## 1benea2019003

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### Background and recent developments
- ECF-supported program status:
  - Executive Board completed the fourth review under the three-year ECF arrangement on June 21, 2019; all semi-annual quantitative performance criteria (QPCs) and structural benchmarks (SBs) have been met since program start.
  - Authorities requested completion of the fifth review and disbursement of SDR 15.917 million (around $22.055 million); request to extend the ECF arrangement until July 31, 2020 (arrangement expires April 6, 2020).
- National accounts rebasing:
  - INSAE revised base year from 2007 to 2015 and implemented SNA 2008 in July 2019.
  - GDP trajectory revised upward by nearly 37 percent.
  - Sectoral shares in 2015 (post-rebasing): Primary 26.4 percent (previously 22.5 percent); Secondary 16.4 percent (previously 20.6 percent); Tertiary 49.2 percent (previously 45.7 percent).
  - Rebasing effects on ratios (2019): public deficit revised down from 3.0 percent of GDP to 2.2 percent; tax ratio updated from 14.9 percent of GDP to 10.7 percent; public debt revised down from 54.7 percent of GDP to 39.2 percent of GDP; current account deficit revised down from 7.8 percent of GDP to 5.6 percent of GDP.
- Nigeria border closure:
  - Nigeria closed the border on August 20, 2019; closure initially expected one month but still in place in early November 2019.
  - Staff assumes border will reopen before end-2019 (assumption shared by authorities and BCEAO) and models a three month closure until end-November 2019 as baseline adjustment.
  - Preliminary Q3 2019 data show customs revenue shortfall of about CFAF 10 billion (estimated loss of CFAF 10 billion per month from border closure).
- Macroeconomic performance H1 2019:
  - Strong growth driven by agriculture and port activity; CPI inflation fell by 1.7 percent in September relative to one year earlier.
  - Fiscal outturns at end-June 2019:
    - Cumulative fiscal deficit including grants: CFAF 30.4 billion (0.4 percent of annual GDP), below target CFAF 71.7 billion.
    - Cumulative revenue: CFAF 522.8 billion (0.2 percent of GDP above target), target CFAF 505.5 billion.
    - Spending below budget mainly due to slow execution of externally-financed capital expenditure.
  - Banking sector (2018 developments):
    - Aggregate capital adequacy ratio: 7.6 percent at end-June 2018 to 8.2 percent at end-December 2018 (regulatory threshold required for end-2018: 8.6 percent / 8.625 percent depending on text references).
    - Credit concentration: 103.3 percent at end-June 2018 to 90.4 percent at end-December 2018.
    - Gross NPLs to total loans: 18.9 percent at end-June 2018 to 21.6 percent at end-December 2018.
    - Liquid assets as share of total assets: 12.5 percent at end-December 2018 (lowest since 2005).

### Trade relations with Nigeria — key facts and implications
- Economic interconnections:
  - Informal re-exports to Nigeria account for almost a half of Benin’s exports in 2018 and represented 11 percent of GDP.
  - Nigeria is the main source of imported fuel (kpayo), representing more than half of total fuel consumption in Benin; kpayo prices are relatively low due to Nigerian fuel subsidies.
- Fiscal and employment implications:
  - For Benin: fuel import business is an important source of income and employment for poor households; customs revenues represented about 40 percent of tax revenue in 2018 or 4 percent of GDP, one-third of which is related to imports for re-exports.
  - For Nigeria: greater intraregional trade yields income generation and poverty reduction benefits.
- Border-closure scenarios and program adjustors:
  - Staff estimates border closure entails loss of customs revenues of about CFAF 10 billion per month.
  - TMU adjustors calibrated to months of closure: CFAF 10 billion if closure lasts until end-October 2019; CFAF 20 billion if until end-November 2019; CFAF 30 billion if until end-December 2019.
  - Modified QPCs for end-December 2019 supported by staff via temporary adjustors: reduction in floors on revenue and basic primary balance and equivalent increase in domestic financing ceiling, with no change in underlying targets aside from adjustors.

### Outlook, projections, and risks
- 2019 outlook and projection adjustments:
  - 2019 GDP growth revised down to 6.4 percent from 6.7 percent in IMF Country Report 19/203 (staff projections assume a three month-border closure until end-November 2019, estimated to lower 2019 GDP growth by 0.5 percentage point; compared to IMF Country Report 19/203, growth revised down by 0.3 percentage point because of positive offsets).
  - Current account projected to deteriorate from 4.5 percent of GDP in 2018 to 4.9 percent of GDP in 2019.
- Medium-term baseline:
  - Growth assumed to remain at potential, estimated above 6½ percent in IMF Country Report 19/203, in 2020 and beyond (under assumption that border reopens promptly); macro table series show GDP growth at 6.7 percent for multiple years with 6.4 percent for 2019.
  - Inflation projected to remain below the WAEMU 3 percent ceiling over the medium term (series includes negative inflation -0.6 percent in 2019).
  - Continued fiscal discipline should keep the budget deficit below the WAEMU criterion of 3 percent of GDP and place public debt on a downward path.
  - Current account expected to improve driven by strong exports and public investment scaling-down from the 2017 peak.
- Downside risks (tilted to the downside; Annex II):
  - National: resurgence of social unrest around local elections planned for April 2020; prolonged border closure would heavily affect exports, growth, and fiscal revenues; April 2021 presidential elections may generate public spending pressures; unresolved banking sector vulnerabilities could pose fiscal risks.
  - Regional: contagion of security risks could generate budgetary costs and revenue losses.
  - Global: rising protectionism and weaker-than-expected global growth.

### Fiscal policy, 2020 budget parameters, and revenue mobilization
- 2020 draft budget objectives:
  - Targets overall deficit of 1.8 percent of rebased GDP and entails fiscal adjustment of ¼ percent of GDP relative to 2019.
  - Text Table 1 (percent of GDP) highlights:
    - Revenues and grants: 14.4 (2019 Prel.) / 14.5 (2020 Authorities Draft)
    - Tax revenues: 11.2 / 11.4
    - Nontax revenues: 2.1 / 2.1
    - Total expenditure and net lending: 16.7 / 16.3
    - Capital expenditure: 5.4 / 5.5
    - Wage bill: 4.8 / 4.5
    - Overall balance (Commit. basis, with arrears recognition): -2.3 / -1.8
    - Overall balance (Commit. basis, without arrears recognition): -2.0 / -1.8
- Revenue mobilization measures and targets:
  - With rebasing, tax ratio revised down to 11 percent of GDP.
  - Authorities agreed to revenue mobilization effort equivalent to ½ percent of GDP at end-2019 (new SB).
  - Draft budget prudently expects revenue package yield at ¼ percent of GDP; excess yields could be reallocated to capital and social expenditure via supplementary budget.
  - Text Table 2 — Expected gains from revenue measures in 2020 (percent of GDP):
    - Capital income taxes 0.2
    - Taxes on financial and nonfinancial assets 0.1
    - Consumption taxes 0.1
    - Revenue administration 0.1
    - Total revenue mobilization effort between 2019 and 2020 0.5
  - Specific measures: taxes on vehicles (TVM), mobile payment of the TVM, generalization of electronic invoicing system of VAT, administrative enhancements.
- Expenditure priorities and social spending:
  - Protect development spending; rely more on domestic revenue mobilization rather than further cutting capital expenditure.
  - Wage bill ratio expected to decline by 0.3 percent of GDP in 2020 due to 2019 measures, expansion of bancarization to military personnel, and rationalization of diplomatic service.
  - ARCH universal healthcare pilot in 2019; extension in 2020 to cover all extreme poor (17 percent of total population); cost estimated at 0.3 percent of GDP included in draft budget; ARCH expected to be self-financed except subsidy for extremely poor.
- Contingency if border closure extends into 2020:
  - Authorities prepared to slow execution of capital expenditure if revenues underperform in early 2020.
  - Revenue loss could be very large—representing 1.3 percent of GDP on an annualized basis, more than a third of domestically-financed capital expenditure budget (projected at 3.2 percent of GDP in 2020).
  - If closure remains durably closed, next program review in spring 2020 will revisit targets.

### Debt, external financing, and debt management
- Recent shifts in debt composition:
  - After 2018 reprofiling and March 2019 Eurobond, external debt accounted for nearly 60 percent of total debt in 2019, compared to 40 percent in 2017 (other texts note end-2018 external ≈ 47 percent and 58 percent after Eurobond).
  - Eurobond issuance March 2019: EUR 500 million (equivalent to 3.9 percent of GDP), weighted maturity 6 years, interest rate 6 percent, repayment in 2024-2026.
- Medium-Term Debt Management Strategy (MTDS) and targets:
  - Authorities revising MTDS; new MTDS 2020-24 to be published by end-2019.
  - New target range for share of external debt: 55-60 percent (MEFP ¶46 and 47); MTDS computed using IMF/WB Analytical Tool.
  - Annual operational plans will reflect composition target and attach to draft budget.
- Debt risks and assessments:
  - Maintaining declining debt path requires strict medium-term fiscal discipline, keeping fiscal deficit below 3 percent of GDP (WAEMU criterion).
  - Risk of debt distress remains moderate.
  - Liquidity indicators expressed in percent of taxes or exports were not significantly affected by rebasing (see updated Debt Sustainability Analysis).
  - Debt service to revenue ratio projected at 55 percent in 2019, expected to decrease to around 48 percent on average in medium term and 22 percent in long run.
  - Benin’s EMBI spread estimated around 592 bps. as of September 30, 2019 (breaches benchmark of 570 bps).
- PPPs, infrastructure, and contingent liabilities:
  - More than half of Government Action Plan projects expected to be financed by private sector, partly via PPPs; PPP law enacted in 2016; as of end-2019 no PPP signed; energy projects at feasibility stage.
  - Mission stresses PPPs should be properly reflected in fiscal accounts and fiscal risks assessed.
  - Specific pipeline project (footnote): Beninese portion construction cost estimated about USD $1 billion; project managed and financed entirely by private company; Beninese government not financially involved nor liable if project does not advance (MEFP ¶51).
- Debt contracting ceilings:
  - Continuous performance criterion: PV of new external borrowing contracted or guaranteed by the government in 2019 will not exceed cumulative amount of CFAF 797 billion.

### Financial sector governance and reforms
- Banking sector weaknesses and reforms:
  - Weak profitability, low liquidity, poor credit quality, elevated credit concentration.
  - Regional move to Basel II/III prudential standards and IFRS 9 accounting rules; capital adequacy ratio in 2019 should not be below 8.625 percent.
  - Recapitalization efforts: Beninese banks recapitalized; small noncompliant banks undergoing restructuring.
  - April 2019 decree facilitates conversion of occupancy permits into real estate titles recognized as collateral; as of end-October about 600 guarantees formalized corresponding to CFAF 72 billion (0.9 percent of GDP) of underlying collateral.
  - Two small public banks with repeated losses in 2015-17 are being merged; aggregate capital shortfall at end-2018 relative to CFAF 10 billion norm represents less than half a percent of GDP.
- Microfinance sector:
  - Supervision strengthened; between 2013 and 2019: 240 unauthorized MFIs received formal authorization; 17 unviable MFIs closed.
  - National Microfinance Fund (FNM) strategic plan 2017-2021 and FinScope survey preparation; microfinance component of ARCH implemented in 2019.
- Caisse des Depots et Consignations (CDC):
  - Law reactivating CDC passed; Steering Committee in January 2019; international consulting firm contracted to operationalize; CDC to progressively start activities in 2020 (MEFP¶31-33).
  - CDC will manage dedicated savings and finance long-term investment; potential short-term liquidity pressure on banks if CDC withdraws deposits to reallocate to infrastructure.
- AML/CFT and governance:
  - GIABA assessment highlights significant deficiencies; draft discussed Nov 2019, approval expected May 2020; authorities initiated plan to address recommendations (increase support for CENTIF, improve suspicious transaction reporting, establish agency to manage confiscated assets).
  - IMF recommended adopting anti-corruption strategy, mobilizing resources, strengthen operational independence of National Anti-Corruption Authority, and publish its activity reports.
  - Transparency/competitiveness indicators:
    - Transparency International Global Corruption Barometer Africa 2019: 44 percent of Beninese population think government is doing a good job at fighting corruption compared to 19 percent in 2015.
    - 2020 Doing Business Report: Benin improved four places in overall ranking.

### Data, statistical coverage, and program monitoring
- Data and reporting:
  - Need to improve availability, timeliness, and comprehensiveness of high-frequency indicators; authorities started publishing a quarterly conjunctural note in English in H1 2019.
  - Extension of debt coverage to SOEs: staff stressed importance; authorities assessing consolidation scope with AFRITAC WEST support before incorporating SOE debt in total debt.
- Technical Memorandum of Understanding (TMU) program assumptions and definitions:
  - Exchange rates: CFAF/US$ 557.6; CFAF/euro 655.96; CFAF/SDR 785.4 (as of August 19, 2017).
  - Debt definition follows IMF Executive Board Decision No. 6230-(79/140) as amended.
  - NDF ceilings (cumulative since Jan 1) for 2019: end-March CFAF 15 billion; end-June CFAF -38.0 billion; end-September CFAF -158.5 billion; end-December CFAF – 289.0 billion.
  - Revenue floors (cumulative since Jan 1) for 2019: end-March not less than CFAF 235.1 billion; end-June not less than CFAF 505.5 billion; end-September not less than CFAF 762.5 billion; end-December not less than CFAF 1112.4 billion.
  - Basic primary balance floors for 2019: end-March not less than CFAF +15.6 billion; end-June not less than CFAF +44.5 billion; end-September not less than CFAF 47.7 billion; end-December not less than CFAF 101.7 billion.
- Program financing and IMF engagement:
  - Six scheduled ECF disbursements of SDR 15.917 million and one of SDR 15.918 million for total SDR 111.42 million (disbursement dates listing).
  - At end-September 2019, outstanding Fund credit (including the GRA) was around 98.00 percent of quota or SDR 120.97 million.
  - Debt service payments to the Fund peak in 2020 at 0.9 percent of government revenue.
- Data reporting requirements:
  - Monthly and quarterly submission timelines for TOFE, CPI, monetary survey, debt stock, bank supervision indicators, priority social expenditures, public investment implementation, and other items specified in TMU.

### Program implementation, conditionality, and staff appraisal
- Performance through end-June and September 2019:
  - All end-June 2019 QPCs and the September SB on diagnostic of obstacles to trade met.
  - September deviations: revenues exceeded target despite border closure; deviation from IT on primary balance reflects faster-than-anticipated execution of domestically-financed capital budget in Q3.
  - Staff supports authorities’ request to modify end-December 2019 QPCs on revenue, basic primary balance, and net domestic financing via temporary adjustors calibrated to months of closure over October–December 2019.
- Structural benchmarks and prior actions:
  - 2020 budget parameters secured by a prior action and a new SB; adoption of 2020 tax package subject to SB (MEFP Table 2).
  - Selected SBs and statuses include submission/adoption of budgets, elimination of certain tax expenditures, improvements in revenue administration, and trade diagnostic completion (many items marked Met).
- Staff appraisal and recommendation:
  - Performance under the program continues to be very satisfactory; macroeconomic and structural policies in the MEFP adequate to pursue program objectives.
  - Staff supports completion of the fifth review, a four-month technical extension of the program, modification of end-December 2019 QPCs, and addition of a prior action and a new SB.

### Selected numerical indicators and projections (as presented)
- Growth and inflation:
  - GDP growth: 2019 projected 6.4 percent (revised from 6.7 percent); baseline series shows 6.7 percent for many years 2020–2024.
  - CPI (average) series (2017–2024): 1.8; 1.0; 1.0; 0.8; 1.7; 1.7; -0.6; 1.0; 2.0; 2.0; 2.0; 2.0.
- Fiscal balances and debt:
  - Overall fiscal deficit (commitment basis, incl. grants) series (2017–2024): -4.3; -4.0; -2.9; -2.9; -3.0; -2.2; -2.3; -1.8; -1.7; -1.5; -1.5; -1.3.
  - Central government debt (percent of GDP, Table 1 series): 39.6; 56.1; 41.0; 41.0; 54.1; 38.9; 41.1; 40.1; 37.5; 36.2; 35.1; 33.9.
  - Total nonfinancial public sector debt (percent of GDP): 39.7; 56.8; 41.5; 41.5; 54.7; 39.2; 41.4; 40.4; 37.8; 36.4; 35.3; 34.1.
- External sector and trade:
  - Current account balance (incl. grants) series (2017–2024): -4.2; -8.3; -6.0; -4.5; -7.8; -5.6; -4.9; -4.7; -4.5; -4.3; -4.1; -3.8.
  - Exports, f.o.b. (Billions CFAF) selected: 975.6; 1,085.5; 1,116.1; 1,312.0; 1,175.3; 1,329.3; 1,530.6; 1,713.0; 2,052.8 (selected years).
  - Imports, f.o.b. (Billions CFAF) selected: -1,319.6; -1,366.1; -1,563.4; -1,542.8; -1,664.6; -1,806.5; -1,962.4; -2,089.6; -2,265.9; -2,443.6 (selected years).
- Monetary and financial indicators:
  - Broad money (M2) (Billions CFAF) selected: 2,107.6; 2,224.4; 2,209.0; 2,408.8; 2,333.4; 2,519.6 (selected years).
  - Net foreign assets (Billions CFAF) selected: 994.9; 1,185.4; 1,185.4; 1,609.0; 1,547.1; 1,932.7.
  - Credit to nongovernment sector (Billions CFAF) selected: 1,331.0; 1,584.0; 1,432.4; 1,739.9; 1,551.8; 1,697.9.
- Program financing needs (Billions CFAF, Table 9 selected):
  - Total financing requirement (2018–2021): 405.1; 474.1; 520.7; 555.2.
  - Total financing needs (after other sources) (2018–2021): 229.3; 184.7; 212.7; 243.7.
  - IMF component (2018–2021): 22.5; 23.1; 1.4; -9.4.
- Debt sustainability baseline highlights:
  - Public sector debt (selected years): 2014: 22.3; 2015: 30.9; 2016: 36.1; 2017: 39.7; 2018: 41.5; 2019: 41.4; 2020: 40.4; 2024: 34.1.
  - PV of PPG external debt-to-GDP (selected): 13.8; 19.4; 19.1; 18.1; 17.4; 16.4; 17.2; 13.0; 5.4.
  - PV of PPG external debt-to-exports (selected): 79.2; 115.5; 111.4; 102.0; 96.1; 91.2; 96.0; 49.6; 20.8.
  - PPG debt service-to-revenue ratio (selected): 5.7; 8.3; 4.7; 6.8; 9.9; 10.8; 10.3; 10.0; 15.6; 10.9; 3.4.
  - Gross external financing need (Billion US$ selected): 0.3; 0.5; 0.5; 0.6; 0.6; 0.6; 0.7; 0.7; 0.9; 1.1; 1.2.

- Selected program-target actuals at end-June 2019:
  - Net domestic financing (NDF) of government: CFAF -50.4 billion (ceiling CFAF -38 billion).
  - Basic primary fiscal balance: CFAF 50.7 billion (floor CFAF 44.5 billion).
  - Total government revenue: CFAF 522.8 billion (floor CFAF 505.5 billion).

*Prepared by IMF staff (excerpts) — 1benea2019003.*

### 1. Trade Relations Between Benin and Nigeria ____________________________________________________ 6

### 1. Trade Relations Between Benin and Nigeria

### Background
- The ECF-supported program is on track; on June 21, 2019, the Executive Board completed the fourth review under the three-year ECF arrangement. All semi-annual quantitative performance criteria (QPCs) and structural benchmarks (SBs) have been met since the beginning of the program.
- In July 2019, INSAE published revised national accounts data: past GDP levels were revised upward by about 37 percent (Annex I). The rebasing led to large downward revisions of all GDP ratios, including the debt, fiscal deficit, government revenue, and current account ratios.
- Post-elections protests following the April 2019 parliamentary election have abated. In October 2019, representatives of majority and opposition parties met to reignite political dialogue; in November 2019, parliament adopted a revision of the constitution to modernize public institutions (gender quotas, court of auditors, aligning election calendars).
- At end-August 2019, Nigeria unilaterally closed the border with some neighboring countries, including Benin, to curb smuggling and spur local production. The closure was initially expected to last one month but was still in place in early November 2019. Beninese authorities prioritized resolving the issue promptly.

### Recent developments (first half of 2019)
- Growth momentum was strong in the first months of 2019, driven in part by the agricultural sector and the port. CPI inflation fell by 1.7 percent in September relative to one year earlier.
- Fiscal outturns overperformed targets at end-June 2019:
  - Cumulative fiscal deficit including grants at end-June 2019: CFAF 30.4 billion (0.4 percent of annual GDP), below the CFAF 71.7 billion target.
  - Cumulative revenue: CFAF 522.8 billion (0.2 percent of GDP above target), compared with a target of CFAF 505.5 billion.
  - Spending remained lower than budgeted, mainly due to slow execution of externally-financed capital expenditure.
- Preliminary Q3 2019 data show a customs revenue shortfall of about CFAF 10 billion due to the border closure.
- The 2018 current account deficit was revised down to 4.5 percent of GDP (from 6.0 percent of GDP in the previous report, using rebased GDP), though the current account deteriorated by 0.3 percent of GDP in 2018 because of a surge in informal imports of fuel.
- Banking sector developments in 2018:
  - Aggregate capital adequacy ratio: 7.6 percent at end-June 2018 to 8.2 percent at end-December 2018 (regulatory threshold required for end-2018: 8.6 percent).
  - Credit concentration: 103.3 percent at end-June 2018 to 90.4 percent at end-December 2018.
  - Gross NPLs to total loans: 18.9 percent at end-June 2018 to 21.6 percent at end-December 2018.
  - Liquid assets as a share of total assets: 12.5 percent at end-December 2018 (lowest since 2005).

### Box: Trade relations between Benin and Nigeria (key facts)
- Benin is deeply interconnected with Nigeria; many commodities (rice, poultry, used cars) are imported into Benin and re-exported to Nigeria.
- In 2018, informal re-exports accounted for almost a half of Benin’s exports and represented 11 percent of GDP.
- Nigeria is the main source of imported fuel (kpayo), representing more than half of total fuel consumption in Benin; kpayo prices are relatively low due to Nigerian fuel subsidies.
- Trade with Nigeria:
  - For Benin: fuel import business is an important source of income and employment for poor households; customs revenues represented about 40 percent of tax revenue in 2018 or 4 percent of GDP, one-third of which is related to imports for re-exports.
  - For Nigeria: greater intraregional trade yields income generation and poverty reduction benefits.

### Outlook and risks
- 2019 outlook:
  - Staff assumes the border will reopen before end-2019 (assumption shared by authorities and BCEAO).
  - 2019 GDP growth revised down to 6.4 percent from 6.7 percent in IMF Country Report 19/203 (staff projections assume a three month-border closure until end-November 2019, estimated to lower 2019 GDP growth by 0.5 percentage point; compared to IMF Country Report 19/203, growth revised down by 0.3 percentage point because of positive offsets).
  - Current account projected to deteriorate from 4.5 percent of GDP in 2018 to 4.9 percent of GDP in 2019.
- Medium-term prospects:
  - Cotton production, construction, and transport expected to continue expanding; growth assumed to remain at its potential, estimated above 6½ percent in IMF Country Report 19/203, in 2020 and beyond (under assumption that border reopens promptly).
  - Inflation projected to remain below the WAEMU 3 percent ceiling over the medium term.
  - Continued fiscal discipline should keep the budget deficit below the WAEMU criterion of 3 percent of GDP and place public debt on a downward path.
  - Current account expected to improve driven by strong exports and public investment scaling-down from the 2017 peak.
- Risks (tilted to the downside; Annex II):
  - National: resurgence of social unrest around local elections planned for April 2020; prolonged border closure would heavily affect exports, growth, and fiscal revenues; April 2021 presidential elections may generate public spending pressures; unresolved banking sector vulnerabilities could pose fiscal risks.
  - Regional: contagion of security risks could generate budgetary costs and revenue losses.
  - Global: rising protectionism and weaker-than-expected global growth.

### Policy discussions
- Discussions focused on: (i) main parameters of the 2020 budget and revenue mobilization; (ii) revised debt management strategy; (iii) reform of the investor protection framework; (iv) soundness of the financial sector.

A. Creating fiscal space for development programs
- 2020 draft budget aims to bring fiscal deficit below 2 percent of GDP:
  - Draft budget targets overall deficit of 1.8 percent of rebased GDP and entails fiscal adjustment of ¼ percent of GDP relative to 2019.
  - Text Table 1 (percent of GDP): Revenues and grants 14.4 (2019 Prel.) / 14.5 (2020 Authorities Draft Budget); Tax revenues 11.2 / 11.4; Nontax revenues 2.1 / 2.1; Total expenditure and net lending 16.7 / 16.3; capital expenditure 5.4 / 5.5; wage bill 4.8 / 4.5; Overall balance (Commit. basis, with arrears recognition) -2.3 / -1.8; Overall balance (Commit. basis, without arrears recognition) -2.0 / -1.8.
- Revenue mobilization:
  - With rebasing, tax ratio revised down to 11 percent of GDP.
  - Authorities agreed to revenue mobilization effort equivalent to ½ percent of GDP at end-2019 (new SB).
  - Revenue package focused on income and real estate taxes; expected yield prudently set at ¼ percent of GDP in draft budget and program; if yields exceed ¼ percent of GDP, excess could be reallocated to capital and social expenditure via supplementary budget.
  - Text Table 2 — Expected gains from revenue measures in 2020 (in percent of GDP):
    - (1) Tax policy: Capital income taxes 0.2; Taxes on financial and nonfinancial assets 0.1; Consumption taxes 0.1.
    - (2) Revenue administration 0.1.
    - (3) = (1) + (2) Total revenue mobilization effort between 2019 and 2020 0.5.
  - Specific measures include taxes on vehicles (TVM), mobile payment of the TVM, generalization of electronic invoicing system of VAT, and other administrative measures.
- Expenditure priorities:
  - Protect development spending; strategy to rely more on domestic revenue mobilization rather than further cutting capital expenditure.
  - Wage bill ratio expected to decline by 0.3 percent of GDP in 2020 due to (i) measures in 2019 budget; (ii) extension of “bancarization” of payments to military personnel; (iii) rationalization of diplomatic service.
  - Universal healthcare insurance system (ARCH) pilot in 2019; extension for 2020 to cover all extreme poor (17 percent of total population); cost estimated at 0.3 percent of GDP included in draft budget. ARCH expected to be self-financed except for subsidy for extremely poor; no additional budgetary cost beyond 0.3 percent of GDP expected in subsequent years.
- Contingency if border closure extends into 2020:
  - Authorities stand ready to take offsetting measures; intend to slow execution of capital expenditure if revenues underperform in first months of 2020.
  - Revenue loss could be very large—representing 1.3 percent of GDP on an annualized basis, more than a third of the domestically-financed capital expenditure budget (projected at 3.2 percent of GDP in 2020).
  - If closure remains durably closed, next program review in spring 2020 will revisit the issue.

B. Fostering prudent debt management
- Public debt-to-GDP ratio expected to stabilize in 2019 after five years of continued increase, reflecting decline in fiscal deficit, strong growth, and absence of new government guarantees in 2019.
- Maintaining a declining debt path requires strict medium-term fiscal discipline, keeping fiscal deficit below 3 percent of GDP in line with WAEMU criterion.
- Risk of debt distress remains moderate. Rebasing led to sharp downward revision of debt-to-GDP ratio, but liquidity indicators expressed in percent of taxes or exports were not significantly affected by rebasing (see updated Debt Sustainability Analysis).

*Source: IMF staff report (excerpts) — "1. Trade Relations Between Benin and Nigeria" (Benin Country Report).*

### 18.      The greater reliance on external financing has created new risks and operational

### 18.      The greater reliance on external financing has created new risks and operational challenges

### External financing and debt composition
- Following the 2018 debt reprofiling operation and the 2019 issuance of a Eurobond, external debt accounted for nearly 60 percent of total debt in 2019, compared to 40 percent in 2017.
- External borrowing can diversify financing and improve debt terms but creates new risks such as exchange rate risk and changes in rollover risk.
- Box 3 in IMF Country Report 19/203 describes reforms of the debt management framework to monitor and mitigate these vulnerabilities.

### Medium-Term Debt Management Strategy (MTDS)
- The authorities are revising the MTDS. The previous MTDS targeted a balanced domestic/external composition.
- The new MTDS covering 2020-24 will be published by end-2019.
- It will include a new target range of 55-60 percent for the share of external debt (MEFP¶46 and 47).
- The debt management agency computed the target range using the IMF/WB Analytical Tool (Annex III).
- The composition target will be reflected in annual operational plans attached to the draft budget.

### Debt Management Office functional reforms
- Organizational changes:
  - Restructured operations department for more rigorous monitoring and control of disbursements and repayments.
  - Portfolio managers now specialized by type of lender (domestic banks, foreign banks, donors).
  - Structure aligned with "front, middle and back office" model following the AFRITAC West 2015 audit.
- Capacity enhancement:
  - Recruitment of bilingual staff with qualifications in statistics and forecasting.
  - Regular training from technical partners and IMF technical assistance.
- Transparency:
  - Agency website revamped and information updated regularly.

### Infrastructure projects, PPPs, and fiscal risks
- More than half of the Government Action Plan projects expected to be financed by the private sector, partly through Public Private Partnerships (PPPs).
- A PPP law was enacted in 2016. As of end-2019, no PPP has been signed; some energy sector projects are at feasibility study stage.
- Staff recognizes possible need for public support to attract private investors and stresses careful consideration of implications on public debt and contingent liabilities.
- Mission reiterated that future PPPs should be properly reflected in fiscal accounts and their fiscal risks assessed.
- Note on a specific project (footnote in source):
  - Construction of a pipeline carrying crude oil from Niger to Benin’s Cotonou port expected in 2020-21; start of operations scheduled in 2022.
  - Construction cost for the Beninese portion is estimated at about USD $1 billion.
  - Project managed and financed entirely by a private company; Beninese government not involved financially and not liable if project does not advance (MEFP ¶51).

### Enhancing Governance and fighting corruption
- Perceptions of governance weaknesses adversely affect competitiveness and attractiveness for foreign investors.
  - 2018 Global Competitiveness Report: Benin’s index lies below the SSA average; corruption is second most problematic factor after access to financing.
- Improvements noted:
  - Transparency International Global Corruption Barometer Africa 2019: 44 percent of the population in Benin think government is doing a good job at fighting corruption compared to 19 percent in 2015.
  - 2020 Doing Business Report: Benin improved four places in overall ranking due to progress in insolvency procedures, contract enforcement, property registration, and construction permits.
- Investor protection regime reforms in progress:
  - New investment code currently at Parliament (MEFP¶54).
  - Suggested further reforms: improve dissemination of information via national agency websites; strengthen minority shareholder protection; increase scrutiny of management teams.
- AML/CFT framework:
  - GIABA assessment highlights significant deficiencies; report expected to be approved in May 2020 (draft discussed Nov 2019; adoption postponed to May 2020 to improve quality).
  - Authorities initiated plan to address GIABA recommendations: increase financial support for CENTIF, improve reporting of suspicious transactions, establish national agency to manage confiscated criminal assets.
  - Authorities should step-up efforts to improve effective implementation and address deficiencies identified in the draft GIABA report.
- Anti-corruption institutional steps:
  - Benin has built anti-corruption legal and institutional framework but needs meaningful implementation steps.
  - IMF recommendation (June 2019): adopt anti-corruption strategy and mobilize resources for implementation, enhance prevention and enforcement, strengthen operational independence of the National Anti-Corruption Authority and publish its activity reports.
  - Benin should meet obligations under the United Nations Convention against Corruption for the upcoming implementation review.
- Trade facilitation:
  - Lack of clarity and automation in import/export formalities creates risks of negotiations and illegal payments.
  - Accelerating digitalization and simplifying trade procedures could reduce informality and increase customs revenue.
- Fiscal governance:
  - Ongoing modernization of payment processes including online submission of company financial statements.
  - IMF Technical Assistance mission scheduled to visit Benin in December to support implementation and impact analysis of the Treasury Single Account (TSA) (March 2020 SB).
  - Public procurement control agents appointed in all line ministries, public institutions, and local governments in spring.

### Strengthening the banking sector
- Sector weaknesses: shallow sector, structurally weak profitability, low liquidity, poor credit quality, elevated credit concentration.
- Regional reforms: move to Basel II/III prudential standards and IFRS 9 accounting rules.
- Recapitalization efforts: Beninese banks made considerable recapitalization; small noncompliant banks are undergoing restructuring.
- Microfinance institutions (MFIs): authorities formalizing unauthorized institutions and closing nonviable ones; 2019 census conducted and data being analyzed.
- Real estate collateral formalization:
  - April 2019 decree facilitates conversion of occupancy permits into real estate titles recognized as collateral by regulator (MEFP¶34).
  - As of end-October, about 600 guarantees formalized, corresponding to CFAF 72 billion (0.9 percent of GDP) of underlying collateral.
  - Enables banks to recover some provisions and repurpose them towards more profitable activities and could reduce credit concentration; need to improve efficiency of notaries emphasized.
- Caisse des Depots et Consignations (CDC):
  - Authorities establishing a CDC to manage dedicated savings and finance long-term investment, support public policies, and potentially lower cost of term deposits in banks.
  - An international consulting firm hired to assist operationalization; CDC will progressively start activities in 2020 after government validates business model (MEFP¶31-33).
  - Footnote: CDC will manage some funds of the social security fund, reducing its market power with banks; if CDC withdraws deposits to reallocate to infrastructure this may pressure banks’ liquidity short term.
- Public banks merger:
  - Two small public banks that recorded repeated losses in 2015-17 are in process of being merged.
  - Aggregate capital shortfall for both banks at end-2018 (relative to CFAF 10 billion norm) represents less than half a percent of GDP.
  - Authorities hired an international audit company to assess merger options; technical work ongoing (MEFP ¶30).
  - Mission reiterated selection should follow international best practices, minimize state cost while preserving financial stability.

### Data issues and capacity development
- Conjunctural data:
  - Need to improve availability, timeliness, and comprehensiveness of high-frequency indicators.
  - Authorities started publishing a quarterly conjunctural note in English in first half of 2019.
- Extension of debt coverage to SOEs:
  - Staff stressed importance of extending DSA coverage to SOEs (see updated DSA report).
  - Authorities assessing scope for consolidating central government fiscal accounts with SOE financial statements with AFRITAC WEST support before incorporating SOE debt in total debt.
- Capacity development (CD) medium-term strategy focuses on:
  - Enhancing domestic revenue mobilization (revenue administration and tax policy).
  - Improving budgeting, public expenditure efficiency, and cash management.
  - Upgrading real, government, and external sector statistics (Annexes IV and V of IMF Country Report 19/203).
- FY2019 CD inputs:
  - Diagnostic missions assessing customs, tax administrations and tax policy helped design revenue mobilization strategy.
  - Technical assistance on national accounts provided to INSAE to finalize GDP rebasing.
- FY2020 CD plans:
  - Fiscal Transparency Evaluation and a Medium-Term Revenue Strategy (MTRS) mission to strengthen medium-term budgeting and design a comprehensive reform plan toward WAEMU regional tax ratio criterion of 20 percent of GDP.

### Program conditionality, modalities, and financing
- Performance:
  - All end-June 2019 QPCs and the indicative target for priority social spending met.
  - End-September SB on diagnostic of obstacles to trade met.
- September 2019 deviations:
  - Revenues exceeded their target at end-September despite the border closure.
  - Deviation from the IT on primary balance reflects faster-than-anticipated execution of domestically-financed capital budget in Q3; expected to be offset later in year.
  - Concentration of debt repayments in last quarter should ensure net domestic financing QPC is met at end-December.
- Modified QPCs for end-December 2019 due to border closure:
  - Staff supports authorities’ request to modify end-December 2019 QPCs on revenue, basic primary balance, and net domestic financing via temporary adjustors (TMU¶13, 17, 21), calibrated to number of months of closure over October-December 2019.
  - Staff estimates border closure entails loss of customs revenues of about CFAF 10 billion per month.
  - September 2019 revenue loss not covered by adjustor and to be compensated by past overperformance of domestic taxes.
  - A closure of two, three or four months (until end-2019) would require adjusting QPCs through (i) reduction in floors on revenue and basic primary balance, and (ii) equivalent increase in domestic financing ceiling.
  - No change proposed in underlying targets relative to IMF Country Report 19/203 aside from adjustors.
- Technical extension:
  - Current ECF arrangement expires April 6, 2020.
  - Authorities request a four-month technical extension to complete sixth and final review and related disbursement.
- 2020 budget parameters:
  - Main parameters secured by a prior action and a new SB; adoption of 2020 tax package subject to SB (MEFP Table 2).
- Regional consistency:
  - Program ensures all first-order WAEMU convergence criteria (deficit, debt, inflation) are met and aligns with WAEMU strategy to strengthen reserves and enhance regional external stability (IMF Country Report 19/90).
- Financing assurances:
  - Program fully financed until end (April 2020).
  - At end-September 2019, outstanding Fund credit (including the GRA) was around 98.00 percent of quota or SDR 120.97 million.
  - Debt service payments to the Fund manageable, peaking in 2020 at 0.9 percent of government revenue.
- Safeguards:
  - Updated safeguards assessment of the BCEAO completed in 2018 found strong control environment; audit arrangements broadly conform with international standards; financial statements prepared in accordance with International Financial Reporting Standards (IFRS 9).
  - BCEAO enhanced oversight role of its audit committee in line with assessment recommendations.

### Staff appraisal
- Performance under the program continues to be very satisfactory.
- All QPCs at end-June 2019 and the September SB were met.
- Macroeconomic and structural policies in the MEFP are adequate to pursue program objectives.

*IMF Country Report excerpt (selected paragraphs 18–43).*

### 44.      Benin’s economic growth continues to be strong despite a less supportive external

### Benin’s economic growth continues to be strong despite a less supportive external environment and the border closure with Nigeria

### Growth outlook
- Real GDP is expected to slow down to 6.4 percent in 2019.
- Growth should bounce back in 2020 and remain sustained over the medium term, buttressed by vigorous cotton production, construction, and port activity.
- External environment is described as less supportive and the border closure with Nigeria is noted as a negative external factor.

### Fiscal stance and debt sustainability
- Maintaining the fiscal deficit below 3 percent of GDP in 2020 and beyond will put the debt ratio on a firm downward trajectory.
- Staff welcomes the authorities’ draft 2020 budget, which targets a fiscal deficit well below the WAEMU deficit criterion.
- The 2020 draft budget entails a fiscal adjustment of ¼ percent of GDP relative to 2019.
- Medium-term fiscal discipline is essential to secure debt sustainability.

### Revenue mobilization and expenditure composition
- The 2020 budget places appropriate emphasis on revenue mobilization.
- The expected tax effort will generate resources to support development programs and strengthen the government’s ability to repay debt.
- On the expenditure side, the composition of the budget is broadly adequate, with the envelope dedicated to priority social spending and capital expenditure remaining stable in percent of GDP despite the fiscal adjustment.

### Debt management and external financing risks
- Enhanced debt management is necessary to mitigate the risks associated with greater reliance on external financing.
- There has been a significant increase in the share of external debt in total debt in the past two years, which warrants caution.
- A recent debt reprofiling operation and the Eurobond issuance have contributed to lowering borrowing costs, diversifying the financing structure, and extending debt maturity.
- These operations also create new vulnerabilities.
- Staff welcomed the authorities’ decision to update the medium-term debt strategy and pursue organizational reforms at the debt agency.

*Source: IMF staff assessment as presented in the provided content unit.*

### 48.      Staff supports the authorities’ request for completion of the fifth review of the ECF

### Staff recommendation on the fifth review and program modification

### Key decision
- Staff supports the authorities’ request for completion of the fifth review of the ECF supported program.
- Staff supports:
  - a four-month technical extension of the program;
  - the proposed modification of the end-December 2019 QPCs on revenue, primary balance, and domestic financing;
  - the addition of a prior action and a new SB.

*Source: IMF staff report excerpt.*

### Recent macroeconomic developments (high-level findings)
- Growth:
  - "Growth has increased since 2016, pulled primarily by the tertiary sector."
- Inflation:
  - "Inflation has remained subdued."
  - Consumer price index (average) entries in Table 1: 1.8; 1.0; 1.0; 0.8; 1.7; 1.7; -0.6; 1.0; 2.0; 2.0; 2.0; 2.0 (2017–2024 series as presented).
- Fiscal position:
  - "The fiscal deficit has improved significantly under the program."
  - Overall fiscal deficit (commitment basis, incl. grants) entries in Table 1: -4.3; -4.0; -2.9; -2.9; -3.0; -2.2; -2.3; -1.8; -1.7; -1.5; -1.5; -1.3 (2017–2024).
- External sector:
  - "Since 2016 imports have gone up...which has deteriorated the current account deficit."
  - Current account balance (incl. grants) entries in Table 1: -4.2; -8.3; -6.0; -4.5; -7.8; -5.6; -4.9; -4.7; -4.5; -4.3; -4.1; -3.8 (2017–2024).
  - Balance of goods and services (Table 5, percent of GDP): -7.5; -10.6; -7.8; -7.5; -9.6; -6.9; -7.5; -6.8; -5.9; -5.1; -4.8; -4.5 (2017–2024).

### Fiscal developments and projections (selected figures and projections)
- Total revenue (percent of GDP, Table 3 / Table 1):
  - Total revenue (excluding grants) series: 12.8; 17.8; 13.0; 13.0; 17.7; 12.8; 13.3; 13.5; 13.5; 13.5; 13.5; 13.5 (2017–2024).
- Expenditure (percent of GDP, Table 3):
  - Total expenditure and net lending: 17.9; 22.5; 16.5; 16.5; 22.3; 16.0; 16.7; 16.3; 16.2; 16.0; 16.0; 15.8 (2017–2024).
- Capital expenditure (percent of GDP, Table 3):
  - Capital expenditure: 6.8; 7.7; 5.7; 5.7; 7.2; 5.2; 5.4; 5.5; 3.5; 5.2; 5.2; 5.2 (2017–2024).
- Government debt:
  - Central government debt (percent of GDP, Table 1): 39.6; 56.1; 41.0; 41.0; 54.1; 38.9; 41.1; 40.1; 37.5; 36.2; 35.1; 33.9 (2017–2024).
  - Total nonfinancial public sector debt (percent of GDP, Table 1): 39.7; 56.8; 41.5; 41.5; 54.7; 39.2; 41.4; 40.4; 37.8; 36.4; 35.3; 34.1 (2017–2024).
- Fiscal balances (Table 2, levels in Billions of CFA francs, and Table 3 as percent of GDP):
  - Overall balance (commitment basis, incl. grants) (Table 2, Billions CFAF): -316.5; -230.1; -190.5; -190.5; -161.4; -168.3; -166.3; -178.5; -165.7 (select years shown).
  - Primary balance (Table 2, Billions CFAF): -267.3; -151.4; -129.4; -129.4; -86.9; -71.8; -67.5; -73.7; -80.4 (select years shown).
  - Basic primary balance (Table 2, Billions CFAF): -82.4; 17.6; 17.6; 101.7; 101.7; 127.4; 161.5; 186.9; 204.1; 222.6 (select years shown).

### Real and external economy (selected data and trends)
- GDP growth and real activity (Table 1):
  - GDP at constant prices (annual percent change): 5.7; 6.7; 6.7; 6.7; 6.7; 6.7; 6.4; 6.7; 6.7; 6.7; 6.7; 6.7 (2017–2024 series as presented).
- Trade and current account (Table 5, Billions CFAF and percent of GDP):
  - Exports, f.o.b. (Billions CFAF): 975.6; 1,085.5; 1,116.1; 1,312.0; 1,175.3; 1,329.3; 1,530.6; 1,713.0; 2,052.8 (selected years).
  - Imports, f.o.b. (Billions CFAF): -1,319.6; -1,366.1; -1,563.4; -1,542.8; -1,664.6; -1,806.5; -1,962.4; -2,089.6; -2,265.9; -2,443.6 (selected years).
  - Current account balance (percent of GDP, Table 5 memorandum): -4.2; -8.3; -6.0; -4.5; -7.8; -5.6; -4.9; -4.7; -4.5; -4.3; -4.1; -3.8 (2017–2024).

- Commodity price notes (Table 5 memorandum):
  - International price of cotton (Cotlook "A" Index, U.S. cents a lb.): 83.6; 91.4; 83.6; 91.4; 83.7; 76.8; 73.3; 77.8; 78.7; 78.7; 78.7.
  - International price of oil (U.S. dollars a barrel): 52.8; 68.3; 52.8; 68.3; 59.2; 59.2; 60.5; 55.5; 54.1; 53.8; 54.3; 55.2.

### Monetary and financial sector indicators (selected items)
- Broad money (M2) (Table 6, Billions CFAF):
  - Broad money (M2): 2,107.6; 2,224.4; 2,209.0; 2,408.8; 2,333.4; 2,519.6 (selected years).
- Net foreign assets (Table 6, Billions CFAF):
  - Net foreign assets: 994.9; 1,185.4; 1,185.4; 1,609.0; 1,547.1; 1,932.7 (selected years).
- Credit to non-government sector (Table 6, Billions CFAF):
  - Credit to the nongovernment sector: 1,331.0; 1,584.0; 1,432.4; 1,739.9; 1,551.8; 1,697.9 (selected years).
- Financial soundness indicators (Table 10, selected):
  - Gross NPLs to total loans: 18.6; 21.2; 21.5; 22.1; 21.8; 19.4; 18.9; 21.6 (2012–2018 series).
  - Provisioning rate: 46.8; 48.0; 49.0; 55.0; 64.0; 66.4; 70.0; 66.5 (2012–2018 series).
  - Regulatory capital to risk-weighted assets: 9.2; 9.5; 9.0; 7.9; 9.3; 11.9; 7.6; 8.2 (2012–2018 series).

### External financing, program financing, and IMF engagement
- Schedule of disbursements under the ECF arrangement (Table 7):
  - Six scheduled disbursements of SDR 15.917 million (April 7, 2017; October 31, 2017; April 30, 2018; October 31, 2018; April 30, 2019; October 31, 2019) and one of SDR 15.918 million (March 23, 2020) for a total of SDR 111.42 million.
- Indicators of capacity to repay the Fund (Table 8, selected):
  - Outstanding IMF credit (Millions of SDRs): 133.7; 135.8; 124.2; 115.1; 104.5; 90.7; 70.0; 47.8; 25.5; 11.1; 1.6; 0.0 (2019–2031 series).
  - Net use of IMF credit (millions of SDRs) projections: 28.7; 2.1; -11.7; -9.0; -10.6; -13.8; -20.7; -22.3; -22.3; -14.3; -9.6; -1.6; 0.0 (2019–2031 series).
- Gross external financing requirement (Table 9, selected):
  - Total financing requirement (2018–2021): 405.1; 474.1; 520.7; 555.2 (in billions of CFAF).
  - Total financing needs (after other sources) (2018–2021): 229.3; 184.7; 212.7; 243.7 (in billions of CFAF).
  - IMF component (2018–2021): 22.5; 23.1; 1.4; -9.4 (in billions of CFAF).

### Program adjustments and technical extension (policy implications reflected in the document)
- Program timing and targets:
  - Staff supports a four-month technical extension of the program to accommodate modifications and the timing of QPCs.
  - Proposed modification of end-December 2019 quantitative performance criteria on revenue, primary balance, and domestic financing is supported.
- Instrumentation:
  - Addition of a prior action and a new structural benchmark (SB) is supported by staff as part of program adjustments.

*Source: Excerpt from IMF staff report for Benin (figures, tables, and text as provided).*

### Annex I. Rebasing of National Accounts

### Annex I. Rebasing of National Accounts

### Overview
- In 2019, the Beninese authorities rebased their national accounts by updating the base year from 2007 to 2015 and implementing the System of National Accounts 2008 via the National Institute of Statistics and Economic Analysis (INSAE).
- The rebasing relied on enhanced GDP compilation methods, improving data quality and ensuring coherent methodological treatment, allowing better capture of changes in the economy structure and consumption habits.

### Changes to GDP levels and sectoral composition
- GDP trajectory was revised upward by nearly 37 percent following the rebasing.
- The upward revision largely reflects a much higher agricultural output than previously captured, largely consumed by households and to a lesser extent exported; subsistence consumption is mostly informal and difficult to capture in official statistics.
- Sectoral contribution to GDP in 2015 (post-rebasing) and prior base-year shares:
  - Primary sector: 26.4 percent in 2015 (previously 22.5 percent).
  - Secondary sector: 16.4 percent in 2015 (previously 20.6 percent).
  - Tertiary sector: 49.2 percent in 2015 (previously 45.7 percent).
- GDP growth rates:
  - Remained identical for most past years when comparing pre- and post-rebasing series.
  - Marginally accelerated in 2015, 2016 and 2018 relative to pre-rebasing growth rates.
  - Decelerated in 2017 relative to pre-rebasing growth rates.

### Impact on macroeconomic ratios (holding other factors constant)
- To isolate the pure effect of the GDP rebasing, the comparison between pre- and post-rebasing ratios uses, for the numerator, the nominal values of the variables projected in IMF Country Report 19/203 and, for the nominal GDP denominator, the deflator growth and real GDP growth forecasts done in the same report.
- The GDP rebasing significantly reduced key ratios in 2019:
  - Public deficit: revised down from 3.0 percent of GDP (in IMF Country Report 19/203) to 2.2 percent.
  - Tax ratio: updated from 14.9 percent of GDP to 10.7 percent.
  - Public debt: revised down from 54.7 percent of GDP to 39.2 percent of GDP.
  - Current account deficit: revised down from 7.8 percent of GDP to 5.6 percent of GDP.

*Source: Annex I. Rebasing of National Accounts (Benin).*

### 13.      The authorities should continue their efforts to lower risks for investors. Setting up an

### 1benea2019003 - 13.      The authorities should continue their efforts to lower risks for investors. Setting up an

### Investor risk reduction and governance
- Authorities should continue efforts to lower risks for investors by setting up an institutional framework that supports business climate and good governance.
- Specific measures recommended:
  - Improve the efficiency of the bureaucracy.
  - Simplify regulations and procedures.
  - Enforce the country’s international investment agreements.

### Letter of Intent — program request and high-level outcomes
- Government requests completion of the fifth review under the ECF arrangement and the disbursement of SDR 15.917 million (around $22.055 million).
- Request to extend the ECF arrangement until July 31, 2020 (arrangement expires April 6, 2020) to allow time for the sixth and final review and related disbursement.
- Government asserts that implementation of the GAP and IMF-supported reforms produced sustained economic growth with low inflation, control of the budget deficit, and a favorable medium-term current account outlook.

### Recent economic developments and macro indicators
- Growth and inflation:
  - 2018 growth estimated at 6.7 percent, driven by cotton and vegetable production and strong port activity.
  - Growth in 2019 expected to remain robust; 2019 growth expected to reach 6.4 percent (slight slowdown due to Nigeria border closure).
  - Inflation expected to be negative in 2019 at -0.6 percent owing to increased agricultural output and a decline in water utility prices.
  - Inflation dropped by 1.4 percent during the first nine months of 2019 compared to the same period in the previous year.
- Fiscal and current account balances:
  - Budget deficit (including grants) held at 2.9 percent of GDP in 2018 (below initially programmed 4.7 percent of GDP).
  - 2019 deficit expected to shrink to 2.3 percent of GDP.
  - Target for 2020: keep the deficit under 2 percent of GDP, in line with WAEMU fiscal convergence criterion.
  - Current account deficit (including grants) at 4.5 percent of GDP (remains fairly low).
- Public debt and DSA:
  - Rebasing led to a reduction in the ratio of public debt to GDP; estimated at 41.4 percent of GDP in 2019.
  - Debt trajectory expected to stabilize in 2019 after five years of upward movement.
  - Risk of debt distress considered moderate (unchanged from May 2019 DSA).

### Impact of external events and trade
- Nigeria closed its border with Benin on August 20, affecting customs revenues and expected to slightly slow 2019 growth.
- Quarterly trade developments:
  - Exports of goods grew by 22.4 percent in Q2 2019 compared to Q1 2019, driven mainly by cotton and edible nuts (cashew nuts).
  - Imports of goods declined by 32.1 percent in Q2 2019 compared to Q1 2019.
  - Expected slight downturn in informal exports to Nigeria in H2 2019 could deteriorate the current account in 2019.

### Banking sector and financial stability
- Banks’ overall capital ratio improved from 7.6 percent in June 2018 to 8.2 percent at end-December 2018 (still below regulatory threshold of 8.625 percent required for end-2018).
- Concentration of banks’ loan portfolio (loans to the 5 largest borrowers/equity capital) fell from 103.3 percent at end-June 2018 to 90.4 percent at end-December 2018.
- Nonperforming loans rose from 18.9 percent at end-June 2018 to 21.6 percent at end-December 2018.
- Liquidity ratio at lowest level since 2005: 12.5 percent at end-December 2018.

### Program implementation — quantitative performance criteria (end-June 2019)
- All quantitative performance criteria at end-June 2019 were met:
  - Net domestic financing (NDF) of the government amounted to CFAF -50.4 billion under a ceiling of CFAF -38 billion.
  - Basic primary fiscal balance amounted to CFAF 50.7 billon with a floor set at CFAF 44.5 billion.
  - Total government revenue amounted to CFAF 522.8 billion, compared to a floor of CFAF 505.5 billion.

### Rebasing of the national accounts
- National accounts were rebased in 2019: base year updated from 2007 to 2015 and System of National Accounts 2008 implemented.
- Following rebasing, Benin’s GDP trajectory was revised upward by almost 37 percent, reflecting higher agricultural output.

### Execution of the 2019 budget, revenue mobilization, and expenditure
- Fiscal consolidation continued in H1 2019; estimated fiscal deficit (commitment basis, grants included) of CFAF 30.4 billion (0.4 percent of GDP in 2019).
- Mobilized revenue at end-June 2019: CFAF 522.8 billion (initial program target CFAF 505.5 billion).
- Strong revenue performance driven by:
  - Nontax revenue: CFAF 89.6 billion (initial target CFAF 77.4 billion).
  - Domestic tax revenue (direct and indirect) offset customs shortfall.
- Tax measures and expectations:
  - Tax expenditures expected to decrease by an amount equivalent to 0.7 percent of GDP in 2019.
  - Mechanism for monitoring and verification of investments benefiting from exemptions to be put in place before end-November 2019.
  - Budget provided for: withholding tax on hydrocarbon sales by nonresidents, enlargement of visitors’ tax base in hotels and similar establishments with collection by the DGI, and an increase in the tax rate on tobacco and cigarettes.

### Modernization of tax and customs administration
- Directorate General of Taxes (DGI) reforms:
  - Rollout of SIGTAS at three Taxation Centers for Medium-Sized Enterprises (Coastal 1, Coastal 2, Borgou-Alibori CIMEs) as of February 1, 2019 via PAARIB — launched electronic filing and electronic payment via e-service platform.
  - Launch of “e-Balance Sheet” platform in June 2019 for online filing of businesses’ financial statements (collection and safekeeping, reliable database, reduced cost and time).
- Customs reforms:
  - Progress on the one-stop foreign trade window (GUCE): portal available, interface with goods tracking system operational, import intentions centralized in GUCE.
  - Customs authorities collect only 5 percent of duties resulting from detection of infractions during control process; commitment to strengthen DGD collection service and pursue legal procedures and penalties.
  - Plan to strengthen statistical monitoring service by adding new statisticians to staff before end-December 2019.

### Public expenditure control and public investment management
- Wage bill consolidation since 2016 with measures including:
  - Biometric census identifying 1,355 ghost workers.
  - Use of banking system for bonuses and allowances not on pay slips since 2017.
  - Repeal of decrees/regulations that systematically granted benefits.
  - Savings partly allocated to settling salary commitments of previous governments.
- Public investment management:
  - IMF technical assistance (February 2019) noted progress: decree formalizing procedures, linking planning tools, improved coordination between local and central plans.
  - Remaining weaknesses: incomplete procurement plans/statistics, uncoordinated information systems lacking interfaces, inadequate ex-ante project evaluation.
  - Continued implementation of recommendations from public investment management evaluation follow-up.

### Public debt management and Eurobond issuance
- March 2019 Eurobond issuance:
  - Amount: 500 million euros (equivalent to 3.9 percent of GDP).
  - Weighted maturity: 6 years.
  - Interest rate: 6 percent.
  - Repayment plan: 3-years repayment plan, over the period 2024-2026.
  - Eurobond terms better than some regional securities (example: 5-year regional bond at 6.99 percent in March 2019).
  - Issuance offset by a decline in domestic borrowing; did not increase overall debt.
- Caisse Autonome d’Amortissement (CAA) reforms and capacity building:
  - Recruitment of an Audit and Compliance director and an Audit Service manager.
  - Audit team actions: drafting/adoption of internal audit charter, preparation of a risk map, operational risk management procedure.
  - Creation of a project monitoring department for disbursements, project progress tracking, and portfolio review by lender and sectoral ministry.
  - CAA website redesigned with regular updates; statistical bulletins and some public debt documents published in English; a new monthly bulletin in English prepared for international investors.

*Document: Attachment I. Memorandum of Economic and Financial Policies for 2019-2020 (excerpt) — Benin*

### 17. Public enterprises continue to be a burden on the government budget owing to their

### 1benea2019003 - 17. Public enterprises continue to be a burden on the government budget owing to their

### Public enterprises: status, measures, and reporting requirements
- Public enterprises continue to be a burden on the government budget owing to their weak economic and financial performance.
- New auditors have been appointed at the 189 public enterprises and government offices.
- A new draft law on public enterprises, submitted to the National Assembly but not yet adopted, covers the creation, organization, and operation of public enterprises and aims to improve their governance and thus their economic and financial performance.
- The future law calls for close government monitoring of the economic and financial position of public enterprises.
- Public enterprises will henceforth be required to transmit their financial statements – accompanied by audit reports – to the Ministry of Economy and Finance by the prescribed deadline.
- Once adopted, the law will require a consolidated report on the economic and financial position of public enterprises to be attached to future budget laws.
- To limit the impact of public enterprises on the budget, the government plans to define a dividend policy for each enterprise to make them accountable for achieving results while ensuring financial management consistent with their development.
- Performance contracts have been concluded with the Autonomous Port of Cotonou and the Société Béninoise d’Énergie Électrique (SBEE) with support from the Millennium Challenge Corporation; the government plans to expand this measure once the new law is passed.
- In September 2019 a delegated management contract was granted to SBEE to improve its management.
- In October 2019 the government placed the Société Nationale de Commercialisation des Produits Pétroliers (SONACOP) under temporary management to resolve operational and financial losses.
- To reduce losses in the collection of electricity payments, a new electronic system for making electricity payments via MTN Mobile was introduced in 2019.

### Governance reforms: public audit, judicial measures, and anti-corruption
- Public audit reform objectives:
  - Make the Inspectorate General of Finance (IGF) the central body responsible for operational coordination of government internal audit units and for monitoring ministry responses to major audit recommendations.
  - Recenter sectoral ministries in internal control systems.
  - Find a long-term solution to the 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.
- The government issued three decrees overhauling the regulatory framework, transitioning from an “inspection-verification” approach to the “internal audit” concept, enabling adoption of international standards for internal control and audit.
- Judicial reforms:
  - Two commercial courts were created and inaugurated in 2018 (Commercial Court of Cotonou and Court of Commercial Appeals of Porto Novo) after identification of buildings and appointment of professional and consular judges.
  - The Court for the Suppression of Economic and Terrorism Crimes (CRIET) was installed in August 2018 and is operational.
- Anti-corruption measures:
  - National Anti-Corruption Authority (ANLC) initiatives to implement the asset declaration regime in the 2011 Anti-Corruption Law, including ensuring penalties by responsible courts and allowing online declaration of assets.
  - February 2019: Parliament passed the Law on Strengthening Public Governance to hold officials responsible who mislead the government with negative impacts on public finances.
  - Plans to strengthen the ANLC by improving its human, technical, and logistical capacities, and by enhancing its independence and financial autonomy with a sufficient budget allocation.
  - July 2019: a committee from the Ministry of Justice and CENTIF prepared a draft decree on creation of the Beninese agency for management and recovery of seized and confiscated assets.
- International governance standards and AML/CFT:
  - Benin ratified the United Nations Convention against Corruption in 2005, followed by the African Union Convention against Corruption and the ECOWAS anti-corruption protocol.
  - ANLC preparing an action plan to implement recommendations from the 2016 National Integrity System (SNI) assessment by Transparency International.
  - June 2018: Parliament adopted the new law on combating money laundering and the financing of terrorism to harmonize national regulations with WAEMU measures.
  - Evaluation by GIABA is under way and will be finalized during the plenary session in December 2019; the government commits to carrying out GIABA recommendations, including those concerning politically exposed persons.

### Business environment: investment promotion, firm creation, hiring, trade, and property rights
- Investment promotion and institutions:
  - 2017: New investment promotion mechanism streamlined institutional and regulatory framework.
  - An Interministerial Investment Promotion Committee was created to improve coordination.
  - The Agency for the Promotion of Investment and Exports (APIEX) was restructured as the sole gateway for investors and a showcase for investment and export promotion.
  - APIEX roles include: one-stop window for business creation (shortening business creation time to three hours); technical body for Investment Code approvals; 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 and tax measures (2019):
  - Simplified procedures for declaring the existence of a business and elimination of physical verification of business name uniqueness.
  - Establishment of an electronic tax payment procedure (available to large and medium-sized enterprises).
  - Strengthened provisions regarding the single business tax and reduction in the tax from CFAF 400,000 to CFAF 150,000 in 2019.
  - Introduction of an income tax credit for businesses using certified electronic cash registers.
- Hiring law:
  - 2018 law on hiring to promote job creation; corrected legal loopholes on trial periods and contract types (including renewal of fixed-term contracts); allows foreigners to work under open-ended contracts; eases licensing conditions and sets a maximum limit of 9 months of compensation in cases of dismissal deemed abusive by the courts.
- Cross-border trade and judicial efficiency:
  - Interconnection of Nigerian and Beninese customs services; online complaints system; informational customs clearance website; working group to define customs clearance standards and streamline procedures.
  - Protection of minority investors: handling time for cases dropped from 750 days in 2017 to 57 days in 2018.
  - Plans to facilitate access to commercial case law by making business law and judicial decisions available online.
- Property rights and land reforms:
  - Law 2017-15 of August 10, 2017 amended the land code to reduce time required to obtain property titles and lift restrictions for foreign investors.
  - National State Land and Land Tenure Agency (ANDF) initiatives: placing the Cotonou land-use registry online; creating separate online folders for notaries; establishing deadlines for issuing property transfer deeds.
  - Order 2017-131 of December 18, 2017 clarified minimum requirements for issuing construction permits.
  - June 2019: Minister of Economy and Finance order (1908) created a commission for handling complaints regarding transfer of ownership to improve Doing Business ranking and related outcomes.

### Financial sector: prudential framework, bank restructuring, CDC, collateral, and SME financing
- Prudential framework and Basel II/III:
  - Main components of capital regulations according to Basel II/III became effective in January 2018, including definitions of tier 1 capital, tier 2 capital, and the capital conservation buffer.
  - Basel II/III provisions introduced gradually starting on January 1, 2018.
  - The framework specifies that the capital adequacy ratio in 2019 should not be below 8.625 percent.
  - New banking chart of accounts and accounting framework for loan loss provisioning in keeping with IFRS 9 were introduced in January 2018.
  - Standards on liquidity ratios aligned with Basel II/III principles are being prepared at the regional level.
- Public bank restructuring:
  - Two small public banks reported repeated losses in recent years; the government put in place a restructuring plan with the objective of merging the two banks to reach a critical size to comply with WAEMU minimum capital requirements.
  - An international auditing firm was hired to evaluate options and their cost to the public purse; merger option to be selected in consultation with the IMF team, ensuring least cost in public resources and alignment with international best practices on governance, financial reporting, risk management, control, operations, and strategy.
  - A restructuring plan for the merged bank will be presented to the Banking Commission after finalization.
- Reactivation 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 Operationalization of the CDC was established in January 2019; a recruitment notice for senior members was issued.
  - A contract was signed with an international consulting firm to identify CDC resources; draft a business plan; define investment approach and risk management policy; and put in place governance, human resources management, and an information system.
  - Gradual rollout of CDC activities is planned for 2020.
  - CDC mission: receive and conserve movable assets deposited with it; administer deposits and consignments; provide cash and funds management services; receive administrative and court-ordered consignments and sureties; pursue general interest missions supporting central and local government public policies, particularly in economic and social development; adopt prudential rules for investment and risk management.
  - Practical CDC roles: hold equity in companies for support or dividends; make deposits in banks at reduced costs; participate in financing social projects; assist in financing the economy by making public securities more attractive (proposed purchase of public securities at low rates by the CDC).
- Collateral, land titles, and lending:
  - Creation of the National State Land and Land Tenure Agency in 2016 to handle conversion of occupancy permits into real estate titles.
  - 2016 Supplementary Budget Law initiative to eliminate recording fees increased the number of real estate titles recorded.
  - Electronic recording of real estate titles completed for the city of Cotonou; plan to extend nationwide.
  - May 2019 decree to facilitate conversion of occupancy permits into real estate titles, which are recognized as collateral by the banking regulator; expected to result in a steep decline in banks’ provisions and improvement in financial condition.
  - Establishment of a Trade and Personal Property Credit Register (RCCM) with planned electronic access.
  - Implementation of these measures expected to reduce provisions and increase banks’ capacity to lend to the private sector.
- SME/PME financing mechanism (WAEMU initiative):
  - A PME/PMI support mechanism was launched, focused on: (i) promotion of PMEs; (ii) improvement of PME management; (iii) refinancing of bank loans to PMEs; (iv) diversification of financial instruments adapted to PME financing.
  - Governments expected to adopt measures providing incentives and simplified procedures for PMEs (e.g., setting aside a proportion of public procurement for PMEs, development of subcontracting).
  - Support and oversight structures will provide upstream assistance for eligibility and ex-post monitoring after financing, ensuring proper use of bank credits and compliance with business plans and deadlines to reduce default risk.
  - Lending institutions will finance PMEs directly or in collaboration with support structures.
  - BCEAO will act on terms of financing offered to PMEs by making bank credits to these enterprises more attractive through appropriate refinancing (at a rate of 2.5 percent).
  - Official ceremony launching the mechanism in Benin took place in August 2018; operationalization is under way.

*BENIN — INTERNATIONAL MONETARY FUND (excerpt).*

### 36. We believe that the microfinance sector is key to promoting access by small enterprises

### 36. We believe that the microfinance sector is key to promoting access by small enterprises

### Microfinance sector rehabilitation and supervision
- Ministerial decision adopted to strengthen supervision and the granting of authorizations for microfinance institutions (MFIs).
- Progress made in closing unauthorized MFIs.
- Implementation in 2016 of the centralized IT solution for monitoring decentralized financial systems (SICS-SFD) to improve quality of financial and accounting information.
- In 2018, the National Decentralized Financial Systems Surveillance Agency (ANSSFD) implemented the microfinance sector rehabilitation strategy based on three pillars:
  - (i) application of the law to all authorized decentralized financial systems;
  - (ii) application of the law to all entities operating illegally;
  - (iii) continued strengthening of the stability and balanced operation of the decentralized finance sector to ensure long-term sustainability.
- Between 2013 and 2019:
  - 240 unauthorized MFIs received formal authorization;
  - 17 unviable MFIs were closed.

### National Microfinance Fund (FNM) and financial inclusion initiatives
- FNM prepared a new strategic plan for 2017-2021 with three strategic 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.
- Government, through the Ministry for Social Affairs and Microfinance (MASM), began preparing the FinScope survey as the first stage of the Making Access to Financial Service Possible (MAP) process to develop a national financial inclusion strategy aligned with the regional BCEAO strategy.
- Implementation in 2019 of the microfinance component of the Insurance to Build Human Capital (ARCH) project to strengthen financial inclusion.
- Government plans measures including creation of permanent mechanisms for resource mobilization by MFIs and improved promotion and coordination of the microfinance sector.

### Program for 2020 — objectives and macroeconomic projections
- Three-year program (2017-2020) objectives: lay foundation for accelerated and inclusive growth while preserving macroeconomic stability and public debt sustainability by:
  - (i) creating more fiscal space through mobilization of additional domestic resources;
  - (ii) enhancing efficiency of public expenditure, particularly investments;
  - (iii) improving governance and the business environment to stimulate private sector activity.
- Macroeconomic framework for 2020:
  - growth of 6.7 percent in 2020, supported by agriculture (cotton), construction, and port traffic;
  - inflation expected to remain moderate and well below the WAEMU target of 3.0 percent;
  - current account deficit projected at 4.7 percent of GDP in 2020, driven by a significant increase in exports (higher cotton exports) and lower growth in imports due to scaling down of food imports.

### 2020 Budget, fiscal stance, and revenue/expenditure program
- Fiscal deficit (commitment basis, grants included) expected to reach 1.8 percent of GDP in 2020 compared to 2.3 percent in 2019 (2.0 percent when unpaid debt to suppliers identified during a recent audit is excluded).
- Fiscal adjustment between 2019 and 2020 estimated at 0.25 percent of GDP.
- Total government revenue (including grants) expected to amount to 14.5 percent of GDP.
- Total expenditure contained at 16.3 percent of GDP.
- 2020 Budget Law based on fiscal measures estimated at CFAF 45 billion. Key measures include:
  - (i) raising the minimum flat tax of CFAF 50,000 applied to the corporate tax;
  - (ii) elimination of the registration fee exemption for real estate transfers;
  - (iii) widespread rollout of electronic cash registers.
- Tax policy measures and revenue agency reforms expected to result in mobilization of CFAF 1,220.0 billion in government revenue in 2020.
- Contingency if revenues fall short:
  - first step: slow down execution of public investment;
  - if significant shortfall (e.g., prolonged closure of border with Nigeria in 2020), government will study possibility of increasing fiscal deficit target in consultation with the IMF to protect social spending and priority investments.

### Public expenditure management and wage bill measures
- Continued reforms to rationalize public expenditure.
- Wage bill management reforms include:
  - (i) use of the banking system for payment of salaries and bonuses to military personnel;
  - (ii) recall of all financial attachés from Benin’s diplomatic missions abroad;
  - (iii) cutting back on the number of diplomatic missions (closing/merging of posts, etc.).

### ARCH social protection program (Insurance to Build Human Capital)
- Pilot phase began in 2019 targeting extremely poor populations (300,000 people); expansion to general population planned between 2020 and 2022.
- Government will:
  - cover entire insurance premium for those in extreme poverty;
  - provide a partial subsidy (up to 40 percent) for the premium paid by populations categorized as impoverished but not in extreme poverty.
- In 2020:
  - health insurance component expanded to include all people in extreme poverty;
  - National Social Protection Agency (ANPS) to be equipped and its information system rolled out.
- Budget cost of ARCH program estimated at 0.3 percent of GDP.
- Other ARCH components: improvement of skills, access to credit, and underwriting of retirement pensions for around 1.8 million people working primarily in the informal sector.
- Targeting mechanism includes establishment of a single social register in cooperation with the World Bank.

### Treasury Single Account (TSA)
- Measures under implementation include:
  - (i) adoption of a regulatory framework for the TSA in 2015;
  - (ii) interconnection and modernization of unit responsible for management of correspondent accounts;
  - (iii) partial inventory of public accounts in commercial banks in 2017 and update in 2018.
- Technical and operational difficulties encountered related to interface of the Treasury’s computer system with the BCEAO system.
- Planned study to evaluate impact of withdrawal of public funds from commercial banks and placement in the TSA on banking system stability (before end-March 2020).
- AFRITAC West mission scheduled to visit Cotonou in December to support operational implementation of the TSA and analyze impact of movement of bank accounts to the TSA.

### Public debt management
- Autonomous Amortization Fund revising Benin’s medium-term debt strategy to be published before end-2019.
- New medium-term debt strategy (2020-2024) targets composition of public debt:
  - external debt to account for between 55 and 60 percent of total debt during 2020-2023;
  - between 50 and 55 percent in 2024.
- Annual debt strategy for 2020 prepared and attached to the draft 2020 budget law.
- Plans to acquire a Bloomberg terminal to strengthen monitoring of securities and international market developments.
- Creation of an investor communications and relations department in early 2020; market analysis unit to use the Bloomberg terminal.
- Recognition: Benin’s Ministry of Finance received the Global Markets award for the top public debt management office in sub-Saharan Africa in 2019.

### Infrastructure projects and public-private partnerships (PPP)
- Legal and regulatory framework for PPP established by Law 2016-24 of June 28, 2017; implementing decrees adopted.
- Catalog of PPP projects compiled; government commitments:
  - include PPP investments in budget documents and public finance statistics;
  - assess and annex liabilities related to PPPs to the budget law;
  - analyze fiscal risks relating to PPP projects.
- Unit for management of fiscal risks related to PPPs established within the Ministry of Economy and Finance in 2018; capacity building ongoing.
- Glodjigbé International Airport: preliminary discussions with the People’s Republic of China; financing packages and schedules not yet finalized; government will ensure adequate reflection in public accounts and minimize fiscal risks.
- Niger–Benin oil pipeline (January 2019 bilateral agreement):
  - transport crude oil from southeast Niger to Port of Cotonou; total distance 1,980 km, with 675 km crossing Benin;
  - construction expected to take 24 months; preliminary excavation work expected to begin in January 2020 and last until end-2021;
  - pipeline expected to go online in January 2022, projected service life 22 years (2022-2043);
  - total cost for Beninese portion estimated at US$1.05 billion (CFAF 608 billion), financed entirely by WAPCO BENIN (private);
  - WAPCO BENIN expected to take out a bank loan to finance 80 percent of total project cost; remaining 20 percent financed using company’s own funds;
  - No financing by Beninese government.
- Expected Benin benefits from the pipeline:
  - transit fees expected to total US$884.6 million (CFAF 680 billion) over entire operation;
  - tax revenues (VAT and other fees and taxes) expected in the amount of US$109 million (CFAF 535.2 billion).

### Business environment reforms and Doing Business
- Benin improved to 149th out of 190 countries in the 2020 Doing Business report, up from 153rd (51.42 points).
- Action plan since 2018 defines short-, medium-, and long-term actions.
- Major reforms in 2020 include:
  - official registration of the creation of a business entirely online;
  - integration of major public utilities into the information and credit platform;
  - adoption of a decree on minimizing the use of paper documentation;
  - minimizing the use of paper documents in the building permit process;
  - a draft decree on the regulation of building permits and demolition permits;
  - a draft decree on organization of the profession of engineer and consulting engineer and establishing a national order of civil engineers in Benin.
- Institutional framework adopted for implementing Doing Business reforms with a matrix of annual actions.
- Two draft laws submitted to Parliament: amendments to the investment code and a law focused on promotion and development of micro-, small- and medium-sized enterprises.
- Innovations in the new Investment Code include:
  - simplification of approval mechanisms (three mechanisms with clear and precise incentives during startup and operating periods, two alternative mechanisms to further encourage investors in priority sectors);
  - professionalization of processing of accreditation files and time limits on technical decisions;
  - improvement of investment monitoring system;
  - incorporation of international best practices and UNCTAD comments;
  - structuring of incentives to make Benin more competitive and consistent with exemptions for special economic zones and government assistance initiatives;
  - establishment of a system for promotion of private investment and protection of investors’ rights at national, regional, and international levels.
- Trade facilitation reforms aim at:
  - (i) more rapid and less burdensome computerized customs clearance processes for imports and exports;
  - (ii) integration of customs and control services at the Port of Cotonou (PAC);
  - (iii) delegation of PAC management to the Port of Antwerp;
  - (iv) implementation of the one-stop foreign trade window (GUCE).

### Financial system, judicial capacity, and inclusion
- Continued capacity building for judges and courts to rule on financial matters; new commercial tribunal in Cotonou is operational.
- BCEAO to help build capacity of judges and magistrates in WAEMU financial regulations through its training program.
- Government plans measures to promote financial inclusion, including permanent mechanisms for mobilization of resources by MFIs and improved promotion and coordination of the microfinance sector.
- Ministry of Finance established a credit bureau (December 2018) — status: Met.
- Ministry of Finance adopted a decision to strengthen implementation of regulatory framework for licensing and supervision of microfinance institutions (December 2018) — status: Met.

### Quantitative performance criteria and structural benchmarks (high-level)
- Sixth program review expected on or after March 23, 2020.
- Selected program figures (as presented in the tables for 2019):
  - Net domestic financing of the government (ceiling): various program and preliminary values shown (e.g., 15.0; 27.6; -38.0; -50.4; -158.5; -68.0; -289.0) with status indicators (Met / Not Met) in table.
  - Basic primary balance (excluding grants) (floor): examples shown (e.g., 15.6; -0.3; 44.5; 50.7; 47.7; 15.9; 101.7) with status indicators.
  - Total revenue (floor): examples shown (e.g., 235.1; 250.2; 505.5; 522.8; 762.5; 779.6; 1112.4) with status indicators.
  - Ceiling on present value of new external debt contracted or guaranteed by the government: program values shown (e.g., 468.9; 458.0; 797.0) with status: Met.
  - Priority social expenditure (floor): examples shown (e.g., 37.2; 38.2; 82.5; 84.3; 140.7; 137.1; 180.0) with status indicators.
- Structural benchmarks for 2018–20 include measures across revenue mobilization, public financial management, financial inclusion, state-owned enterprise reform, and trade; selected statuses:
  - Submit a 2019 budget consistent with ECF-supported program — Met (Prior action for Third Review).
  - Government to submit 2020 budget consistent with ECF-supported program — Met (Prior action for Fifth Review).
  - Limit granting of special conventions outside the investment code — Met (June 2018, continuous thereafter).
  - Implement plan to strengthen tax compliance — Met (June 2018).
  - 2019 adopted budget eliminates tax expenditures equivalent to CFAF 60 billion — Met (December 2018).
  - Prepare and adopt reorganization plan for administrative control bodies of the State — Met (June 2018).
  - Prepare monthly cash flow forecasting plans and comprehensive quarterly budget performance evaluations — Met (June 2018).
  - Adopt comprehensive regulatory text for public investment as agreed under PIMA evaluation — Not met (implemented in November 2018) (September 2018).
  - Prepare an updated audit of stock of past debt due by government to domestic suppliers at end-December 2018 — Met (January 2019).
  - Perform impact assessment of transfer of government deposits from commercial banks to the TSA — March 2020 (Reduce fiscal and financial risks).
  - Strengthen customs research and statistics office by staffing with statistics personnel to improve risk analysis, monitoring of exemptions, and fraud detection — December 2019.
  - Adopt a 2020 budget that includes a tax package with revenue-raising measures equivalent to CFAF 45 billion — December 2019.
  - Complete data collection of SOEs’ debt and operationalize monitoring framework — Met (September 2018).
  - Set performance contracts with key SOEs — Met (December 2018).
  - Perform diagnostic assessment of main trade barriers using WTO Trade Facilitation Agreement framework — Met (September 2019).

*Source: 1benea2019003 - 36. We believe that the microfinance sector is key to promoting access by small enterprises*

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

### Technical Memorandum of Understanding (Performance Criteria, Benchmarks, and Data Reporting)

### Program assumptions — Exchange rates
- CFAF/US$ 557.6
- CFAF/euro 655.96
- CFAF/SDR 785.4
- Exchange rates as of August, 19, 2017.

### Definitions — Government and debt concepts
- "Government" means the central government of the Republic of Benin and excludes political subdivisions, the central bank, or any other public or government-owned entity with autonomous legal personality not included in the government's flow-of-funds table (TOFE).
- Debt definition (per point 8 of IMF Executive Board Decision No. 6230-(79/140), as amended by Decision No. 15688-(14/107)):
  - Debt is a current liability under a contractual agreement requiring future payments in assets or services; includes:
    - loans (including deposits, bonds, debentures, commercial loans, buyers’ credits, repurchase agreements, official swap arrangements);
    - suppliers’ credits;
    - leases (debt = present value at inception of all lease payments expected during the agreement, excluding payments covering operation, repair, or maintenance);
    - Treasury bills and bonds issued in CFA francs on the WAEMU regional market (included in public debt for this Memorandum).
  - Arrears, penalties, and judicially awarded damages from failure to pay contractual debt are also debt.
  - Present value (PV) of loans calculated using a single discount rate set at 5 percent.
  - For variable-rate debts linked to a benchmark plus fixed spread:
    - Program reference rate for six-month USD LIBOR is 2.63 percent (fixed for the program).
    - Spread of six-month Euro LIBOR over six-month USD LIBOR is -294 basis points.
    - Spread of six-month JPY LIBOR over six-month USD LIBOR is -260 basis points.
    - Spread of six-month GBP LIBOR over six-month USD LIBOR is -197 basis points.
    - For currencies other than Euro, JPY, and GBP, the spread over six-month USD LIBOR is -200 basis points.
    - Where linked to a benchmark other than six-month USD LIBOR, add a spread reflecting the difference with six-month USD LIBOR (rounded to the nearest 50 bps).
  - Domestic debt is defined as debt denominated in CFA francs.
  - "External debt" is defined as debt denominated in any currency other than the CFA franc.

### Quantitative performance criteria — Overview and instruments
- Net domestic financing (NDF) of the government = (i) net bank credit to the government + (ii) net nonbank financing (including proceeds from sale of government assets, privatizations, Treasury bills and other securitized obligations issued in CFA francs on WAEMU regional market, and any BCEAO credit to the government, including drawings on the CFA franc counterpart of the SDR allocation).
- Net bank credit to the government = balance between government debts and claims vis-à-vis the central bank and local commercial banks (scope per BCEAO practice); government claims include CFA franc cash balance, postal checking accounts, customs duty bills, and deposits with BCEAO/commercial banks of government-owned entities, excluding EPIC and government corporations.
- Data deemed valid for program: NDF and net Treasury bills/bonds in CFA francs on WAEMU market calculated by BCEAO; nonbank financing figures calculated by the Treasury of Benin.
- Gross external budgetary assistance = grants, loans, and non-earmarked debt relief operations (excluding project-related loans and grants, use of IMF resources, and debt relief under HIPC and MDRI). Net external budgetary assistance = gross external budgetary assistance minus total external debt service (interest + amortizations on all external loans, including interest/charges to IMF and project-related loans but excluding repayment obligations to the IMF) and payments of external arrears.

### A. Ceiling on Net Domestic Financing of the Government (cumulative since January 1)
- 2018 ceilings (performance criteria for end-June and end-December; indicative target end-September):
  - end-March 2018: CFAF 74.7 billion
  - end-June 2018: CFAF 190.9 billion
  - end-September 2018: CFAF 103,0 billion
  - end-December 2018: CFAF 118.8 billion
- 2019 ceilings (performance criteria for end-June and end-December; indicative target end-September):
  - end-March 2019: CFAF 15 billion
  - end-June 2019: CFAF -38.0 billion
  - end-September 2019: CFAF -158.5 billion
  - end-December 2019: CFAF – 289.0 billion

Adjustments to NDF ceiling:
- If net external budgetary assistance exceeds program projections by more than CFAF 5 billion (cumulative since Jan 1), lower the NDF ceiling by the excess minus CFAF 5 billion.
- If net external budgetary assistance falls short of projections, increase the NDF ceiling by the shortfall subject to caps:
  - 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 (cumulative since Jan 1):
  - 2018: end-March CFAF 22.6 billion; end-June CFAF 22.6 billion; end-September CFAF 39.6 billion; end-December CFAF 55.4 billion.
  - 2019: end-March CFAF 0 billion; end-June CFAF 3.9 billion; end-September CFAF 10.1 billion; end-December CFAF 45.4 billion.
- Border-closure adjuster (Benin/Nigeria):
  - NDF ceiling increased by amount equivalent to customs revenue shortfall compared to program projections (CFAF 412 billion for 2019) if prolonged border closure.
  - Adjuster caps: CFAF 10 billion if closure lasts until end-October 2019; CFAF 20 billion if until end-November 2019; CFAF 30 billion if until end-December 2019.

### B. Floor of the Basic Primary Fiscal Balance (cumulative since January 1)
- Definition: basic primary fiscal balance = total fiscal revenue (tax and nontax) − basic primary fiscal expenditure (commitment basis). Basic primary fiscal expenditure = fiscal (current + capital) expenditure − (a) interest payments on domestic and external debt; and (b) capital expenditure financed by external grants and loans. Grants excluded from revenue; net government lending excluded from fiscal expenditure.

Performance floors:
- 2018 floors (performance criteria end-June and end-December; indicative target end-September):
  - end-March 2018: not less than CFAF -69.7 billion
  - end-June 2018: not less than CFAF -47.5 billion
  - end-September 2018: not less than CFAF -20.3. billion
  - end-December 2018: not less than CFAF +3.9 billion
- 2019 floors (performance criteria end-June and end-December; indicative target end-September):
  - end-March 2019: not less than CFAF +15.6 billion
  - end-June 2019: not less than CFAF +44.5 billion
  - end-September 2019: not less than CFAF 47.7 billion
  - end-December 2019: not less than CFAF 101.7 billion

Adjustments for border closure:
- Floor adjusted downwards by amount equivalent to customs revenue deficit compared to program projections (CFAF 412 billion for 2019) with same caps as NDF adjuster:
  - CFAF 10 billion cap through end-October 2019; CFAF 20 billion through end-November 2019; CFAF 30 billion through end-December 2019.

### C. Floor of Total Government Revenue (cumulative since January 1)
- Definition: total government revenue = tax and nontax revenue as shown in the TOFE, excluding external grants, revenue of autonomous agencies, and privatization receipts.

Performance floors:
- 2018 floors (performance criteria end-June and end-December; indicative target end-September):
  - end-March 2018: not less than CFAF 204.8 billion
  - end-June 2018: not less than CFAF 445.5 billion
  - end-September 2018: not less than CFAF 701.1 billion
  - end-December 2018: not less than CFAF 1021.6 billion
- 2019 floors (performance criteria end-June and end-December; indicative target end-September):
  - end-March 2019: not less than CFAF 235.1 billion
  - end-June 2019: not less than CFAF 505.5 billion
  - end-September 2019: not less than CFAF 762.5 billion
  - end-December 2019: not less than CFAF 1112.4 billion

Adjustments for border closure:
- Revenue floor adjusted downward by amount equivalent to customs revenue shortfall compared to program projections (CFAF 412 billion for 2019) with same caps:
  - CFAF 10 billion cap through end-October 2019; CFAF 20 billion through end-November 2019; CFAF 30 billion through end-December 2019.

### D. Non-Accumulation of New Domestic Payments Arrears — Continuous performance criterion
- Domestic payments arrears = domestic payments due but not paid by the government after a 90-day grace period (unless payment arrangements specify a longer period).
- CAA and the Treasury record and update data on accumulation and reduction of domestic payments arrears.
- Government undertakes not to accumulate any new domestic payments arrears; continuously monitored throughout the program.

### E. Non-Accumulation of External Payments Arrears — Continuous performance criterion
- External public payments arrears = payments due but not paid by the government as of the due date in the contract, considering applicable grace periods, on external debt of the government or external debt guaranteed by the government.
- Government undertakes not to accumulate any external public payments arrears, except arrears related to debt under renegotiation or rescheduling; continuously monitored throughout the program.

### F. Ceiling on the Present Value of New External Debt Contracted or Guaranteed by the Government (maturity ≥ 1 year)
- Scope: Applies to debt as defined in paragraph 4a and to commitments/guarantees (including lease-purchase contracts) where no value has been received; includes private sector debt guaranteed by the government as a contingent liability.
- Government for this criterion includes central government (paragraph 3), local governments, and all public enterprises (EPA, scientific/technical public agencies, professional public agencies, and enterprises jointly owned with other governments).
- Continuous performance criterion:
  - The PV 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 IMF Executive Board approval) based on the results of the public debt sustainability analysis prepared jointly by World Bank and IMF staffs.

### G. Ceiling on Pre-Financing Contracts for Public Investments — Continuous performance criterion
- Pre-financing contracts defined where: (i) government entrusts private entity to execute public works financed by a loan from domestic commercial banks to the entity; (ii) Minister of Finance guarantees the loan and signs an unconditional irrevocable agreement to replace the private entity to honor full principal and interest, which are automatically paid from the Treasury's account at the BCEAO.
- Government undertakes not to enter into any pre-financing contracts during the program; continuously monitored.

### H. Indicative target — Floor for Priority Social Expenditures
- Priority social expenditures = selected (nonwage) expenditures in priority programs per the GAP; sectors include health; energy, water, and mines; agriculture; livestock and fisheries; social affairs; education; living standards; etc.
- Execution monitored on a payment order basis through SIGFIP.
- Indicative target definition: total amount (cumulative since January 1) of payment orders issued under specified budget lines.
- Priority Social Expenditure budget codes and descriptions (Table 1):
  - 25 Ministry of Economy and Finance
  - 36 Ministry of Health
  - 37 Ministry of Energy
  - 76 Ministry of Water and Mines
  - 39 Ministry of Agriculture Livestock, and Fisheries
  - 46 Ministry of SMEs and the Promotion of Employment
  - 26 Ministry of Justice
  - 52 Ministry of Labor and Public Affairs
  - 41 Ministry of Social Affairs and Microfinance
  - 44 Ministry of Higher Education and Scientific Research
  - 27 Ministry of Plan and Development
  - 62 Ministry of Nursery School and Primary School Education
  - 63 Ministry of Secondary and Technical Education and Vocational Training
  - 60 Ministry of Domestic and Public Security
  - 51 Ministry of Infrastructure and Transport
  - 34 Ministry of Living Standards and Sustainable Development
  - 40 Ministry of Tourism, Culture and Sport

*Source: Technical Memorandum of Understanding — Republic of Benin program (Extended Credit Facility).*

### 33.      The indicative target for priority social expenditures (cumulative since January 1 of the

### 1benea2019003 - 33.      The indicative target for priority social expenditures (cumulative since January 1 of the

### Indicative targets for priority social expenditures
- 2018 cumulative targets (since January 1 of the same year):
  - 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 cumulative targets (since January 1 of the same year):
  - 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 — Monthly and quarterly data requirements
- Every month (to be provided within stated timeframes after month end):
  - Data on any loan (terms and creditors) contracted or guaranteed by the government: in the first week after the end of the month
  - Monthly consumer price index: within two weeks of the end of the month
  - The TOFE, including revenue, detailed data on net domestic financing of the government (bank and nonbank domestic financing, including claims held by the nonbank private sector); and data on the basic primary fiscal balance, including data generated by SIGFIP: within six weeks of the end of the month
  - Data on the balance, accumulation, amount (stock), and repayment of public domestic and external payments arrears, including in the event that these arrears amount to zero: within six weeks of the end of the month
  - The monetary survey: within eight weeks of the end of the month
- Every quarter:
  - Data pertaining to the amount of exceptional payment orders or other exceptional measures: within six weeks of the end of the quarter
  - Data pertaining to priority social expenditures: within six weeks of the end of the quarter
- Additional monthly and quarterly data (Section J — Other Information):
  - Every month: Bank supervision indicators for bank and nonbank financial institutions: within eight weeks of the end of the month
  - Every quarter:
    - Data on the implementation of the public investment program, including detailed information on sources of financing: within four weeks of the end of the quarter
    - Data on the stock of external debt, external debt service, the signing of external loan agreements and disbursements of external loans: within twelve weeks of the end of the quarter
  - On an ad hoc basis: in the quarter when they become available: a copy of the budget law and its supplementary documents; a copy of the most recent budget review law; as well as any decree or law pertaining to the budget or the implementation

### Debt sustainability assessment — summary findings
- Risk ratings:
  - Benin remains at moderate risk of external debt distress (rating unchanged from the previous May 2019 DSA)
  - Overall risk of public and publicly guaranteed (PPG) debt distress: moderate
- Key observations:
  - All projected external debt burden indicators remain below their thresholds under the baseline; the ratio of the present value (PV) of external debt to exports exceeds its threshold only under an extreme shock to exports
  - PV of public debt-to-GDP ratio remains below its prudent benchmark in the baseline and shock scenarios
  - Under the revised Debt Sustainability Framework for Low-Income Countries, Benin’s Composite Indicator is 2.962 based on the October 2019 WEO and the CPIA score released in 2019, corresponding to the medium debt-carrying capacity

### Public debt coverage and treatment of SOEs and arrears
- Coverage:
  - Public debt covers central government debt and guarantees provided by the central government
  - External and domestic debt are classified based on the currency criterion; debt to the IMF owed by the Central Bank is included in external debt
- Arrears audit:
  - Authorities completed an audit of unpaid claims held by the private sector in January 2019
  - Found stock of arrears to suppliers of 0.2 percent GDP incurred before 2016; this amount was added to the 2019 debt stock
  - Fiscal projections assume gradual clearance of the arrears over 2020-22 at a pace of 0.1 percent of GDP per year
- State-owned enterprises (SOEs):
  - SOE and subnational government debt not included in baseline; captured in contingent liability shock
  - Authorities estimated non-guaranteed commercial debt of 13 state-owned companies at end-2018 at 0.6 percent of GDP
  - Projected SOE non-guaranteed commercial debt for end-2019: 0.5 percent of GDP
  - DSA treatment:
    - All guaranteed SOE debt included in the debt stock in the baseline
    - Non-guaranteed SOE debt captured as a contingent liability shock set at 0.6 percent of GDP
  - Further work needed: consolidate general government fiscal accounts with SOE financial statements before incorporating SOE debt into baseline debt

### Background on debt trends and rebasing effects
- National accounts rebasing:
  - July 2019 revised national accounts revised past GDP trajectory upward by 37 percent
  - Public debt ratio revised down from 54.7 percent of GDP to 41.4 percent in 2019
  - Ratios expressed relative to taxes and exports remained unchanged or marginally improved because taxes unaffected by rebasing and GDP revision driven mostly by private consumption, not exports
- Debt evolution:
  - Total public debt (external plus domestic) increased from 22.3 percent in 2014 to 41.5 percent in 2018
  - Domestic debt rose from 7.8 percent of GDP in 2014 to 23.7 percent of GDP in 2017 (tripled over three years); domestic debt estimated at 22.2 percent of GDP in 2018 after October 2018 reprofiling
  - External debt increased modestly over 2014-18 by 4.8 percent of GDP, reaching 19.3 percent of GDP in 2018
- Debt service burden:
  - Ratio of debt service to revenue: 55 percent in 2019
  - Expected to decrease to around 48 percent on average in the medium term and 22 percent in long run
  - Comparative benchmarks for 2019: 29 percent of revenue, on average, in WAEMU countries; 22 percent in all low-income developing countries

### Structure of debt and recent operations
- Eurobond issuance:
  - First Eurobond issued in March 2019: EUR 500 million (equivalent to 3.9 percent of 2019 GDP)
  - Issuance two times oversubscribed, attracting EUR 1.1 billion in demand
  - Eurobond issued at a yield of 6 percent with a weighted maturity of 6 years (Box 1)
- Composition shifts:
  - End-2018: external debt ≈ 47 percent of total debt; domestic debt ≈ 53 percent
  - After March 2019 Eurobond, external debt share increased to 58 percent of total debt for 2019
  - Previous MTDS (2017-21) targeted 50-50 domestic/external split; new MTDS 2020-24 (to be published end-2019) targets external debt share in range 55 to 60 percent in the medium term
- Creditor composition and concessionality:
  - End-2018: external debt owed to multilateral creditors ≈ 66 percent of total external debt; bilateral creditors ≈ 33 percent
  - After Eurobond, projected ratio of multilateral debt to external debt ≈ 56 percent at end-2019
  - Share of concessional loans projected to decrease and represent 52 percent of total external debt at end-2019
- Domestic debt characteristics:
  - Dominated by government securities issued in the regional bond market
  - About 80 percent of domestic liabilities were government securities on regional financial market at end-2018
  - Such debt is non-concessional and associated with roll-over and interest rate risks

### Background on macroeconomic forecasts (selected points)
- 2019 revisions and outlook:
  - 2019 GDP growth revised from 6.7 to 6.4 percent due to the closure of the border with Nigeria (assumed to reopen by end-2019)
  - Inflation revised down to -0.6 percent in 2019 due to high agricultural production and lower prices in water utilities
  - After rebasing, 2019 primary deficit declined to 0.4 percent of GDP (compared to 0.6 percent of GDP in 2019 AIV/4th review report)
  - Fiscal position expected to improve over the medium term, with primary surplus estimated at 0.3 percent of GDP in 2024
  - Non-interest current account deficit expected to decline gradually over the medium to long term due to fiscal consolidation and structural reforms; higher exports from larger cotton production and contained imports from scaling-down public investment and increased agricultural production

*Prepared by the staffs of the International Monetary Fund (IMF) and the International Development Association (IDA). November 26, 2019.*

### 14.      Risks to the baseline are tilted to the downside. On the fiscal position, the main risks include

### 14.      Risks to the baseline are tilted to the downside. On the fiscal position, the main risks include

### Risks to growth and fiscal position
- Main fiscal risks:
  - Extra spending pressures related to the political cycle.
  - Failures to implement key reforms, in particular in the area of revenue administration and the adoption of tax measures.
  - An extended closure of the crossing border with Nigeria.
  - Unresolved banking sector problems.
  - Possible contagion of security risks.
- Growth risks:
  - Achieving the expected performance requires rigorous implementation of measures to increase agricultural production capacity.
  - Structural reforms are needed to improve the business environment and governance.
  - Positive growth support depends on continuation and full implementation of public investment plans and public-private infrastructure projects.

### Macroeconomic and fiscal projections and realism assessment
- Growth outlook and drivers:
  - Economic growth projected at 6.7 percent over 2020-24, led by rising private investment.
  - Authorities are implementing an ambitious public investment scaling plan that peaked in 2017-18; positive growth effects expected to persist at least until 2019-20 due to investment multiplier lags.
  - Revitalization of cotton production is expected to transmit to the secondary sector in 2019 and beyond, supporting export revenues and growth in 2020.
  - A number of large public-private infrastructure projects of the Government’s Action Program are expected to start in 2020.
- Fiscal adjustment realism:
  - Fiscal consolidation expected to amount to about 2.5 percent of GDP between 2017 and 2020.
  - The adjustment will be mostly achieved through a scaling down of public investment, which increased by about 3 percent of GDP between 2016 and 2017.
- National accounts rebasing:
  - Rebasing of national accounts affects comparisons across DSA vintages but does not change the trend of public and private investment when rebased GDPs are used.

### Debt dynamics, stress tests, and vulnerabilities
- External debt burden:
  - Under the baseline, all external debt indicators remain below their relevant policy-dependent thresholds.
  - The PV of total PPG external debt is expected to stabilize at about 17.9 percent of GDP on average over 2019–24, reaching 5.4 percent of GDP in 2039.
  - The PV of total PPG external debt remains below the corresponding threshold of 40 percent of GDP throughout the projection period.
- Stress-test outcomes:
  - The PV of PPG external debt-to-exports ratio breaches its threshold under the most extreme stress test (MX shock, standard and tailored) in 2021 and 2022.
  - Compared to the May 2019 DSA, the breach is shorter (2 years instead of 4 in the previous vintage).
  - The debt service-to-exports ratio records a one-off breach under the exports shock, mainly explained by the first repayment of the Eurobond.
  - Other indicators—the debt-to-GDP ratio and debt service indicators—remain below their thresholds under the extreme shock scenarios.
  - The breach of the PV of PPG external debt-to-exports ratio under the most extreme stress test motivates the assessment of moderate risk for external debt.
- Market and liquidity signals:
  - Benin is assessed as having “some space” to absorb shocks, mainly due to the rise in the external debt service-to-revenue indicator from 2024-26.
  - Benin’s EMBI spread estimated at around 592 bps. as of September 30, 2019, breaches the benchmark of 570 bps., indicating possible liquidity pressures from deteriorating market sentiment.
- Public debt:
  - Total PPG debt (external plus domestic) remains below its respective benchmark under the baseline and shock scenarios.
  - The overall risk of debt distress remains moderate; no breach of the PV of public debt-to-GDP ratio occurs in the current DSA (improvement relative to the previous DSA, driven mainly by GDP rebasing).
  - Vulnerabilities notwithstanding the absence of breach include the fast increase in domestic debt in past years; the relatively high ratio of debt service to revenue; and possible contingent liabilities related to SOEs.

### Conclusions and policy implications
- Overall assessment:
  - The updated DSA confirms that Benin stands at moderate risk of external and overall public debt distress. Ratings are unchanged relative to the 2019 Article IV/4th review report (EBS/19/203).
  - The rebasing of national accounts has not fundamentally changed the debt sustainability analysis; liquidity ratios expressed as a share of exports or revenues were not significantly affected by rebasing.
- Policy priorities:
  - Medium-term fiscal consolidation is needed to maintain debt sustainability.
  - Improved debt management is needed to maintain debt sustainability.
  - Authorities remain committed to: adhering to medium-term fiscal consolidation; conducting sound public investment management; and enhancing debt management capacity.

*Source: Beninese authorities and IMF staff calculations, DSA 2018 and DSA 2019 (excerpts).*

### 2.5 percentage points of GDP in

### 2.5 percentage points of GDP in

### Summary findings (Benin, DSA tables and figures)
- External debt (nominal) (selected years): 2016: 16.3; 2017: 16.1; 2018: 19.3; 2019: 24.2; 2020: 23.4; 2021: 22.9; 2022: 22.0; 2023: 20.8; 2024: 21.3; 2029: 17.7; 2039: 8.8.
- Of external debt, public and publicly guaranteed (PPG) follows the same series as above for the years shown.
- Identified net debt-creating flows (selected sequence): 2016: 1.5; 2017: 1.7; 2018: 1.5; 2019: 2.3; 2020: 1.6; 2021: 1.6; 2022: 1.3; 2023: 1.2; 2024: 1.0; 2029: 1.3; 2039: 0.8.
- Non-interest current account deficit (selected sequence): 2016: 2.8; 2017: 3.9; 2018: 4.3; 2019: 4.5; 2020: 4.3; 2021: 3.9; 2022: 3.7; 2023: 3.5; 2024: 3.3; 2029: 3.1; 2039: 2.6.
- Endogenous debt dynamics (contribution, selected years): Contribution from nominal interest rate: 2016: 0.2; 2017: 0.2; 2018: 0.2; 2019: 0.4; Contribution from real GDP growth: 2016: -0.5; 2017: -0.9; 2018: -1.0; 2019: -1.2.
- Residual (selected years): 2016: -0.6; 2017: -2.0; 2018: 1.8; 2019: 2.5; 2020: -2.4; 2021: -2.1; 2022: -2.3; 2023: -2.4; 2024: -0.5; 2029: -0.9; 2039: -1.5.

### Debt sustainability and key indicators
- PV of PPG external debt-to-GDP ratio (selected years): 13.8; 19.4; 19.1; 18.1; 17.4; 16.4; 17.2; 13.0; 5.4.
- PV of PPG external debt-to-exports ratio (selected years): 79.2; 115.5; 111.4; 102.0; 96.1; 91.2; 96.0; 49.6; 20.8.
- PPG debt service-to-exports ratio (selected years): 3.7; 6.7; 3.5; 5.4; 7.8; 8.2; 7.7; 7.5; 11.7; 6.0; 2.0.
- PPG debt service-to-revenue ratio (selected years): 5.7; 8.3; 4.7; 6.8; 9.9; 10.8; 10.3; 10.0; 15.6; 10.9; 3.4.
- Gross external financing need (Billion of U.S. dollars) (selected years): 0.3; 0.5; 0.5; 0.6; 0.6; 0.6; 0.7; 0.7; 0.9; 1.1; 1.2.

### Public sector debt (baseline scenario)
- Public sector debt (selected years): 2014: 22.3; 2015: 30.9; 2016: 36.1; 2017: 39.7; 2018: 41.5; 2019: 41.4; 2020: 40.4; 2021: 37.8; 2022: 36.4; 2023: 35.3; 2024: 34.1; 2029: 31.4; 2039: 25.1.
- Change in public sector debt (selected years): 2014: 3.8; 2015: 8.6; 2016: 5.2; 2017: 3.7; 2018: 1.8; 2019: -0.1; 2020: -1.0; 2021: -2.6; 2022: -1.4; 2023: -1.1; 2024: -1.2; 2029: -0.4; 2039: -0.7.
- Identified debt-creating flows (selected years): 2014: 1.9; 2015: 6.9; 2016: 3.6; 2017: 0.7; 2018: 0.7; 2019: 0.4; 2020: -1.5; 2021: -1.9; 2022: -1.7; 2023: -1.6; 2024: -1.7; 2029: -0.4; 2039: -0.6.
- PV of public debt-to-GDP ratio (selected years): 36.5; 36.8; 36.0; 33.0; 31.7; 30.9; 30.0; 26.6; 21.7.

### Key macroeconomic and fiscal assumptions (selected series)
- Real GDP growth (in percent) (selected sequence): 3.3; 5.7; 6.7; 6.4; 6.7; 6.7; 6.7; 6.7; 6.7; 5.9; 5.0; 4.3; 6.4.
- GDP deflator in US dollar terms (change in percent) (selected sequence): 0.4; 1.7; 5.3; -5.6; 0.9; 3.3; 3.0; 2.9; 3.0; 2.5; 2.9; -0.2; 1.7.
- Effective interest rate (percent) (selected sequence): 1.1; 1.6; 1.5; 2.0; 1.9; 3.0; 3.0; 3.0; 2.6; 4.5; 2.2; 1.5; 3.4.
- Growth of exports of G&S (US dollar terms, in percent) (selected): 13.8; 2.8; 23.6; -3.5; 9.7; 14.6; 11.7; 9.5; 9.6; 8.5; 8.0; 8.7; 13.0.
- Growth of imports of G&S (US dollar terms, in percent) (selected): -2.5; 7.7; 20.0; -2.1; 6.0; 9.2; 7.3; 8.0; 8.2; 8.5; 8.0; 6.1; 9.2.
- Government revenues (excluding grants, in percent of GDP) (selected): 10.6; 12.8; 13.0; 13.3; 13.5; 13.5; 13.5; 13.5; 13.5; 14.4; 15.3; 12.3; 13.8.

### Market-financing risk indicators and thresholds
- Figures and tables indicate market-financing risk indicators (e.g., gross financing needs, EMBI spreads) and benchmark tests for breach of thresholds; charts show breaches of benchmarks where bold values indicate breach.
- Example thresholds referenced in figures/tables: for PV debt/GDP and PV debt/exports thresholds, x is 20 percent and y is 40 percent; for debt service/Exports and debt service/revenue thresholds, x is 12 percent and y is 35 percent.
- Gross financing need over the 3-year baseline projection horizon is used as a market-financing risk metric (figure notes).

### Sensitivity analysis (selected highlights)
- Table 3 and Table 4 present scenario and bound tests for key indicators of PPG external debt and public debt for 2019–29.
- Baseline and alternative scenarios (A1: historical averages) and bound tests (B1–B6) are reported for:
  - Debt service-to-exports ratio (baseline and scenario series shown).
  - Debt service-to-revenue ratio (baseline and scenario series shown).
  - PV of debt-to-exports ratio (baseline and scenario series shown).
  - PV of debt-to-GDP ratio (baseline and scenario series shown).
- Tailored tests include C1 Combined contingent liabilities, and C4 Market Financing; natural disaster and commodity price tailored tests are marked n.a. where not applicable.
- Public debt sensitivity (Table 4) shows PV of Debt-to-GDP Ratio baseline series (e.g., 37; 36; 33; 32; 31; 30; 29; 27) and alternative/bound scenarios with corresponding values; public debt benchmark shown as 55 for the horizon.

### Notable numeric observations
- PPG debt service-to-revenue ratio peaks in the series shown at 15.6 (year in series where presented).
- PV of PPG external debt-to-exports ratio reaches 115.5 in one of the projection years shown.
- Gross external financing need rises to 1.2 (Billion of U.S. dollars) in the later projection years shown.
- Real GDP growth is projected to remain at 6.7 percent for multiple projection years in the baseline sequence.

*Sources: Country authorities; and staff estimates and projections.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2019/1benea2019003.pdf_