), 21.8 (2016), 19.4 (2017), 18.9 (2018, June). - Provisioning rate (percent): 46.8 (2012), 48.0 (2013), 49.0 (2014), 55.0 (2015), 64.0 (2016), 66.4 (2017), 70.0 (2018, June). - Liquid assets to total assets (percent): 22.9 (2012), 21.9 (2013), 23.0 (2014), 18.9 (2015), 16.2 (2016), 14.5 (2017), 14.4 (2018, June). ### Implicit policy implications reflected in the data and program - Fiscal consolidation has been supported by improved tax revenues and a scaling down of public investment, contributing to a stronger fiscal position in 2018. - The issuance of a Eurobond (FCFA 325 billion) altered the composition of financing, reducing domestic borrowing requirements. - External financing, project loans, and budgetary assistance remain important to meet capital expenditure and reserve accumulation objectives. - The ECF arrangement disbursement schedule and prospective financing underpin near-term budget and external financing plans. *Source: Benin — IMF staff report content (figures, tables, and text) provided in the supplied PDF content unit.* ### Annex I. Implementation of Past IMF Recommendations ### Annex I. Implementation of Past IMF Recommendations ### Economic development - Promote economic diversification by focusing on sectoral policies, improving education, bolstering governance, and upgrading infrastructure and trade networks. — In progress - Improve agricultural productivity. — In progress - Promote private sector investment by improving the business environment. Address weaknesses in the doing business indicators. — In progress ### Fiscal policy - Meet the WAEMU’s fiscal convergence criterion. — Good - Accelerate the reforms needed to broaden the tax base. — Good - Modernize tax and customs administrations, improve their efficiency, strengthen their coordination and enhance tax compliance. — In progress - Implement key supportive structural measures to increase the absorptive capacity and the efficiency of investment spending. — In progress - Adopt cost-effective safety net programs such as e-vouchers and mobile transfers to protect the most vulnerable. — Not implemented ### Debt management - Ensure that the programmed fiscal consolidation path is achieved to support the public debt anchor and preserve long-term debt sustainability. — Good - Seek longer maturity obligations on the regional market. — In progress - Better monitor fiscal risks related to PPPs and SOEs. — Low ### Financial sector - Address stability risks from unauthorized MFIs. — In progress ### Governance - Strengthen audit institutions. — In progress - Strengthen the anti-corruption framework. — In progress ### Data - Improve the quality and timeliness of economic data and address data gaps—in particular, balance of payments, international investment position, employment, and social indicators. — Low - Address weakness in public finance by finalizing a framework to implement the Government Financial Statistics Manual. — Low *Annex I. Implementation of Past IMF Recommendations (assesses recommendations made in the 2017 IMF Article IV report).* ### 2019. The mission seeks to assess progress ### 1benea2019001 - 2019. The mission seeks to assess progress ### Assessment of Public Investment Management (follow-up to October 2016 PFM/PIMA mission) - Status: Ongoing follow-up mission noted some progresses regarding the planning of investments and the cleaning of the public investment projects’ pipeline. - Remaining weaknesses (as highlighted in the October 2017 mission) that persist: - (i) ex ante assessment of projects - (ii) ex ante selection of projects - (iii) procurement system - (iv) information system - (v) assessment cost of investment projects - Consequence: Lack of progress in these key areas will continue to hinder the efficiency of public investment that remains relatively weak in Benin compared to peers. ### Overall Assessment (Capacity Development Strategy for FY2019–20) - Implementation of macroeconomic and structural policies in Benin has generally been satisfactory. - Authorities show strong ownership of the IMF program and underlying reform agenda, which is well aligned with the GAP priorities. - CD program and TA delivery are intrinsically interweaved with the ECF arrangement’s policy recommendations. - Constraints that can weigh on CD impact: - coordination and capacity issues - data gaps - high staff turnover at both senior and technical levels - limited resource allocation ### Objectives and Past Achievements - Key CD priorities: enhance domestic revenue mobilization, increase efficiency of public expenditures (particularly capital spending), improve budget preparation and execution, improve cash management, strengthen economic governance, and improve statistical oversight. - Selected recent achievements: - Gradual implementation of the TSA. - Increased capacity to formulate economic and financial policies under the ECF-supported program, including macroeconomic forecasts. - Enhanced production of budget execution data and reports. - Stronger link between national strategies and the investment program. - Extension of multiyear planning to all sectors. - Better performance of the tax and customs administrations, and better assessment of tax expenditures. - Support provided to the National Institute of Statistics to rebase the national accounts. ### Forward-Looking Priorities and Challenges (FY2020 key priorities) - Areas for improved CD impact: revenue and customs administration, tax policy, PFM, debt management, national accounts, and quality of macroeconomic data. - Specific needs and gaps: - Public investment management: improve efficiency and transparency in investment project selection and monitoring. - Revenue administration: scope for efficiency gains given the large size of the compliance gap. - Tax and customs cooperation: exchange of information improved but cooperation not fully effective. - SOE oversight: SOE unit created in 2017, but oversight is weak and reporting/monitoring could be improved. - TSA: created but implementation delayed. - Tax expenditures: assessment needs to be more comprehensive. - Internal audit and control: strengthen methods using professional standards and systematic risk-based approach; full implementation of the Chart of Accounts needed. - Main risk to CD: weak absorptive capacity; mitigation: carefully select and design TA programs tailored to local needs. - FY2020 priorities and objectives by area: - Tax Policy: - Set up a fiscal reference system to provide a comprehensive assessment of tax expenditures and agree on a plan to reduce them over the medium term. - Tax Administration: - Assess the implementation of plan developed in 2017 to improve tax compliance with focus on: (i) limit fiscal fraud, (ii) improve services to taxpayers, (iii) complete digitalization of tax procedures. - Improve VAT management by supporting formulation of VAT targets (VAT gap analysis) and improve VAT forecasts. - Customs Administration: - Support customs to finalize the automated risk management project to better secure revenues from trade. - Support tax and customs administrations to better exchange information. - Public Financial Management: - Consolidate progress on the medium-term expenditure framework which needs to be fully implemented. - Enhance the efficiency of public spending through implementation of the updated action plan. - Make the TSA fully operational while limiting the impact of its consolidation and operationalization on commercial banks. - Improve risk assessment and monitoring of contingent liabilities of SOEs. - Strengthen fiscal reporting and accounting particularly for newly creating public agencies and upcoming PPP projects. - Statistics: - National accounts: update base year and move to 2008 SNA, including the completion of the GDP rebasing. - External statistics: improve both current and financial account data collection and quality. - Enhance e-GDDS. ### Recent Economic Developments (selected points) - Growth: - 2018 growth estimated at 6.7 percent, driven by record cotton and vegetable production and strong port activity. - Initial estimates suggest growth will remain robust in 2019 owing to port sector performance. - Inflation: - Inflation in 2018 was 1.0 percent. - Current account: - Current account deficit (including grants) fell from 10.0 percent of GDP in 2017 to 8.3 percent of GDP in 2018. - Fiscal performance: - Fiscal deficit (on a commitment basis, grants included) estimated at 4.0 percent of GDP in 2018, compared to 5.9 percent of GDP in 2017. - Mobilized revenue at end-December 2018: CFAF 1,028.6 billion (initial program target: CFAF 1,021.6 billion). - Nontax revenue: CFAF 217.2 billion (initial target: CFAF 166.4 billion). - Customs revenue shortfall: CFAF 55.1 billion. - Public debt: - Public debt to GDP rose from 54.4 percent in 2017 to 56.8 percent in 2018. - 2019 projection: public debt decline to 54.7 percent as a result of fiscal consolidation and strong growth. - Eurobond issuance in 2019: €500 million (equivalent to 5.2 percent of GDP), weighted maturity of 6 years, interest rate of 6 percent, 3-year repayment plan over 2024-26. - Eurobond offset domestic borrowing; overall debt level unchanged. - DSA confirms moderate risk of debt distress unchanged since December 2018 DSA. ### Banking Sector (selected indicators) - Aggregate banking system capital ratio: - Declined from 11.9 percent at end-2017 to 7.6 percent at end-June 2018. - Most of decline due to new prudential arrangement and new accounting framework. - Liquidity ratio (total loans/total deposits): 82 percent at end-June 2018. - Nonperforming loans: - Ratio of nonperforming loans to total loans: 19.4 percent in December 2017 to 18.9 percent in June 2018. - Concern: heavy concentration of bank loan portfolio (loans to the 5 largest borrowers/equity capital). ### Program Implementation and Performance (end-December 2018) - Overall: program implementation satisfactory; all QPCs at end-December 2018 met; all structural benchmarks met at end-March 2019. - Selected QPC outcomes: - Net domestic financing (NDF) of the government: CFAF -51.4 billion (ceiling: CFAF 118.8 billion). - Basic primary fiscal balance: CFAF 17.6 billon (floor: CFAF 3.9 billion). - Total government revenue: CFAF 1,028.6 billion (floor: CFAF 1,021.6 billion). - Structural benchmarks achieved included: - elimination of tax expenditures equivalent to CFAF 60 billion in the 2019 budget law; - establishment of a credit bureau by the Ministry of Finance; - audit of the stock of arrears to domestic suppliers; - decision to strengthen enforcement of regulatory framework for microfinance supervision and licensing; - introduction of performance contracts with main public enterprises. ### Fiscal Management and Revenue Agencies - Customs: - Progress in implementation of the one-stop foreign trade window (GUCE): portal available; interface between GUCE and goods tracking system operational; import intentions centralized within GUCE. - Customs collects just 5 percent of duties resulting from detection of infractions during control processes — major weakness to address. - Plan to strengthen statistical monitoring service by adding new statisticians to customs staff before end-December 2019. - Taxes (DGI): - Continued reforms under the Strategic Orientation Plan (POSAF): - promote use of banking system for tax payments (share collected through banking system rose from 17 percent in December 2017 to 36 percent in June 2018). - rollout of tax management system (SIGTAS). - launch in March 2018 of electronic filing and payment procedures; extended to major companies at Coastal, Atlantic, and Borgou-Alibori CIME. - launch of electronic billing machines to improve VAT collection. - Plan to conduct an initial assessment of electronic procedures and electronic billing machines by end-2019. *Source: 1benea2019001 - 2019. The mission seeks to assess progress* ### 12. We also strengthened cooperation between the customs and tax agencies. Several IT ### 12. We also strengthened cooperation between the customs and tax agencies. ### Tax-administration IT integration and inter-agency cooperation - Established a shared platform for tax-customs data exchanges. - Developed several integrated interfaces in the shared platform. - Key capabilities integrated into the platform: - keeping the comprehensive taxpayer directory up to date vis-à-vis the tax administration; - automatic integration of the new Single Taxpayer Identification (Identifiant fiscal unique, IFU) numbers generated by SIGTAS; - recognition by the Automated System for Customs Data (ASYCUDA) of the activation/deactivation of taxpayers; - automatic integration of all paid customs declarations in ASYCUDA. - Recent crosscheck of the two revenue agencies’ data showed that some importers are still unknown to DGI staff, indicating further strengthening of cooperation is needed. - Immediate enforcement measure: ensure that the system of penalties applicable to importers unknown to the tax administration – a fine of 10 percent, possibly increased by an additional 3 percent – is assessed. ### Tax policy transparency and capacity - Since 2016, the Tax Policy Unit (UPF), with IMF support, prepares an annual report with a list of tax exemptions attached to the budget law for the following year. - Current practice publishes only the evaluation of tax expenditures. - Commitments to improve transparency: - include the tax expenditure inventory as part of the report on tax expenditures; - make it easier for the UPF to access SIGTAS to ensure their autonomy in collecting data needed to estimate tax expenditures; - allow the Directorate of Large Enterprises to focus on other important tasks. ### Public expenditure rationalization and public investment management - Continued reforms in 2018 to rationalize public expenditure, including wage-bill management measures: - census-payment operations focused on active and retired government employees, carried out with the aid of biometrics; - use of the banking system for student scholarships; - systematic use of the banking system for periodic benefits paid to active employees and pensions of CFAF 50,000 or more. - Steps to improve effectiveness and transparency of public investments: - continuation of the effort to clean up the public investment projects (PIP) pipeline; - creation of a “public investment preparation and management fund” to finance investment project feasibility studies; - better articulation of national and sectoral strategies with the public investment program (PIP). - Noted remaining weaknesses: ex-post evaluation of projects, and their physical and financial monitoring. - Commitment to continue implementing recommendations from the follow-up report on evaluation of public investment management. ### Debt management office (CAA) reforms and public enterprise debt - CAA capacity-building and organizational reforms: - recruiting bilingual staff with qualifications in econometrics and statistics; - reorganization of the operations department for more rigorous monitoring and control of disbursements and repayments; - establishment of portfolio managers responsible for particular types of lenders (local banks, foreign banks, technical and financial partners, etc.); - launched a loan repayment mechanism in October 2018 intended to take effect 15 days before due dates; - established a due date monitoring table updated daily; - created a team devoted to financial analysis of loans and a team to monitor loan processes from negotiation to signature; - created a legal team for loan-related legal issues; - redesigned the CAA’s website and established a coordination committee, chaired by the minister, to consolidate communications between the Treasury and the CAA during drafting of the cash flow plan. - Survey results on public enterprises: - Benin has 13 public enterprises of an economic nature that are in operation. - non-guaranteed commercial debt of public enterprises was equal to CFAF 49.9 billion, or 0.86 percent of GDP at end-December 2018. - To minimize fiscal risks, the CAA is coordinating, with the Directorate General of Government Holdings and Privatization (DGPED), a monitoring arrangement providing for periodic meetings with these enterprises. ### Debt reprofiling operation and financing terms - October 2018 program to optimize the debt portfolio through a reprofiling operation: repurchasing certain short-term costly domestic loans with proceeds from long-term loans contracted with international commercial creditors at lower interest rates. - Financing structure and guarantees: - guarantee amounts to EUR 154.8 million (equivalent to USD 180 million, corresponding to an International Development Association (IDA) allocation of USD 45 million), for a commercial loan to the government denominated in euros in the amount of EUR 387 million (equivalent to USD 450 million). - Utilization of proceeds: - used two-thirds of the funds to buy back costly domestic debt, including debt owed to a regional development bank. - Expected outcomes: - reduce interest costs of public debt and extend its average maturity. ### Governance reforms: administrative control and justice - Reform objectives for administrative control bodies: - make the Inspectorate General of Finance (IGF) the central body for operational coordination of government internal audit units and for monitoring ministry responses to main audit recommendations; - put sectoral ministries at the center of ministries’ internal control systems; - find long-term solutions to shortage of quality human resources within government internal audit bodies; - reduce vulnerability of audit institutions and increase their contribution to service effectiveness; - provide auditors with sufficient resources to perform assignments. - Regulatory changes: - government issued three decrees to transition from “inspection-verification” to “internal audit” across the public administration, adopting international standards and addressing institutional and regulatory obstacles. - Justice sector reforms in 2018: - created and operationalized two commercial courts after identification of buildings and appointment of professional and consular judges: the Commercial Court of Cotonou and the Court of Commercial Appeals of Porto Novo; - installed the Court for the Suppression of Economic and Terrorism Crimes (CRIET) in August 2018 to curb terrorism and economic crimes, and suppress drug trafficking and related crimes. ### Anti-corruption and international governance standards - National Anti-Corruption Authority (ANLC) initiatives to implement the asset declaration regime under the 2011 Anti-Corruption Law: - ensure penalties are imposed by responsible courts if assets are not declared; - allow online declaration of assets. - February 2019: parliament passed the Law on Strengthening Public Governance allowing the state to hold officials responsible who mislead the government with negative impact on public finances. - Ratifications and harmonization: - Benin ratified the United Nations Convention against Corruption in 2005, the African Union Convention against Corruption, and the ECOWAS anti-corruption protocol. - ANLC preparing an action plan to implement recommendations from the National Integrity System (SNI) assessment by Transparency International in 2016. - June 2018: parliament adopted the new law on combating money laundering and the financing of terrorism to harmonize and strengthen national regulations with WAEMU measures. ### Financial sector prudential measures and inclusion - Basel II and III implementation (effective January 2018): - main components of capital regulations became effective in January 2018, including the definition of tier 1 capital, tier 2 capital, and the capital conservation buffer. - introduced incrementally starting January 1, 2018. - framework specifies that the capital adequacy ratio in 2019 should not be below 8.625 percent. - at end-June 2018, 5 of the 12 reporting banks making loans were below this regulatory threshold. - introduced a new chart of accounts for banks and an accounting framework for loan loss provisioning in line with the IFRS9 in January 2018. - liquidity ratio standards aligned with Basel II and III principles are being prepared at the regional level. - Credit Information Bureaus (CIB) and bank resolution: - Law on Credit Information Bureaus adopted and promulgated on January 23, 2017; the Bureau became fully operational in 2018. - ministerial decree authorizing opening of CREDITINFO-VOLO branch in Benin signed on February 1, 2018. - Annex to WAEMU Banking Commission agreement amended (Decision No. 10 of 29/09/2017/CM/UMOA) assigning resolution responsibility to the BC and establishing a Resolution College. - noted incompleteness of loan information prior to CIB establishment and credit histories older than 3 years due to need for prior customer authorization to report such information; considering legal options to remove this obstacle. - Land reform and collateral formalization: - created the National State Land and Land Tenure Agency (ANDF) in 2016 to handle conversion of occupancy permits into real estate titles. - 2016 Supplementary Budget Law initiative to eliminate recording fees increased number of real estate titles recorded. - plan to advance electronic recording of real estate titles (completed for Cotonou) across the country. - May 2019 decree to facilitate conversion of occupancy permits into real estate titles recognized as collateral by the banking regulator; expected to decrease banks’ provisioning and improve financial condition. - established a Trade and Personal Property Credit Register (RCCM) and planning electronic access to the register. - SME and microfinance support: - WAEMU SME/SMI support mechanism launched to promote SMEs, improve management, refinance bank loans to SMEs, and diversify financial instruments; BCEAO to provide refinancing at a rate of 2.5 percent. - Benin’s SME mechanism officially launched in August 2018. - Microfinance sector measures: - ministerial decision to strengthen supervision and licensing of microfinance institutions; - progress in closing unauthorized MFIs and rehabilitating the sector through the centralized IT solution SICS-SFD since 2016; - National Decentralized Financial Systems Surveillance Agency (ANSSFD) implementing rehabilitation strategy with three pillars: application of the law to all authorized decentralized financial systems; application of the law to all entities operating illegally; and continued strengthening for long-term sustainability. - From 2013 to end-November 2018, of the 25 entities on the initial list of unauthorized institutions, ANSSFD provided step-by-step support; five large-scale institutions with branches nationwide were authorized. - a national census of microfinance initiatives will be carried out in 2019 to update the list of institutions operating outside the regulatory framework. ### Program for 2019: objectives and macroeconomic framework - Program objective (three-year program 2017-2019 signed by the IMF and the government of Benin): - lay the foundation for accelerated and inclusive growth while preserving macroeconomic stability and public debt sustainability. - expected reform outcomes: - creating more fiscal space through mobilization of additional domestic resources; - enhancing the efficiency of public expenditure, particularly investments; - improving governance and the business environment to stimulate private sector activity. - Macroeconomic framework projections for 2019: - growth of 6.7 percent in 2019, supported by agriculture (cotton), port traffic, and construction. - inflation projected at 1.7 percent on average in 2019 following increases in food and oil prices in 2018. - current account deficit (including grants) expected to narrow to 7.8 percent of GDP in 2019 due to sustained export growth from the revitalization of the cotton sector and a decline in imports driven by scaling down of food imports and public investment. - Medium-term outlook: - growth expected to remain robust (above 7 percent). - strategy: strengthen traditional drivers (agriculture and port activity) and develop new high-potential sectors (tourism, the digital economy, and the knowledge economy). *International Monetary Fund* ### 29. In December 2018, the National Assembly passed the 2019 Budget Law in accordance with ### 29. In December 2018, the National Assembly passed the 2019 Budget Law in accordance with ### Fiscal outlook and 2019 Budget - Fiscal deficit, on a commitment basis (grants included), is expected to reach 2.7 percent of GDP in 2019 (3 percent when unpaid debt to suppliers identified during a recent audit are included), compared to 4.0 percent in 2018. - Government revenue is expected to amount to 17.7 percent of GDP in 2019. - Total expenditure would be contained at 22 percent of GDP (22.3 percent when the aforementioned unpaid debt is included). ### Tax measures and revenue mobilization - Tax expenditures are expected to decrease by an amount equivalent to 1.2 percent of GDP in 2019 (in part as a result of the elimination by the budget law of tax expenditure equivalent to CFAF 60 billion and the implementation of a system to control the exemptions granted under the special investment regimes). - Other tax-related measures in the 2019 budget: - withholding tax on hydrocarbon sales carried out in Benin by nonresidents; - enlargement of the base of the visitors’ tax in hotels and similar establishments, and transfer of responsibility for collection of the tax to the DGI; - increase in the rate of the tax on tobacco and cigarettes. - Expected mobilization from these tax policy measures, coupled with revenue agency reforms: CFAF 1,112.4 billion in government revenue in 2019. - Beyond 2019, continuation of tax revenue mobilization to create additional fiscal space to finance public investment and priority social spending. ### Wage promises, unpaid supplier debt, and provisions - The government inherited wage promises to civil servants and unpaid debt vis-à-vis domestic suppliers; some decided to be honored in 2019 to preserve social peace. - The 2019 budget includes a provision of CFAF 20 billion to begin settling these debts. - Audit estimate of the stock of unpaid debt to suppliers: 0.3 percent of GDP. ### Contingency measures if revenues fall short - Should revenue generated by the tax reforms fall short of budget forecasts, the government will ensure attainment of the fiscal deficit target by: - slowing the execution of public investment; and - slowing the settlement of past wage promises to civil servants made by previous governments. ### Public expenditure efficiency, management, and programs - Measures since 2016 to consolidate the wage bill: - biometric census of public sector personnel identified 1,355 ghost workers; - use of the banking system for bonuses and allowances not included on pay slips since 2017; - repeal of several decrees and regulations that systematically granted benefits. - Expected savings from these measures: about half a percent of GDP in 2019, to be allocated in part to clearing a portion of prior wage promises. - Public Investment Management Assessment (PIMA) implementation focus areas: - strengthening the institutional framework; - ensuring the availability and sustainability of financing; - improving preparation, selection, and implementation of projects (specifically by publishing selection criteria); - ensuring sustainable investments. - IMF Fiscal Affairs Department mission (February 2019) noted progress in investment planning but identified remaining weaknesses; government will continue implementing the updated action plan provided by the mission. ### Social protection — ARCH (Insurance to Build Human Capital) - Pilot phase of ARCH began in 2019 targeting extremely poor populations: 300,000 people. - Expansion to the general population planned between 2020 and 2022. - Government coverage and subsidies: - government will cover the entire insurance premium for those in extreme poverty; - partial subsidy up to 40 percent for the premium paid by populations categorized as impoverished but not in extreme poverty. - ARCH components: insurance, improvement of skills, access to credit, and underwriting of a retirement pension for around 1.8 million people working primarily in the informal sector. - Targeting mechanism and single social register to be established in cooperation with the World Bank. ### Treasury Single Account (TSA) implementation - Measures under way: - adoption of a regulatory framework for the TSA in 2015; - interconnection and modernization of the unit responsible for managing correspondent accounts; - partial inventory of public accounts in commercial banks in 2017 and an update in 2018. - Technical and operational difficulties: - interface issues between the Treasury’s computer system and the BCEAO system. - Planned study: evaluate impact on banking system stability of withdrawal of public funds from commercial banks and their placement in the TSA (before end-March 2020). ### Public debt management - Autonomous Amortization Fund (CAA) plans to optimize the debt portfolio and align debt maturity with financed projects. - CAA has a medium-term debt strategy document for 2017-2021, updated annually. - Annual debt strategy for 2020 will consider international financing (including the Eurobond) and choices between domestic and international market issuances, accounting for: - cost of financing; - portfolio structure (split between external and domestic financing); - exposure to exchange risk. - Revised debt strategy will include a new quantitative target for the composition of external and domestic debt. - CAA plans to acquire a Bloomberg terminal to strengthen monitoring; interim reliance on financial advisers for market information. - Implementation of mechanism to monitor public enterprises should be stepped up within the medium-term debt strategy. ### Public enterprise reform - Public enterprises remain a budgetary burden due to weak economic and financial performance. - New auditors appointed at the 189 public enterprises and government offices. - New draft law on public enterprises validated and submitted to the National Assembly (not yet adopted). Key features: - covers creation, organization, and operation of public enterprises; - aims to improve governance and economic and financial performance; - requires transmission of financial statements (with audit reports) to the Ministry of Economy and Finance by the prescribed deadline. - A consolidated report on the economic and financial position of public enterprises will be attached to the budget law starting in 2019, once the law is adopted. - Government plans to define a dividend policy for each enterprise to enhance accountability and align financial management with development goals. - Performance contracts concluded with the Autonomous Port of Cotonou and the Société Béninoise d’Énergie Électrique (SBEE) with support from the Millennium Challenge Corporation; expansion to other public enterprises planned by end-2019 in the context of the new law. ### Infrastructure projects and Public-Private Partnerships (PPPs) - Legal and regulatory framework for PPPs established by Law 2016-24 of June 28, 2017; implementing decrees adopted; institutional framework in effect with World Bank technical assistance. - Compilation of a catalog of PPP projects and analysis of financing options for GAP projects. - Commitment to include PPP investments in budget documents and public finance statistics and to annex liabilities relating to PPPs to the budget law; fiscal risks to be analyzed. - Status of PPP contracts: Benin has not yet officially signed a PPP contract; an energy sector project (Maria Gleta power plant) is under discussion. Banks requested a guarantee, but the government indicated it is not ready to provide a guarantee. - Unit within the Ministry of Economy and Finance for managing fiscal risks related to PPPs established in 2018; capacity improvement to make the unit fully operational is underway. - Preliminary discussions with the People’s Republic of China on financing the Glodjigbé International Airport; financing package and schedule not finalized. Government will ensure financing is reflected in public accounts and that risks to public finances and debt sustainability are minimized. ### Business environment reforms and investment promotion - New investment promotion mechanism (2017) streamlined institutional and regulatory framework; creation of Inter-ministerial Investment Promotion Committee and restructuring of APIEX as sole gateway for investors. - APIEX roles include: - one-stop window for business creation (shortening business creation time to three hours); - technical body for reviewing Investment Code approval applications; - Executive Secretariat of the PPP Support Unit; - focal point for Doing Business reforms; - administrative authority for special economic zones; - export information and facilitation center. - Business creation reforms: - simplification of procedures for declaring business existence; - elimination of physical verification that a business name is unique. - Tax payment process improvements: electronic payment procedure availability, strengthening synthetic business tax provisions, and reduction in the tax from CFAF 400,000 to CFAF 150,000 in 2019. - Cross-border trade reforms: interconnection between Nigerian and Beninese customs, online complaint system, user informational website on customs clearance, and working group to define customs clearance standards. - Protection of minority investors: case handling time dropped from 750 days in 2017 to 57 days in 2018. - Land code amendments (Law 2017-15 of August 10, 2017) to reduce time to obtain property titles and lift restrictions on foreign acquisition of real property; ANDF actions on online land-use registry for Cotonou and deadlines for issuance of property transfer deeds. - Construction permit reforms: memorandum to Association of Architects clarifying membership certificate costs; Order 2017-131 of December 18, 2017 clarifies minimum requirements for issuing construction permits. - Institutional framework for Doing Business reforms adopted with an annual action matrix. - Two draft laws to facilitate private investment finalized and submitted to Parliament (not yet adopted): amendments to the investment code and a law on promotion and development of micro-, small- and medium-sized enterprises (MSMEs). ### MSME law and labor law changes - Law on MSMEs aims to transpose into national law the WAEMU Community Charter for MPMEs (December 2015). Key innovations: - mechanism for identification and categorization of MSMEs eligible for government measures; - establishment by law of an agency responsible for implementing national MSME promotion policy; - assistance and support measures including market access facilities, protection against government payment delays, and incentives to co-contract and subcontract with large enterprises; - tax facilities and incentives for MSMEs (for those processing local raw materials and for business hubs and incubators); - measures to promote and finance MSMEs (technical assistance, access to land and developed sites, specific financing and guarantee mechanisms/institutions); - measures to support struggling MSMEs. - 2018 law on hiring adopted to promote job creation; corrections to gaps relating to trial-period hiring and contract types; foreigners now allowed to work under open-ended contracts; eases licensing conditions and sets a maximum limit of 9 months of compensation in the event of dismissal deemed abusive by the courts. ### Trade facilitation and customs - Main reforms over past five years: - establishment of faster computerized customs clearance for imports and exports; - integration of customs and control services at the Port of Cotonou (PAC); - delegation of PAC management to the Port of Antwerp. - Remaining difficulties with automation and clarity of customs clearance procedures. - Planned diagnostic assessment of main impediments to trade based on the WTO Trade Facilitation Agreement notification framework (before end-September 2019). ### Financial system and banking sector restructuring - Two small public banks reported repeated losses in recent years; restructuring plan in place. - Government aims to merge these institutions to reach critical size to comply with WAEMU minimum capital requirement and to exploit synergies (including nationwide network). - An international auditing firm hired to evaluate merger options and their cost to the public purse. - In consultation with the IMF team, the government will choose a merger type to enable the new bank to comply with prudential capital standards and regain financial viability, ensuring the least expensive option in terms of public resources. - Merger and restructuring will follow international best practices on governance, financial reporting, risk management, control, operations, and strategy. - Restructuring plan for the merged bank to be presented to the Banking Commission before the end of the year. *International Monetary Fund — Benin country chapter content (excerpts).* ### 52. To modernize the financial sector, the government has also, by Law 2018-38 of ### 1benea2019001 - 52. To modernize the financial sector, the government has also, by Law 2018-38 of ### Reactivation and operationalization of the Caisse de Dépôts et Consignations (CDC) - Law 2018-38 of September 2018 reactivated the CDC, originally created on August 31, 1973, by Order 073-60. - A Steering Committee for the Operationalization of the CDC was established in January 2019 pursuant to an order issued by the Minister of Economy and Finance. - A recruitment notice for senior CDC members was issued. - The government is in the process of entering into a contract with an international consulting firm to: - identify the resources of the CDC; - draft a business plan; - define an investment approach and risk management policy; - put into place a governance framework and human resources management; and - implement an information system. ### Mission, investment and risk management of the CDC - Essential mission: receive and conserve movable assets deposited with it and return them to their rightful owners. - Responsibilities: - administer deposits and consignments; - provide services relating to funds whose management is entrusted to it; - receive administrative and court-ordered consignments and sureties. - Public-policy role: carry out general interest missions in support of public policies of central and local governments, particularly economic and social development. - Investment objective: pursue investment and risk management policies and strategies to better use resources and generate yields above the average cost of government borrowing. - Prudential rules: adopt prudential rules in line with best practices for investment and risk management. ### Practical roles of the CDC in financial sector modernization - The CDC will enable the government to: - hold equity in companies to support them or receive dividends like any shareholder; - work alongside the banking system by making deposits in banks at reduced costs; - participate in the financing of social projects; - assist in financing the economy by making public securities more attractive (proposal of purchase of public securities at low rates by the CDC). ### Judicial capacity and dispute resolution - Continue improving capacity of judges and courts to rule on financial matters. - The new commercial tribunal in Cotonou is operational and will help resolve business disputes. - BCEAO will assist in building capacity of judges and magistrates through its training program for the judicial profession, focusing on WAEMU financial regulations. ### Financial inclusion and microfinance sector measures - Government measures to promote financial inclusion: - creation of permanent mechanisms for the mobilization of resources by microfinance institutions; - improved promotion and coordination of the microfinance sector. - National Microfinance Fund (FNM) strategic plan 2017-2021 pillars: - (i) facilitating access to appropriate financial resources for microfinance institutions; - (ii) building operational capacity and promoting social and technological interventions; - (iii) strengthening governance and the sustainability of FNM actions. - Ministry for Social Affairs and Microfinance (MASM) actions: - preparation of the FinScope survey as the first stage in the Making Access to Financial Service Possible (MAP) process to develop a national financial inclusion strategy aligned with the BCEAO regional strategy. - Financial inclusion will be strengthened with implementation in 2019 of the microfinance component of the Insurance to Build Human Capital (ARCH) project. ### Rebasing of the national accounts (SNA 2008 implementation) - Since 2016 the government supported rebasing of national accounts and implementation of the System of National Accounts 2008 (SNA 2008). - Expected improvements: - (i) quality and coverage of data sources for national accounts; - (ii) incorporation of SNA 2008 innovations regarding goods and services accounts. - INSAE received IMF technical assistance on national accounts in June 2018 to: - review estimation methods and new additional information for GDP rebasing; - review sources for GDP revision, particularly contribution of the informal sector; - analyze quality of supply and use tables and the level of GDP in the new base year of 2015. - Priority identified: Survey of Informal Cross-border Trade (ECENE) to correctly estimate total demand and finalize supply and use balances (SUB). - INSAE has begun the ECENE survey process involving four rounds of visits. - Final revised estimates are expected no later than summer of 2019. ### Quantitative performance criteria and structural benchmarks (program monitoring) - Quantitative performance criteria set for end-June and end-December 2019 and indicative targets for end-September 2019 (table references in source). - Structural benchmarks for 2019 and macroeconomic justifications are described (table references in source). - Fifth and sixth program reviews expected to be completed on or after October 31, 2019, and March 23, 2020, respectively. - Selected numeric targets and statuses reported in source (exact figures preserved in original tables): - Net domestic financing of the government (ceiling): 103.0; 136.2; 118.8; -51.4; Met; 15.0; -38.0; -158.5; -289.0 (as shown in table columns). - Basic primary balance (excluding grants) (floor): -20.3; -18.9; 3.9; 17.6; Met; 15.6; 44.5; 47.7; 101.7. - Total revenue (floor): 707.1; 714.6; 1021.6; 1028.6; Met; 235.1; 505.5; 762.5; 1112.4. - Ceiling on the present value of new external debt contracted or guaranteed by the government: 468.9; 235.3; 468.9; 379.2; Met; 468.9; 797.0; 797.0; 797.0. - Priority social expenditure (floor): 101.0; 134.8; 167.0; 202.4; Met; 37.2; 82.5; 140.7; 180.0. - Budgetary assistance (memorandum): 39.6; 0.0; 55.4; 24.5; 0.0; 3.9; 10.1; 45.4. - Program definitions and methodologies (Technical Memorandum of Understanding) include: - Definition of “government” excludes political subdivisions, the central bank, and other public entities with autonomous legal personality not included in TOFE. - Debt definitions aligned with IMF Executive Board Decision No. 6230-(79/140) as amended by Decision No. 15688-(14/107). - Present value (PV) of loans calculated using a single discount rate set at 5 percent. - Program reference rate for six-month USD LIBOR is 2.63 percent (fixed for program duration). - Spreads: six-month Euro LIBOR over six-month USD LIBOR is -294 basis points; six-month JPY LIBOR over six-month USD LIBOR is -260 basis points; six-month GBP LIBOR over six-month USD LIBOR is -197 basis points; for other currencies, spread over six-month USD LIBOR is -200 basis points. - Domestic debt defined as debt denominated in CFA francs; external debt defined as debt denominated in any currency other than the CFA franc. - Net domestic financing (NDF) definition and scope: - NDF is the sum of (i) net bank credit to the government and (ii) net nonbank financing of the government, including proceeds from sale of government assets, Treasury bills, and other securitized obligations in CFA francs on the WAEMU regional market, and any BCEAO credit to the government. - Net bank credit to the government defined as balance between debts and claims of the government vis-à-vis the central bank and local commercial banks; government claims include CFA franc cash balance, postal checking accounts, customs duty bills, and deposits with BCEAO and commercial banks of government-owned entities (excluding EPIC and government corporations). - Valid program data sources: figures calculated by the BCEAO for net bank credit and net amount of Treasury bills and bonds issued in CFA francs on the WAEMU regional financial market; figures for nonbank financing calculated by the Treasury of Benin. - Definitions of gross and net external budgetary assistance provided for program accounting and adjustment rules. *Source: Excerpts from the IMF staff report (Benin) as contained in the supplied content unit.* ### 9. The ceiling on net domestic financing of the government (cumulative since January 1 of ### 1benea2019001 - 9. The ceiling on net domestic financing of the government (cumulative since January 1 of ### Net Domestic Financing (NDF) Ceilings (cumulative since January 1 of the same year) - CFAF 15 billion at end-March 2019 - CFAF -38.0 billion at end-June 2019 - CFAF -158.5 billion at end-September 2019 - CFAF – 289.0 billion at end-December 2019 - The ceilings for end-June and end-December 2019 are performance criteria; the end-September 2019 level is an indicative target. ### Adjustments to the NDF Ceiling (linked to 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. - 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, subject to limits: - The increase may not exceed CFAF 15 billion at end-June 2018 and CFAF 25 billion at end-December 2018. - The same rule applies for 2019. ### Projected Gross External Budgetary Assistance (amounts used for NDF adjustments) - Projected gross external budgetary assistance (cumulative since January 1 of the same year) for 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 - Projected gross external budgetary assistance (cumulative since January 1 of the same year) for 2019: - CFAF 0 billion at end-March 2019 - CFAF 3.9 billion at end-June 2019 - CFAF 10.1 billion at end-September 2019 - CFAF 45.4 billion at end-December 2019 ### 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 commitment 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. Grants are excluded from revenue and net government lending is excluded from fiscal expenditure. - Floors (cumulative since January 1 of the same year): - CFAF +15.6 billion at end-March 2019 - CFAF +44.5 billion at end-June 2019 - CFAF 47.7 billion at end-September 2019 - CFAF 101.7 billion at end-December 2019 - The floors for end-June 2019 and end-December 2019 are performance criteria; the end-September 2019 level is an indicative target. ### 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. - Floors (cumulative since January 1 of the same year): - CFAF 235.1 billion at end-March 2019 - CFAF 505.5 billion at end-June 2019 - CFAF 762.5 billion at end-September 2019 - CFAF 1112.4 billion at end-December 2019 - The floors for end-June and end-December 2019 are performance criteria; the end-September 2019 level is an indicative target. ### 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 a longer repayment period is specified. The Autonomous Amortization Fund (CAA) and the Treasury record and update data on accumulation and reduction of domestic payments arrears. - Continuous performance criterion: The government undertakes not to accumulate any new domestic payments arrears. Monitoring will be continuous throughout the program. ### 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 applicable grace periods, on external debt of the government or external debt guaranteed by the government. - Continuous performance criterion: The government undertakes not to accumulate any external public payments arrears, except arrears related to debt that is the subject of renegotiation or rescheduling. Monitoring will be continuous throughout the program. ### Ceiling on Present Value of New External Debt Contracted or Guaranteed (maturity ≥ 1 year) - Definition: Applies to debt as defined in paragraph 4a and commitments contracted or guaranteed by the government (including lease-purchase contracts) for which no value has been received; includes private sector debt guaranteed by the government. - Excludes Treasury bills and bonds issued in CFA francs on the WAEMU regional market. - Coverage: "Government" includes central government, 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: The present value of new external borrowing contracted or guaranteed by the government in 2019 will not exceed a cumulative amount of CFAF 797 billion. Changes to this ceiling may be made subject to approval by the IMF Executive Board based on the public debt sustainability analysis prepared jointly by World Bank and IMF staffs. ### Ceiling on Pre-Financing Contracts for Public Investments - Definition: Pre-financing contracts are those where (i) a private entity is entrusted to execute public works financed by a loan from a domestic commercial bank to the entity; (ii) the Minister of Finance guarantees the loan and signs an unconditional and irrevocable agreement to replace the private entity to honor the full amount of principal and interest, automatically paid from the Treasury’s account at the BCEAO. - Continuous performance criterion: The government undertakes not to enter into any pre-financing contracts during the program. Monitoring will be continuous. ### Indicative Target: Priority Social Expenditures - Definition: Priority social expenditures = selected (nonwage) expenditures in sectors including health; energy, water, and mines; agriculture; livestock and fisheries; social affairs; education; and living standards. Execution is monitored on a payment order basis through SIGFIP. - Priority social expenditure categories (budget codes and ministries) are specified in Table 1 (Ministry of Economy and Finance; Ministry of Health; Ministry of Energy; Ministry of Water and Mines; Ministry of SMEs and the Promotion of Employment; Ministry of Agriculture Livestock, and Fisheries; Ministry of Justice; Ministry of Labor and Public Affairs; Ministry of Infrastructure and Transport; Ministry of Tourism, Culture and Sport; Ministry of Social Affairs and Microfinance; Ministry of Plan and Development; Ministry of Domestic and Public Security; Ministry of Higher Education and Scientific Research; Ministry of Nursery School and Primary School Education; Ministry of Secondary and Technical Education and Vocational Training; Ministry of Living Standards and Sustainable Development). - Indicative targets (cumulative since January 1 of the same year): - 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. - 2019: CFAF 37.2 billion at end-March 2019; CFAF 82.5 billion at end-June 2019; CFAF 140.7 billion at end-September 2019; CFAF 180.0 billion at end-December 2019. ### Information for Program Monitoring: Data Requirements and Timelines - Monthly submissions: - 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 SIGFIP-generated data, 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 if 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 submissions: - Data on the amount of exceptional payment orders 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 information: - Monthly: Bank supervision indicators for bank and nonbank financial institutions within eight weeks of the end of the month. - Quarterly: Data on implementation of the public investment program, including sources of financing, within four weeks of the end of the quarter; and data on the stock of external debt, external debt service, signing of external loan agreements and disbursements of external loans, within twelve weeks of the end of the quarter. - Ad hoc: In the quarter when available: a copy of the budget law and its supplementary documents; a copy of the most recent budget review law; and any decree or law pertaining to the budget or its implementation. *Source: STAFF REPORT FOR THE 2019 ARTICLE IV CONSULTATION, FOURTH REVIEW UNDER THE EXTENDED CREDIT FACILITY ARRANGEMENT, AND REQUEST FOR MODIFICATION OF PERFORMANCE CRITERIA—INFORMATIONAL ANNEX (May 31, 2019).* ### 1. Fourth Review ECF supported ### 1. Fourth Review ECF supported program ### Statistical Issues: Assessment of Data Adequacy for Surveillance - General: "Data provision has some shortcomings but is broadly adequate for surveillance." Weaknesses in national accounts, public finance, monetary statistics, financial sector prudential indicators, and balance of payments. Authorities receiving IMF technical assistance. - National Accounts: - Participation in WAEMU harmonization and GDDS project to implement the 1993 SNA; intends to move to the 2008 SNA (by 2019). - West AFRITAC missions in 2015 assisted rebasing from 1985 to 2007. - Two TA missions in June 2018 and December 2018 to help rebasing to a 2015 base year. - Price Statistics: - Consumer price data use WAEMU harmonized CPI; methodology revised with AFRISTAT. - Current index covers the capital city only; Benin participating in regional project to extend CPI coverage nationally. - Government Finance Statistics: - Fiscal data "broadly adequate for surveillance" but shortcomings in coverage, periodicity, timeliness, and accessibility. - Authorities have not reported GFS data for publication in the Government Finance Statistics Yearbook since the 2013 reference year. - Do not report quarterly data for publication in the International Financial Statistics. - Working toward implementing new TOFE directive based on GFSM 2001; currently producing TOFE on a trial basis alongside GFSM 1986 TOFE. - Preparing three tables: i) TOFE based GFSM 2001, ii) Statement of sources and uses of cash, and ii) statement of public debt (at face value). - Working to produce TOFE using the Trial Balance as source data; coverage of TOFE not yet expanded to all subsectors of general government. - Monetary and Financial Statistics: - Monthly MFS compiled and disseminated by BCEAO and "are broadly adequate." - Benin reports some key Financial Access Survey (FAS) series, including two UN indicators to monitor Target 8.10.1 of the SDGs. - Financial Sector Surveillance: - BCEAO compiled a set of FSIs for deposit takers at quarterly frequency with IMF Statistics Department assistance; BCEAO has not approved publishing these on IMF’s FSI website. - External Sector Statistics: - Benin reports balance of payments and IIP using BPM6 since 2011. - Submitted 2017 BOP and IIP data for publication in the Balance of Payments Statistics Yearbook (BOPSY). - Progress under three-year JSA-AFR project; ASYCUDA++ and ASYCUDA World installed in main customs offices, port, airport, and some regional offices. - December 2018 mission: Benin ready to submit quarterly EDS to World Bank’s QEDS database, including gross external debt position tables and gross external position by institutional sectors; data consistent with IIP and Caisse Autonome d’Amortissement statistics. - Ready to disseminate quarterly BOP data pending instructions from BCEAO Headquarters. - Remaining improvement needed in informal trade coverage. ### Data Standards and Quality - Benin is an e-GDDS participant. - Most metadata not updated since October 2002, except real sector and socio-demographic metadata. - Some metadata postings in recent years (mostly 2016) for CGO, DCS, CBS, BoP, ILV, IIP. - "No data ROSC is available." ### Common Indicators Required for Surveillance (table excerpts) - Exchange Rates: Date of latest observation 02/2019; Date received 03/2019; Frequency of Data/Reporting/Publication: D D D. - International Reserve Assets and Reserve Liabilities of the Monetary Authorities: 04/2019; 05/2019; M M M. - Reserve/Base Money: 04/2019; 05/2019; M M M. - Broad Money: 04/2019; 05/2019; M M M. - Central Bank Balance Sheet: 04/2019; 05/2019; M M M. - Consolidated Balance Sheet of the Banking System: 03/2019; 05/2019; M M M. - Interest Rates: 01/2019; 03/2019; M M M. - Consumer Price Index: 12/2018; 02/2019; M M M. - Revenue, Expenditure, Balance and Composition of Financing – General Government: NA NA NA NA Not published. - Revenue, Expenditure, Balance and Composition of Financing – Central Government: 03/2018; 05/2018; Q Q Q. - Stocks of Central Government and Central Government-Guaranteed Debt: 09/2016; 06/2017; Q Q Q. - External Current Account Balance: 2017; 12/2019; A A A. - Exports and Imports of Goods and Services: 2017; 06/2018; A A A. - GDP/GNP: 2017; 11/2018; A A A. - Gross External Debt: NA NA NA NA Not published. - International Investment Position: 2017; 12/2018; A A A. ### Key Debt Sustainability Findings (Joint Bank-Fund DSA) - "Benin remains at moderate risk of external debt distress." Rating unchanged from November 2018 DSA. - All projected external debt burden indicators remain below thresholds under the baseline; "the ratio of the present value (PV) of external debt to exports exceeds its threshold in the case of an extreme shock to exports." - Overall risk for total public and publicly guaranteed (PPG) debt also "moderate." - Public debt-to-GDP ratio is below its prudent benchmark in the baseline; under a real GDP shock scenario, the PV of public debt-to-GDP "rises very slightly above its benchmark from 2024 until the end of the projection period." - Factors motivating overall rating: past evolution of domestic debt, relatively high debt service burden, existence of contingent liabilities. - Policy needs: "Medium-term fiscal consolidation, sound public investment management, and enhanced debt management capacity." ### Public Debt Coverage and Contingent Liabilities - DSA public debt covers central government and government guarantees; classification of external vs domestic debt based on currency criterion; debt to IMF owed by the Central Bank included in external debt. - January 2019 audit of unpaid private-sector claims found arrears to suppliers of "0.3 percent GDP" — added to 2019 debt stock. - Fiscal projections assume gradual clearance of arrears over 2020-22 at "0.1 percent of GDP per year." - Debt of SOEs and subnational governments not included in baseline due to methodological constraints; captured in contingent liability shock. - Authorities estimate non-guaranteed commercial debt of 13 SOEs at "0.9 percent of GDP" at end-2018. - Contingent liability shock increased by "0.9 percent of GDP" (to reflect SOE debt) on top of the standardized "2 percent of GDP" shock. - Further work needed: (i) reconcile information on guarantees and non-guaranteed debt for total SOE debt; (ii) assess scope for consolidating general government fiscal accounts with SOE financial statements. - Text Table 1 items (defaults and coverage): - Central government: covered (X). - Guarantees to other entities including SOEs: covered (X). - Central bank (borrowed on behalf of the government): covered (X). - Default values used in analysis for additional elements: - Other elements of general government not captured: 0.0 percent of GDP. - SoE's debt (guaranteed and not guaranteed by the government): 1/2 percent of GDP → 2.9 (reported). - PPP: 35 percent of PPP stock → 2.6 (reported). - Financial market (default value minimum): 5 percent of GDP → 5.0 (reported). - Total (2+3+4+5) (in percent of GDP): 10.5. ### Background on Debt: Levels and Service Burden - Rapid increase in public debt since 2014: - Total public debt rose from "30.5 percent" in 2014 to "56.8 percent" in 2018. - Domestic debt grew from "10.6 percent of GDP" in 2014 to "32.4 percent of GDP" in 2017 (tripled over three years). - Domestic debt estimated at "30.3 percent of GDP" in 2018 after debt reprofiling. - External debt increased by "6.7 percent of GDP" over 2014-18, reaching "26.5 percent of GDP" in 2018. - Debt service burden: - Ratio of debt service to revenue stands at "65 percent in 2018." - Expected to decrease to around "45 percent on average in the medium term" and "21 percent in long run." - Comparative projections: debt service projected to account for "28 percent of revenue, on average, in WAEMU countries" and "21 percent in all low-income developing countries in 2018." - Note: An additional amount of debt repayment of "CFA 170 billion" related to the 2018 debt reprofiling was included in 2018 debt service. ### Structure of Debt and Recent Reprofiling - Composition shifts: - In 2016 and 2017, domestic debt surpassed external debt; domestic debt represented about "60 percent of total debt" at end-2017. - October 2018 debt reprofiling exchanged cheap long-term external debt for more expensive shorter-maturity domestic debt, rebalancing composition. - As of end-December 2018: external debt ≈ "47 percent" of total debt; domestic debt ≈ "53 percent." - External public debt mainly owed to multilateral and bilateral creditors, often on concessional terms. - Domestic public debt dominated by government securities issued in the regional bond market: - About "80 percent of domestic liabilities" consisted of regional market government securities at end-2018. - Such debt is non-concessional and associated with roll-over and interest rate risks. ### Benin’s First Eurobond Issuance (Box 1) - Issuance details: - Eurobond issued in March 2019 for "EUR 500 million" (equivalent to "5.2 percent of 2019 GDP"). - Issued at a yield of "6 percent" with a weighted maturity of "6 years." - The issuance was two times oversubscribed, attracting "EUR 1.1 billion" in demand. - Comparable regional issuance term: "7.0 percent for a 5-year bond issued in early-March 2019." - Policy and risk implications: - Authorities reduced domestic financing by the same amount, leaving the 2019 borrowing plan unchanged. - Resulting 2019 projected shares: external debt "58 percent" and domestic debt "42 percent" of total debt. - Short- to medium-term exchange rate risk considered small given the FCFA peg to the euro. - Refinancing risk comparison: regional market can become illiquid when larger WAEMU borrowers issue; international markets may shut down for frontier markets in case of reversal in global risk appetite. - Refinancing risk expected to decrease in the short term due to improved access to longer-term financing; expected to increase over the medium term as the Eurobond approaches maturity. - Box notes examples of risks that could decompress spreads and reverse capital flows: "Faster-than-expected normalization of monetary policies of advanced economies, a strong growth slowdown in China, or adverse spillover effects of U.S.-China trade tensions." ### Regional Financial Conditions and Monetary Policy Context - BCEAO refinancing volume to banks reduced by about "24 percent" between early 2017 and end-2018. - Regional liquidity improved following Eurobonds by Côte d’Ivoire and Senegal equivalent to "87 percent of the WAEMU’s aggregate fiscal deficit in 2018," reducing sovereign bond issuance on the regional market. - Average BCEAO weekly refinancing auction rate had been at its "4.5 percent ceiling" from November 2017 to June 2018, declined to below "3 percent" thereafter, and returned to "4.5 percent" ceiling in late 2018 due to seasonal liquidity needs. *Prepared by the staffs of the International Monetary Fund (IMF) and the International Development Association (IDA). May 31, 2019* ### 10. Macroeconomic assumptions have been updated compared to the November 2018 DSA. ### 10. Macroeconomic assumptions have been updated compared to the November 2018 DSA. ### Macroeconomic assumptions and projections - Growth revisions: - Benin’s growth is revised upwards to 6.7 percent in 2018, mainly because of higher-than-anticipated agriculture and port activities. - Real GDP growth forecasts for 2019 and beyond have been revised up to reflect new estimates of medium-term growth. - Medium-term outlook: economic growth projected at 6.7 percent over 2019-24, led by rising private investment. - Drivers of medium-term growth: - Lagged effect of the public investment scaling-up. - Greater participation of the private sector. - Strong agricultural production, including revitalized cotton activity. - Development of new sectors such as tourism and digital economy. - Primary balance and fiscal stance: - The 2018 primary deficit was lower than expected mainly driven by an under execution of the capital expenditure budget. - The primary surplus is estimated to reach 0.3 percent of GDP on average in the period 2019-24. - The primary surplus is estimated to reach 0.9 percent of GDP on average in the long run. - Beyond 2019, projections assume a continued scaling-down of public investment, which should bring the investment ratio back to its pre-scaling up level and maintain the deficit below the 3 percent of GDP regional norm. - External accounts: - The non-interest current account deficit is expected to decline gradually in the medium to long term due to fiscal consolidation and structural reforms. - Higher exports expected from larger cotton production. - Imports expected to remain contained due to the scaling-down of public investment and increased agricultural production. ### Key quantitative projections (from Text Table 4) - GDP growth (percent): 2018 = 6.5; Aver.2019-23 = 6.5; 2028 = 6.0; 2038 = 5.0 (DSA 2018) — 2018 = 6.7; Aver.2019-24 = 6.7; 2029 = 6.0; 2039 = 5.0 (DSA 2019). - GDP deflator (percent): 2018 = 1.0; Aver.2019-23 = 1.8; 2028 = 2.5; 2038 = 2.9 — 2018 = 1.8; Aver.2019-24 = 2.5; 2029 = 2.9; 2039 = 2.9. - Non-interest current account balance: 2018 = 8.8; Aver.2019-23 = 6.6; 2028 = 4.4; 2038 = 3.6 — 2018 = 8.0; Aver.2019-24 = 5.7; 2029 = 4.4; 2039 = 1.7. - Primary balance: 2018 = 2.5; Aver.2019-23 = -0.4; 2028 = -0.7; 2038 = -0.7 — 2018 = 1.8; Aver.2019-24 = -0.3; 2029 = -0.9; 2039 = -0.9. - Exports: 2018 = 21.6; Aver.2019-23 = 25.0; 2028 = 29.5; 2038 = 30.8 — 2018 = 22.1; Aver.2019-24 = 26.6; 2029 = 29.1; 2039 = 29.1. - Revenues and grants: 2018 = 18.6; Aver.2019-23 = 19.4; 2028 = 19.8; 2038 = 20.8 — 2018 = 18.6; Aver.2019-24 = 19.3; 2029 = 19.7; 2039 = 20.6. ### Realism assessment, fiscal multipliers, and adjustment - Growth realism: - Growth projections for 2019 are slightly more optimistic than the growth path predicted by the growth and fiscal adjustment tool. - Deviation from LIC typical multiplier of 0.4 explained by: - Ambitious public investment scaling plan that peaked in 2017-18 with long lags of investment multipliers expected to persist at least until 2019-20. - Revitalization of cotton production (record high growth of 67 percent in 2016 and 33 percent in 2017) transmitting to secondary sector and export revenues. - Dynamic port activities in 2018 expected to remain strong in the medium term. - A number of large public-private infrastructure projects expected to start in 2020. - Nigeria’s economy estimated to accelerate in 2018 and maintain growth in 2019-20. - Fiscal adjustment realism: - Fiscal consolidation expected to amount to about 4 percent between 2017 and 2020. - Adjustment will be mostly achieved through scaling down public investment, which increased by about 3 percent of GDP between 2016 and 2017-18 and will revert towards its 2016 level. ### Debt dynamics and composition - Relative to the previous DSA: - Higher external debt path, compensated by lower domestic debt. - Increase in external debt stock reflects the Eurobond issuance. - Reduction in domestic financing projected for the year is expected to leave the 2019 public debt stock unchanged. - External debt structure and domestic debt structure tables presented (sources: Beninese authorities and IMF staff calculations). ### External debt sustainability and risk assessment - Baseline: - External debt burden indicators remain below policy-dependent thresholds in the baseline scenario. - PV of total PPG external debt expected to stabilize at about 24 percent of GDP on average over 2019–24, reaching 10 percent of GDP in 2039 — below the corresponding threshold of 40 percent of GDP throughout the projection period. - Stress tests and risks: - The PV of external debt-to-exports ratio exceeds its threshold in the case of an extreme shock to exports; this breach motivates the assessment of moderate risk for external debt. - Breach of PV of PPG external debt-to-exports under the most extreme stress test (MX shock, standard and tailored) lasts four years (2021-2024). - The breach in the current vintage is larger (19.4 percent of GDP on average) compared to the previous vintage (13.7 percent on average). - Other indicators (debt-to-GDP ratio and all debt service indicators) remain below thresholds under extreme shock scenarios. - Historical scenario records sizable breaches for PV of external debt-to-GDP ratio and external debt service-to-revenue ratio, though it is considered unlikely given projected reforms and export revitalization. - Market financing and liquidity: - Market financing risk indicators show no breach of the GFN benchmarks. - Potential heightened liquidity needs are low. - JP Morgan EMBI spreads data not available for the moment. - Benin shows “some space” to absorb shocks, partly due to rise in debt service-to-revenue indicator over 2024-26 and PV of debt-to-GDP lying in the “some space” zone. ### Public debt sustainability and vulnerabilities - Total PPG debt: - Total PPG debt (external plus domestic) remains below its respective benchmark in the baseline scenario. - PV of public debt-to-GDP rises very slightly above its benchmark from 2024 until the end of the projection period under the real GDP shock scenario. - The current vintage added domestic arrears (0.3 percent of GDP) and additional government guarantees (0.4 percent of GDP), contributing to a more pronounced breach than in the November 2018 DSA. - PV of public debt-to-GDP also records a breach under the historical scenario. - Other factors supporting a moderate risk rating for overall debt distress: - Past evolution of domestic debt. - Relatively high ratio of debt service to revenue. - Existence of contingent liabilities of SOEs. - Moderate risk of external debt distress. ### Risks to the baseline - Downside fiscal risks: - Extra spending pressures related to the political cycle. - Failures to implement key reforms, particularly in revenue administration and elimination of tax expenditures. - Downside growth risks: - Achieving expected performance requires rigorous implementation of measures to increase agricultural production capacity and structural reforms to improve business environment and governance. ### Conclusion and policy implications - Debt distress rating: - The updated DSA confirms that Benin stands at moderate risk of external and overall public debt distress; ratings are unchanged relative to the Staff Report of November 2018 (EBS/18/364). - Policy recommendations: - Medium-term fiscal consolidation is needed to maintain debt sustainability. - Improved debt management is needed to maintain debt sustainability. *Source: Beninese authorities and IMF staff calculations; IMF DSA update text.* ### 23. The authorities concur broadly with staff’s assessment. Consistent with the main findings of ### 1benea2019001 - 23. The authorities concur broadly with staff’s assessment. Consistent with the main findings of ### Authorities’ position - The authorities concur broadly with staff’s assessment. - They remain committed to strengthening debt sustainability by: - adhering to medium-term fiscal consolidation, - conducting sound public investment management, - enhancing debt management capacity. ### External debt: baseline projections and key indicators (selected) - External debt (nominal) (percent of GDP): 2016: 22.5; 2017: 22.0; 2018: 26.5; 2019: 31.9; 2020: 31.0; 2021: 30.2; 2022: 29.4; 2023: 28.5; 2024: 27.0; 2029: 19.6; 2039: 12.4. - Identified net debt-creating flows (percent of GDP): 2016: 7.4; 2017: 6.6; 2018: 3.6; 2019: 3.6; 2020: 2.4; 2021: 2.1; 2022: 1.6; 2023: 1.1; 2024: 0.9; 2029: 1.4; 2039: -0.7. - Non-interest current account deficit (percent of GDP): 2016: 9.2; 2017: 9.7; 2018: 8.0; 2019: 7.2; 2020: 6.5; 2021: 5.9; 2022: 5.4; 2023: 4.8; 2024: 4.6; 2029: 4.4; 2039: 1.8. - Exports (percent of GDP): 2016: 16.7; 2017: 19.6; 2018: 22.1; 2019: 24.1; 2020: 25.6; 2021: 26.8; 2022: 27.7; 2023: 27.4; 2024: 27.7; 2029: 29.1; 2039: 29.1. - Net FDI (negative = inflow, percent of GDP): 2016: -1.3; 2017: -1.7; 2018: -2.2; 2019: -2.5; 2020: -2.7; 2021: -2.5; 2022: -2.5; 2023: -2.5; 2024: -2.5; 2029: -2.2; 2039: -2.2. - Endogenous debt dynamics contribution (percent of GDP): 2016: -0.5; 2017: -1.3; 2018: -2.2; 2019: -1.2; 2020: -1.4; 2021: -1.3; 2022: -1.3; 2023: -1.2; 2024: -1.2; 2029: -0.8; 2039: -0.2. - Residual (percent of GDP): 2016: -6.2; 2017: -7.1; 2018: 0.9; 2019: 1.8; 2020: -3.3; 2021: -3.0; 2022: -2.3; 2023: -2.0; 2024: -2.3; 2029: -2.0; 2039: -0.1. - Sustainability indicators (selected): - PV of PPG external debt-to-GDP ratio (percent of GDP, selected years): 2019: 18.2; 2020: 24.8; 2021: 24.6; 2022: 24.3; 2023: 24.2; 2024: 23.8; 2029: 16.5; 2039: 9.9. - PV of PPG external debt-to-exports ratio (percent): 2019: 82.4; 2020: 102.6; 2021: 95.9; 2022: 90.8; 2023: 87.4; 2024: 86.7; 2029: 56.8; 2039: 33.9. - PPG debt service-to-exports ratio (percent): 2016: 5.0; 2017: 4.8; 2018: 3.8; 2019: 5.4; 2020: 5.7; 2021: 5.2; 2022: 4.9; 2023: 4.8; 2029: 6.7; 2039: 4.4. - PPG debt service-to-revenue ratio (percent): 2016: 5.7; 2017: 5.4; 2018: 4.7; 2019: 7.4; 2020: 8.2; 2021: 7.8; 2022: 7.5; 2023: 7.3; 2029: 10.3; 2039: 6.8. - Gross external financing need (Billion of U.S. dollars): 2016: 0.7; 2017: 0.8; 2018: 0.7; 2019: 0.7; 2020: 0.6; 2021: 0.6; 2022: 0.6; 2023: 0.5; 2024: 0.6; 2029: 0.9; 2039: 0.3. ### Public sector debt: baseline projections and key indicators (selected) - Public sector debt (percent of GDP): 2016: 49.7; 2017: 54.4; 2018: 56.8; 2019: 54.7; 2020: 52.5; 2021: 50.3; 2022: 48.3; 2023: 46.4; 2024: 44.6; 2029: 36.1; 2039: 22.4. - Public sector debt: of which external debt (percent of GDP): mirrors external debt series (see External debt section). - Change in public sector debt (percent of GDP): 2016: 7.3; 2017: 4.8; 2018: 2.3; 2019: -2.1; 2020: -2.2; 2021: -2.3; 2022: -2.0; 2023: -1.8; 2024: -1.9; 2029: -1.8; 2039: -1.2. - Identified debt-creating flows (percent of GDP): 2016: 5.1; 2017: 0.7; 2018: 0.9; 2019: -1.6; 2020: -1.9; 2021: -2.2; 2022: -2.3; 2023: -2.4; 2024: -2.4; 2029: -1.7; 2039: -1.2. - Primary deficit (percent of GDP): 2016: 4.7; 2017: 3.8; 2018: 1.8; 2019: 0.6; 2020: 0.1; 2021: -0.3; 2022: -0.6; 2023: -0.8; 2024: -0.9; 2029: -0.9; 2039: -0.9. - Revenue and grants (percent of GDP): 2016: 15.3; 2017: 18.6; 2018: 18.6; 2019: 19.2; 2020: 19.3; 2021: 19.3; 2022: 19.3; 2023: 19.3; 2024: 19.3; 2029: 19.7; 2039: 20.6. - Primary (noninterest) expenditure (percent of GDP): 2016: 20.0; 2017: 22.4; 2018: 20.3; 2019: 19.8; 2020: 19.3; 2021: 19.0; 2022: 18.7; 2023: 18.5; 2024: 18.4; 2029: 18.8; 2039: 19.7. - Automatic debt dynamics (percent of GDP): 2016: 0.4; 2017: -3.1; 2018: -0.8; 2019: -2.1; 2020: -2.0; 2021: -1.9; 2022: -1.7; 2023: -1.6; 2024: -1.6; 2029: -0.8; 2039: -0.3. - Residual (percent of GDP): 2016: 2.2; 2017: 4.1; 2018: 1.4; 2019: 0.0; 2020: 1.6; 2021: 1.7; 2022: 2.1; 2023: 2.3; 2024: 2.2; 2029: 0.9; 2039: 0.6. - Sustainability indicators (selected): - PV of public debt-to-GDP ratio (percent of GDP, selected years): 2019: 49.2; 2020: 47.5; 2021: 45.9; 2022: 44.3; 2023: 42.9; 2024: 41.6; 2029: 40.1; 2039: 32.9; memorandum indicates 19.8 for a specified year. - PV of public debt-to-revenue and grants ratio (percent): 2019: 264.9; 2020: 247.1; 2021: 238.4; 2022: 229.7; 2023: 222.6; 2024: 215.9; 2029: 208.1; 2039: 166.9. - Debt service-to-revenue and grants ratio (percent): 2016: 48.4; 2017: 37.4; 2018: 64.7; 2019: 50.7; 2020: 52.5; 2021: 54.7; 2022: 41.1; 2023: 35.1; 2024: 33.3; 2029: 27.2; 2039: 16.1. - Gross financing need (percent of GDP): 2016: 12.1; 2017: 10.7; 2018: 13.8; 2019: 10.0; 2020: 8.0; 2021: 8.6; 2022: 6.3; 2023: 5.3; 2024: 5.2; 2029: 4.4; 2039: 2.4. ### Key macroeconomic assumptions (selected) - Real GDP growth (percent): 2016: 4.0; 2017: 5.8; 2018: 6.7; 2019–2024 (projections): 6.7 each year; 2029: 6.0; 2039: 5.0; Average: 4.4; Historical/projection note shows 6.4 in one row. - GDP deflator in US dollar terms (change in percent): 2016: -0.6; 2017: 2.1; 2018: 5.5; 2019: -1.7; 2020: 1.8; 2021: 1.8; 2022: 1.8; 2023: 1.9; 2024: 1.8; 2029: 2.5; 2039: 2.9; Average: -0.3; another row shows 2.0. - Effective interest rate (percent): 2016: 1.1; 2017: 1.6; 2018: 1.5; 2019: 2.0; 2020: 1.9; 2021: 2.1; 2022: 2.2; 2023: 2.2; 2024: 2.3; 2029: 1.7; 2039: 3.5; Average: 1.5; another line shows 2.0. - Growth of exports of G&S (US dollar terms, percent): 2016: -1.9; 2017: 26.4; 2018: 26.9; 2019: 14.5; 2020: 15.4; 2021: 13.5; 2022: 12.4; 2023: 7.6; 2024: 9.7; 2029: -4.5; 2039: 8.0; Average: 8.1; another shows 11.6. - Growth of imports of G&S (US dollar terms, percent): 2016: -0.3; 2017: 20.8; 2018: 14.8; 2019: 8.1; 2020: 11.4; 2021: 9.9; 2022: 10.2; 2023: 6.1; 2024: 5.4; 2029: 8.6; 2039: 8.0; Average: 5.9; another shows 9.1. - Government revenues (excluding grants, percent of GDP): 2016: 14.7; 2017: 17.5; 2018: 17.8; 2019: 17.7; 2020–2024 projected: 18.0 each year; 2029: 19.0; 2039: 20.2; Average: 16.9; another shows 18.3. - Grant element of new public sector borrowing (in percent): selected projection years: 2019: 12.1; 2020: 32.4; 2021: 31.3; 2022: 30.0; 2023: 30.7; 2024: 29.6; 2029: 29.1; 2039: 29.1; average shows 28.6. ### Stress tests, sensitivity analysis, and tailored scenarios (high-level) - Figure and table summaries show multiple stress tests and sensitivity analyses for indicators through 2019–29, including: - Alternative scenarios (e.g., key variables at historical averages). - Bound tests (Real GDP growth, Primary balance, Exports, Other flows, One-time 30 percent nominal depreciation, Combination of B1–B5). - Tailored tests (Combined contingent liabilities, Natural disasters, Commodity price shocks, Market financing). - Table 3 and Table 4 present percent-series results for indicators such as Debt service-to-exports ratio, Debt service-to-revenue ratio, PV of debt-to-exports ratio, PV of debt-to-GDP ratio, PV of Debt-to-Revenue Ratio, Debt Service-to-Revenue Ratio under baseline and stress scenarios for 2019–29. - Notes: - A bold value indicates a breach of the threshold. - Variables in alternative scenarios include real GDP growth, GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows. - Commodity price shock magnitudes are based on the commodity prices outlook prepared by the IMF research department. - All additional financing needs generated by shocks under the stress tests are assumed to be covered by PPG external MLT debt in the external DSA; default terms of marginal debt are based on baseline 10-year projections. ### Policy implications and recommended focus areas (from authorities’ commitments) - Maintain medium-term fiscal consolidation to support debt sustainability. - Strengthen public investment management to improve efficiency and reduce debt-creating flows. - Enhance debt management capacity to manage risks from external and public debt, including through careful sequencing of borrowing and attention to grant-equivalent financing shares. *Sources: Country authorities; and staff estimates and projections.* ### 1990. The size of 3-year adjustment from program inception is found on the horizontal axis; the ### Statement by Mr. Raghani, Executive Director for Benin, and Mrs. Boukpessi, Advisor to the Executive Director June 21, 2019 ### Recent Developments, Program Performance and Outlook - Growth and macro performance: - Real GDP growth: 5.8 percent in 2017; accelerated to 6.7 percent in 2018. - Fiscal deficit in 2018: 4.0 percent of GDP (lower than projected 4.7 percent of GDP). - Average inflation in 2018: 1 percent; projected to remain within the regional target of 3 percent. - Current account deficit narrowed in 2018 due to exports of cotton and other agriculture products. - Banking sector vulnerabilities: - Capital adequacy ratio brought below the regulatory threshold due to structural challenges and Basel II/III redefinition. - High loan concentration and non-performing loans (NPLs), albeit on a slight decline, add to financial vulnerabilities. - Financing developments: - March 2019: issuance of €500 million Eurobond (5.2 percent of GDP). - Result: improved access to international sovereign bond markets; continued efforts to contain domestic borrowing. - Overall risk of debt distress: remains moderate. - Program implementation: - Nearly all monitoring targets—quantitative and structural—met since program start in 2017. - Priority social expenditures: indicative target for end-December 2018 exceeded the floor of FCFA 167.0 billion, reaching FCFA 202.4 billion. - Outlook and projections: - Projected real GDP growth for 2019 revised upward to 6.7 percent. - Fiscal deficit projection for 2019: 3 percent of GDP (in line with WAEMU criterion). - Public debt-to-GDP projected to start declining in 2019 and reach levels below 50 percent over the medium-term. - Public debt-to-GDP ratio projected at 54.1 percent in 2019 (see fiscal consolidation section). - Current account deficit expected to narrow further on robust exports in cotton and cashew nuts. ### Macroeconomic Policies and Structural Reforms Going Forward - Policy focus over the medium-term: - Boost domestic revenue mobilization. - Safeguard debt sustainability. - Promote financial stability. - Foster economic diversification. - Improve the business environment for private sector-led growth. - Program anchoring: - Authorities view ECF program objectives as anchor for policy actions. - Requested modification of quantitative performance criteria (QPC): - (i) End-June 2019 QPC on net domestic financing together with modification of continuous PC on new external debt contracted or guaranteed by the government to account for Eurobond issuance and reflect deficit-neutral change in borrowing composition. - (ii) End-June 2019 QPC on the basic primary balance to rightly record domestic arrears in the fiscal balance. - Proposed three new structural benchmarks (SBs): - (i) Diagnostic of the main impediments to trade (by end-September 2019). - (ii) Reinforcement of data and risk analysis capacity of customs administration (by end-December 2019). - (iii) Impact assessment of the TSA on commercial banks (by end-March 2020). ### Strengthening Fiscal Consolidation - Fiscal strategy: - Sustain consolidation to reinforce fiscal sustainability while accommodating public infrastructure needs and priority social spending. - Tax policy and administrative measures to enhance domestic revenue mobilization and rationalize expenditures while protecting social spending. - Key revenue measures: - Streamline tax expenditures and exemptions. - Over the medium-term: consider increasing excise tax rates for some goods and further broadening VAT. - Formalize large informal sector to increase revenue collection. - Pursue reforms under the Strategic Plan for the Tax Administration. - Fiscal targets and projections: - Fiscal deficit for 2019 projected at 3.0 percent of GDP. - Ratio of public debt-to-GDP at 54.1 percent in 2019. - All first-order WAEMU convergence criteria on fiscal balance, debt and inflation expected to be met in 2019. ### Safeguarding Debt Sustainability - DSA assessment: - Staff’s DSA conclusion: Benin is at a moderate risk of debt distress; authorities share this assessment. - New risks from access to non-concessional external financing (Eurobond issuances) require enhanced monitoring and management. - Debt management actions: - Strengthen public debt management in line with international best practices and WAEMU requirements. - Recent reforms to reinforce technical and operational capacity of the debt management office (Caisse Autonome d’Amortissement, CAA). - Prudential borrowing strategy to be guided by upcoming update of Medium-Term Debt Strategy (MTDS). - Strengthen monitoring of public enterprise debt; upgrade related database with assistance from an international advisory firm. - Monitor fiscal risks from public-private partnerships (PPPs); establish and operationalize a unit within the Ministry of Economy and Finance to manage PPP risks with World Bank technical assistance. ### Enhancing the Financial Sector - Financial stability priorities: - Maintain sound and stable financial sector and promote financial inclusion. - Tackle high NPLs and elevated interest costs on deposits that affect profitability. - Measures and reforms: - Operationalization of law on Credit Information Bureau (CIB) in 2018. - Decrees relative to land registry reform and formalization of real estate collateral guarantees. - Advances in operationalization of Caisse des Dépôts et Consignations (CDC) to channel savings toward transformative investments. - Banking sector restructuring: - Restructure two small public banks to mitigate budget risks. - Consider merger to comply with capital requirements and expand network; supported by an international auditing firm. - Authorities will consult the Fund and submit a comprehensive restructuring plan to the Secretariat of WAMU Banking Commission by end-2019. - Microfinance and inclusion: - Close MFIs operating without license. - Set up permanent mechanisms for MFIs’ resource mobilization. - Promote coordination under Fonds National de Microcrédit. - Draft a national financial inclusion plan in line with BCEAO strategy. - Leverage mobile money to expand access to finance. ### Advancing Economic Diversification and Structural Transformation - Strategic priorities: - Accelerate economic transformation to sustain high and long-term growth. - Strengthen agriculture and trade sectors; develop high-potential sectors such as tourism and digital/knowledge-based activities. - Agriculture and agro-industry: - Further develop cotton sector; promote cashew nuts and pineapples production. - Promote high value-added products and processing industry through technological innovations. - Envisage a special economic zone to attract private investors in agro-industry. - Business environment reforms: - Create Inter-ministerial Investment Promotion Committee. - Restructure Agency for the Promotion of Investment and Exports (APIEX) to improve coordination and investor services. - Tackle infrastructure bottlenecks in transport, telecommunications and electricity. ### Social Policy and Human Capital - Social protection reforms: - Assurance pour le Renforcement du Capital Humain—ARCH—pilot phase started in three regions. - ARCH to be expanded nationwide and fully operational by 2022. - ARCH to provide universal medical insurance, microcredit and pension system for the poorest segments of the population. - Education and health reforms: continuing reforms in both sectors to support development objectives. ### Governance - Anti-corruption and transparency measures: - Enhance governance and curb corruption through greater transparency and automatized procedures. - Reform administrative control bodies and audit institutions; create more competitive procurement system. - Judicial and legal reforms: - Creation of two commercial courts. - Passage of law on combating money-laundering and the financing of terrorism. - Establishment in 2018 of Court de Répression des Infractions Economiques et du Terrorisme (CRIET). - Adoption of law strengthening public governance in February 2019. ### Conclusion - Authorities’ assessment: - Benin’s economic growth momentum remains strong and is underpinned by reform commitment. - Authorities intend to continue consolidating the macroeconomic framework, safeguarding financial stability and advancing economic transformation. - Authorities request the Board’s support for conclusion of the 2019 Article IV consultation and completion of the 4th Review under the ECF arrangement. *Source: Statement by Mr. Raghani, Executive Director for Benin, and Mrs. Boukpessi, Advisor to the Executive Director, June 21, 2019.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2019/1benea2019001.pdf_