## 1benea2020002

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### Executive summary
- Program implementation:
  - All end-December 2019 quantitative performance criteria (QPCs) and structural benchmarks (SBs) under review were met.
- COVID-19 impact and response:
  - Authorities prepared a response plan equal to 1.7 percent of GDP.
  - 2020 fiscal deficit revised to 3.5 percent of GDP.
- Financing and IMF support:
  - Staff supports completion of the sixth review and an augmentation of access equivalent to 61.4 percent of quota.
  - Completion of the review would release a disbursement of SDR 91.931 million, of which SDR 76.013 million from the augmentation.
- Key 2019 outcomes:
  - GDP growth: 6.9 percent.
  - Inflation: -0.9 percent in 2019.
  - Fiscal deficit (2019): 0.5 percent of GDP.
  - Public debt ratio (2019): 41.2 percent of GDP.

### Fiscal impact, sources and financing of the 2020 gap
- Fiscal projections and immediate figures:
  - 2020 fiscal deficit projected at 3.5 percent of GDP.
  - Projected tax and customs shortfall: 1.1 percent of GDP (assumes border closed until mid-year).
  - Authorities plan to reallocate 0.6 percent of GDP from non-essential goods and services and non-health capital expenditure toward the emergency package (1.7 percent of GDP).
  - 2020 fiscal deficit revised upward by 1.7 percent of GDP relative to the 5th review.
  - WAEMU regional 3 percent of GDP fiscal ceiling temporarily suspended by Heads of State on April 27, 2020.
- Text Table 1 — Sources and Financing of the 2020 Fiscal Gap (Relative to the 5th review) — key figures:
  - (1) Emergency response package: CFAF bn 150.0 — 1.7% of GDP
    - Spending measures: CFAF bn 110.0 — 1.3% of GDP
    - Tax measures: CFAF bn 40.0 — 0.5% of GDP
  - (2) Revenue losses due to COVID-19 and border closure: CFAF bn 93.0 — 1.1% of GDP
  - Fiscal gap = (3): CFAF bn 243.0 — 2.8% of GDP
  - Financing of the fiscal gap:
    - (4) Reallocation of spending and savings: CFAF bn 50.7 — 0.6% of GDP
      - Underexecution of low-priority capital projects: CFAF bn 31.0 — 0.4% of GDP
      - Current expenditure savings: CFAF bn 19.7 — 0.2% of GDP
    - (5) Additional domestic financing relative to budget plan: CFAF bn 65.4 — 0.7% of GDP
      - BOAD: CFAF bn 26.0 — 0.3% of GDP
      - New domestic issuances: CFAF bn 39.4 — 0.4% of GDP
    - (6) Additional external grants: CFAF bn 41.9 — 0.5% of GDP
    - (7) Additional external borrowing at concessional terms from donors: CFAF bn 16.9 — 0.2% of GDP
    - (8) Proposed IMF augmentation and CCRT: CFAF bn 68.2 — 0.8% of GDP
  - Note on higher 2020 fiscal deficit relative to 5th review = 150.5 — 1.7% of GDP (computed as (3)-(4)-(6) above the line = (5)+(7)+(8) below the line).
  - Cash basis, including grants.

### Outlook and risk scenarios
- Baseline outlook:
  - 2020 GDP growth revised to 3.2 percent (reflects contraction of private demand and assumed Nigeria border closure until mid-2020).
  - Medium-term recovery expected from 2021 if shocks are temporary.
- Adverse scenario (Annex III assumptions):
  - Assumptions: lower international demand; larger domestic COVID-19 outbreak; sharper decline in capital inflows; extension of border closure with Nigeria until end-2020.
  - Outcomes under adverse scenario:
    - 2020 GDP growth: 1.7 percent.
    - 2020 fiscal deficit: 4.5 percent of GDP.
    - Trade deficit: around 5 percent of GDP in 2020.
    - Overall balance: deficit of 1.4 percent of GDP.
- Downside risks:
  - Global: weaker global growth, spillovers affecting trade, remittances and FDI.
  - Domestic: larger outbreak, deterioration of tax revenues, banking sector vulnerabilities.
  - Political: April 2021 presidential election could elevate policy and spending risks.
  - Regional/security: contagion of security risks generating budgetary costs and revenue losses.

### Policy discussions and recommended fiscal governance measures
- Emergency package composition (total 1.7 percent of GDP):
  - Health response: increase public health expenditure by 0.7 percent of GDP for medical equipment, temporary facilities, retention/quarantine areas.
  - Transfers to households:
    - One third of the plan; targets above one quarter of the population.
    - Delivery options: cash wires through mobile banking (building on ARCH) or via World Bank ACCESS safety nets; fallback: food distribution and utility bill subsidies.
    - Both formal and informal sectors expected to benefit.
  - Support to businesses:
    - Flexibility on tax payment deadlines; targeted, temporary tax exemptions for most affected businesses.
- Public financial management and transparency:
  - Prepare a supplementary budget once COVID-19 spending is fully assessed.
  - Publish quarterly budget execution reports on COVID-19 measures, outcomes, and difficulties.
  - Conduct an independent audit of the response plan by the Accounting Chamber and publish procurement contracts for main projects indicating amounts and beneficiaries.
  - Recommended careful monitoring and ex-post audit to strengthen accountability.
- Medium-term fiscal stance:
  - Authorities expect to revert to medium-term fiscal path after shocks dissipate; maintain deficit within regional ceiling to safeguard fiscal sustainability.
  - Staff emphasizes further revenue mobilization; projections assume constant tax ratio over 2021-25 and consolidation relying on expenditure cuts (staff notes a preferable approach would be to enhance domestic revenue mobilization).

### Financing, IMF support, and capacity to repay
- IMF augmentation and disbursement:
  - Staff supports augmentation request equivalent to 61.4 percent of quota.
  - Completion of the sixth review releases SDR 91.931 million, including SDR 76.013 million from the augmentation.
  - Proposed augmentation would bring outstanding IMF credit to 173 percent of quota at end of program.
  - Proposed augmentation consistent with applicable normal access limits under an ECF arrangement.
- Catastrophe Containment and Relief Trust (CCRT):
  - On April 13, 2020, Benin granted relief amounting to SDR 7.4 million (CFAF 6.4 billion) on IMF debt service over April-October 2020.
- Financing composition for higher 2020 deficit:
  - Additional resources currently estimated at 1.8 percent of GDP: 0.8 percent of GDP from the IMF (proposed augmentation and CCRT) and 1.0 percent of GDP from donors (new loans and grants).
  - If additional financing exceeds estimates, capital expenditure cuts could be reduced; 2020 fiscal deficit could increase up to 3.9 percent of GDP.
- Capacity to repay the Fund:
  - Assessed as adequate.
  - At end-April 2020, outstanding Fund credit (including the GRA) was around 98.6 percent of quota or SDR 122.03 million.
  - Debt service payments to the Fund peak in 2020 at 1 percent of government revenue.
- ECF disbursement schedule highlights:
  - SDR 15.917 million tranches repeatedly from April 7, 2017 through October 31, 2019 (each 12.9 percent of quota).
  - SDR 91.931 million (15.918 + 76.013) — March 23, 2020: completion of sixth review.
  - Total amount of the arrangement: SDR 187.43 million (111.42 + 76.013) (151.4 percent of quota).

### Debt sustainability (DSA) findings and risks
- Risk ratings:
  - Risk of external debt distress: Moderate.
  - Overall risk of debt distress: Moderate.
  - Granularity: Limited space to absorb shocks (deterioration from “some space”).
- Key DSA projections and indicators:
  - PV of total PPG external debt expected to stabilize at about 17.5 percent of GDP on average over 2020–24; reaches 7.5 percent of GDP in 2039.
  - Total public debt (end period, percent of GDP): 2019: 41.1; 2020: 41.2; 2021: 40.1; 2022: 43.3; 2023: 42.2; 2024: 40.4; 2025: 38.4; 2026: 36.6; 2027: 34.9.
  - Debt service-to-revenue ratio: 43.5 percent in 2019; expected to increase to around 52.2 percent on average in the medium term (because of Eurobond amortization); expected to decline to around 31 percent on average in the long term (2030-40).
  - Debt coverage and structure (end-2019):
    - Total external debt: CFAF 2,020.7 billion (about US$ 3.4 billion).
    - External debt composition: Multilateral CFAF 1,150.9; Bilateral CFAF 869.8; Eurobond CFAF 325.0.
    - Share of concessional loans: 54 percent of total external debt at end-2019.
    - Total domestic debt as of end-2019: CFAF 1,455.9 billion (Bonds CFAF 1,190.1; Other local banks CFAF 243.9; T-bills CFAF 21.9).
    - External debt represented 58.1 percent of total debt as of end-December 2019.
- Stress tests and adverse scenario outcomes:
  - Under the adverse macroeconomic scenario, some indicators breach thresholds (PV debt-to-exports; debt service-to-exports; debt service-to-revenue) but overall PV debt ratios remain below benchmarks.
  - Market module: Benin’s EMBI spread estimated at around 800 bps. as of April 16, 2020, breaching benchmark of 570 bps.
- Policy implications:
  - Medium-term fiscal consolidation and improved debt management recommended.
  - Monitor contingent liabilities (especially PPPs and SOEs).

### Banking sector resilience and supervisory recommendations
- Recent developments and indicators:
  - Aggregate capital adequacy ratio rose from 8.2 percent at end-December 2018 to 9.6 percent at end-June 2019 (regulatory threshold required for end-2019: 9.5 percent).
  - Gross NPLs to total loans decreased from 21.6 percent at end-December 2018 to 20.2 percent at end-June 2019.
  - Credit to the private sector grew by 11.9 percent between end-2018 and end-2019.
  - Three banks (out of 15), representing 10 percent of system assets, fail to meet capital requirements.
  - Formalization of real estate guarantees: 916 guarantees corresponding to CFAF 104 billion (1.2 percent of GDP) of underlying collateral.
  - Digital “e-notary” platform launched in April 2020.
- Vulnerabilities:
  - High credit concentration and low liquidity.
  - Significant exposure to sectors hit by containment (hotels and restaurants).
- Recommendations:
  - Continue applying prudential rules while using regional framework flexibility to support borrowers.
  - Banks should report NPLs and potential losses accurately.
  - Strengthen corporate governance to mitigate contagion risk.
  - Monitor and address undercapitalized banks; merger of two small public banks underway; undercapitalized private bank raising capital.

### Structural reform priorities and governance measures
- Medium-term reform priorities:
  1. Improve business environment: access to finance, infrastructure quality, governance.
  2. Promote industrial development and move up agricultural quality ladder.
  3. Close gaps in education and health outcomes.
- Governance, anti-corruption and AML/CFT:
  - Draft law submitted in April 2020 to create High Commission for the Prevention of Corruption (HCPC) to replace ANLC.
  - Suggested actions: update 2001 national anti-corruption strategy; ensure asset declaration practices for senior officials align with international best practices; Chamber of Accounts to enhance verification and sanctions.
  - Compliance rates for asset declarations range between 60 and 100 percent among senior public officials.
  - AML/CFT: address deficiencies identified in draft GIABA report (expected approval in October 2020).
- PPPs and fiscal risks:
  - More than half of Government Action Plan projects expected to be financed by private sector (mainly PPPs); PPP law enacted in 2016; as of April 2020, no PPP signed.
  - Future PPPs should be reflected in fiscal accounts and contingent liabilities carefully assessed.
- Informality and trade:
  - Informal re-exports represent almost half of Benin’s exports.
  - Suggested measures: support formalization; promote digitalization (mobile banking, e-tax); strengthen risk-based tax compliance; special tax regimes for micro and small enterprises; simplify trade procedures.

### Assumptions underlying 2020 growth projections (Annex I)
- Two projection approaches used: demand-side and supply-side.
- Demand-side contributions to Real GDP Growth (2019, 2020, Diff.):
  - Private consumption: 4.6, 1.1, -3.5
  - Private investment: 2.2, 0.3, -1.9
  - Public consumption and investment: 1.0, 3.0, 2.0
  - Net Exports: -0.8, -1.2, -0.3
  - Real GDP: 6.9, 3.2, -3.7
- Supply-side contributions to Real GDP Growth (2019, 2020, Diff.):
  - Primary: 1.5, 1.5, 0.0
  - Secondary: 2.0, 0.8, -1.2
    - Construction: 0.8, 0.3, -0.5
  - Tertiary: 3.4, 0.8, -2.5
    - Restaurants and hotels: 0.3, -0.6, -0.8
    - Transport: 0.4, -0.5, -0.9
    - Public sector*: 1.6, 1.8, 0.2
  - Real GDP: 6.9, 3.2, -3.7
  - *Includes public administration and social security, health, education and taxes.

### Staff appraisal and recommendations
- Macroeconomic outlook and policy response:
  - Growth reached almost 7 percent in 2019; 2020 expected to decelerate to 3.2 percent.
  - Authorities’ plan to raise healthcare spending, grant cash transfers to vulnerable households, and support impacted businesses.
  - Financing to rely mostly on concessional borrowing and grants; reallocation of less urgent projects within budget planned.
- Program performance:
  - Very satisfactory performance under the ECF arrangement; all QPCs at end-December 2019 and SBs under review met.
  - Fiscal deficit ratio declined from 4.4 percent of rebased GDP in 2016 to 0.5 percent of GDP in 2019.
  - First Eurobond issued in March 2019.
- Staff recommendations:
  - Support completion of sixth review and augmentation of access; Benin’s capacity to repay the Fund is adequate.
  - Strengthen monitoring, transparency, and ex-post audits of COVID-19 expenditure.
  - Re-emphasize revenue mobilization and prudent medium-term consolidation.

_Italic: Source — Beninese authorities; IMF staff estimates and projections (from the provided IMF content unit)._

### 76.013 million or about US$103.5 million) to address the urgent financing needs stemming

### BENIN SIXTH REVIEW UNDER THE EXTENDED CREDIT FACILITY ARRANGEMENT AND REQUEST FOR AUGMENTATION OF ACCESS

### Executive summary
- Program implementation: all end-December 2019 quantitative performance criteria (QPCs) and structural benchmarks (SBs) under review were met.
- COVID-19 impact and response:
  - Authorities prepared a response plan equal to 1.7 percent of GDP to contain health risks and support the economy.
  - As a result of projected revenue shortfalls and the new measures, the 2020 fiscal deficit is revised upward to 3.5 percent of GDP.
- Financing and IMF support:
  - Staff supports completion of the sixth review and an augmentation of access equivalent to 61.4 percent of quota to address larger financing needs.
  - Completion of the review would release a disbursement equivalent to SDR 91.931 million, of which SDR 76.013 million from the augmentation.

### Background and recent developments
- ECF arrangement:
  - The three-year ECF arrangement was approved in April 2017; the sixth review marks the end of the current arrangement.
  - Performance under the program has been very satisfactory; all semi-annual QPCs and all but one SB have been met since inception.
- Health and border shocks:
  - As of May 6, 96 cases have been reported in Benin.
  - The border with Nigeria remains closed (closure initiated August 2019), with agreed measures including joint customs checkpoints and police brigades.
- 2019 outcomes:
  - GDP growth: 6.9 percent (preliminary estimate for 2019).
  - Inflation: -0.9 percent in 2019.
  - Fiscal deficit (2019): 0.5 percent of GDP.
  - Public debt ratio (2019): 41.2 percent of GDP.
- Banking sector (2018–19 developments):
  - Aggregate capital adequacy ratio rose from 8.2 percent at end-December 2018 to 9.6 percent at end-June 2019 (regulatory threshold required for end-2019: 9.5 percent).
  - Gross NPLs to total loans decreased from 21.6 percent at end-December 2018 to 20.2 percent at end-June 2019.
  - Credit to the private sector grew by 11.9 percent between end-2018 and end-2019.
  - Structural weaknesses persist: high credit concentration and low liquidity.
- International and commodity developments:
  - Benin’s Eurobond spreads have soared by about 550 bps since the beginning of the year.
  - International cotton prices in U.S. dollar declined by about 15 percent over the same period.
  - Domestic gasoline prices are lower than at end-2019.

### Outlook and risks
- Baseline outlook:
  - 2020 GDP growth revised down to 3.2 percent reflecting contraction of private demand and a border closure with Nigeria assumed to last until mid-2020.
  - Medium-term outlook remains favorable if shocks are temporary; gradual recovery expected from 2021.
- Downside risks:
  - Global: weaker-than-expected global growth and further COVID-19 spillovers affecting trade, remittances and FDI.
  - Domestic: larger domestic outbreak affecting manufacturing, commerce and transport; deterioration of tax revenues; additional external pressures.
  - Political: April 2021 presidential election elevates policy implementation risks and potential spending pressures.
  - Regional/security: contagion of security risks could generate budgetary costs and revenue losses.
  - Banking sector vulnerabilities could pose fiscal risks if not addressed timely.
- Adverse scenario (Annex III highlights):
  - Assumptions: lower international demand, larger domestic COVID-19 outbreak, sharper decline in capital inflows, extension of border closure with Nigeria until end-2020.
  - Outcomes under this scenario:
    - 2020 GDP growth: 1.7 percent.
    - 2020 fiscal deficit: 4.5 percent of GDP.
    - Trade deficit: around 5 percent of GDP in 2020.
    - Overall balance: deficit of 1.4 percent of GDP.

### Policy discussions — Adjusting the 2020 fiscal response
- Fiscal space and constraints:
  - December 2019 budget targeted a deficit of 1.8 percent of GDP for 2020 (regional ceiling: 3 percent of GDP).
  - 2019 debt ratio: 41.2 percent of GDP (SSA average: 50.1 percent of GDP; WAEMU: 44.5 percent of GDP).
- Authorities’ emergency package (within budget envelope): total size 1.7 percent of GDP, three-pronged strategy:
  - Health response:
    - Increase public health expenditure by 0.7 percent of GDP for medical equipment, construction of temporary health facilities, and retention/quarantine areas.
  - Transfers to households:
    - One third of the plan will consist of transfers to vulnerable households.
    - Transfers target above one quarter of the population.
    - Delivery options under consideration: cash wires through mobile banking building on ARCH (the new health insurance system) or channeled through the safety nets component of the World Bank ACCESS project; fallback options include food distribution programs and utility bill subsidies.
    - Both cash transfers and subsidies are expected to benefit the formal and informal sectors.
  - Support to impacted businesses:
    - Measures include flexibility with tax payment deadlines and targeted, temporary tax exemptions for most affected businesses.
- Public financial management emphasis:
  - Sound and transparent public financial management is vital given sizeable reprioritization of spending.
  - Recommended actions: careful monitoring and ex-post audit of the execution of new measures to strengthen accountability and ensure additional funds are spent as intended.
- Medium-term fiscal stance:
  - Authorities expect to revert to medium-term fiscal path once shocks dissipate, maintaining the deficit within the regional ceiling to safeguard fiscal sustainability.
- Structural reforms:
  - Continue efforts to modernize and diversify the economy, improve the business environment, and strengthen the banking sector.

### Program performance, augmentation request, and staff view
- Performance under the ECF arrangement: very satisfactory with a strong track record; all QPCs at end-December 2019 and structural benchmarks under review were met.
- Augmentation and disbursement:
  - Staff supports request for augmentation equivalent to 61.4 percent of quota.
  - Completion of the sixth review releases SDR 91.931 million, including SDR 76.013 million from the augmentation.
- IMF statement highlights:
  - Emphasis on immediate actions to raise healthcare spending, grant cash transfers to vulnerable households, and provide support to impacted businesses while safeguarding fiscal achievements.
  - Recommends monitoring, transparency, and ex-post audits to ensure funds are used as intended.

*International Monetary Fund — BENIN: Sixth Review under the Extended Credit Facility Arrangement and Request for Augmentation of Access (excerpt).*

### 15.      Along with the expected revenue shortfall, these new measures would bring the fiscal

### 1benea2020002 - 15. Along with the expected revenue shortfall, these new measures would bring the fiscal

### Fiscal impact and immediate projections
- 2020 fiscal deficit projected at 3.5 percent of GDP.
- Projected tax and customs shortfall due to the economic slowdown and the border closure with Nigeria: 1.1 percent of GDP (under the assumption that the border remains closed until mid-year).
- Authorities plan to reallocate 0.6 percent of GDP from non-essential goods and services and non-health capital expenditure towards the emergency package estimated at 1.7 percent of GDP.
- 2020 fiscal deficit revised upward by 1.7 percent of GDP relative to the 5th review.
- Application of the 3 percent of GDP regional fiscal ceiling temporarily suspended by the WAEMU Head of States on April 27, 2020.

### Text Table 1 — Sources and Financing of the 2020 Fiscal Gap (Relative to the 5th review) — key figures
- (1) Emergency response package: CFAF bn 150.0 — 1.7% of GDP
  - of which: Spending measures: CFAF bn 110.0 — 1.3% of GDP
  - of which: Tax measures: CFAF bn 40.0 — 0.5% of GDP
- (2) Revenue losses due to COVID-19 and border closure: CFAF bn 93.0 — 1.1% of GDP
- → Fiscal gap = (1) + (2) = (3): CFAF bn 243.0 — 2.8% of GDP
- Financing of the fiscal gap:
  - (4) Reallocation of spending and savings within budget: CFAF bn 50.7 — 0.6% of GDP
    - of which: Underexecution of low-priority capital projects: CFAF bn 31.0 — 0.4% of GDP
    - of which: Current expenditure savings: CFAF bn 19.7 — 0.2% of GDP
  - (5) Additional domestic financing relative to budget plan: CFAF bn 65.4 — 0.7% of GDP
    - of which: BOAD: CFAF bn 26.0 — 0.3% of GDP
    - of which: New domestic issuances: CFAF bn 39.4 — 0.4% of GDP
  - (6) Additional external grants: CFAF bn 41.9 — 0.5% of GDP
  - (7) Additional external borrowing at concessional terms from donors: CFAF bn 16.9 — 0.2% of GDP
  - (8) Proposed IMF augmentation and CCRT: CFAF bn 68.2 — 0.8% of GDP
- Note: Higher 2020 fiscal deficit relative to 5th review = 150.5 — 1.7% of GDP (computed as (3)-(4)-(6) above the line = (5)+(7)+(8) below the line).
- Cash basis, including grants.

### Downside scenario and financing risks
- Downside scenario (Annex III) with lower growth and longer border closure: 2020 fiscal deficit would increase to 4.5 percent of GDP.
- DSA rating for debt distress remains moderate in the downside scenario, but government may face financing constraints.
- Recommended three-step contingency strategy:
  1. Seek additional external financing at concessional terms to cover the higher deficit.
  2. If donors’ support is insufficient, contract additional domestic debt on the regional market (where rates have remained moderate).
  3. If domestic financing at reasonable terms is unavailable, implement further expenditure rationalization measures, including slowing implementation of capital projects.

### Transparency, reporting, and accountability measures
- Prepare a supplementary budget once COVID-19 spending is fully assessed to maintain budget transparency and appropriate appropriation of new priorities in 2020.
- Publish quarterly budget execution reports highlighting implementation of COVID-19 measures, main outcomes, and difficulties.
- Authorities committed to conducting an audit of the response plan, independently carried out by the Accounting Chamber and made available to the public on its website.
- Authorities will publish procurement contracts of the main projects, indicating amount and beneficiaries.

### Preserving debt sustainability and medium-term fiscal path
- For 2020, financing of the higher fiscal deficit expected to rely mostly on additional concessional borrowing and grants.
  - Additional resources currently estimated at 1.8 percent of GDP, of which 0.8 percent of GDP will come from the IMF (proposed program augmentation and CCRT) and 1.0 percent of GDP from donors (new loans and grants).
- If additional financing exceeds Text Table 1 estimates, capital expenditure cuts could be reduced; 2020 fiscal deficit could increase to up to 3.9 percent of GDP.
- Overall DSA debt distress risk rating unchanged at moderate compared to the 5th review; room to absorb shocks deteriorates from “some space” to “limited space.”
- From 2021, authorities plan to revert to the medium-term fiscal path; increase in fiscal deficit should be temporary and reversed after shocks dissipate.
- Staff reemphasized importance of further progress on revenue mobilization in the medium term; projections assume unchanged tax policy with a constant tax ratio over 2021-25 and medium-term consolidation relying on expenditure cuts (staff notes a preferable approach would be to enhance domestic revenue mobilization).

### Addressing permanent revenue losses and PPP risks
- Part of revenue losses from the border closure expected to be permanent due to reduced informal cross-border trade; staff advised compensatory measures preferably through tax increases and revenue administration measures.
  - Tables 4 and 5 assume permanent tax losses of 0.2 percent of GDP relative to the 5th review.
  - Suggested compensatory measures include: enhancing the Large Taxpayer Office’s audit capacity; collecting tax arrears more actively; enforcing penalties on importers without a tax ID; curbing VAT tax expenditures.
- Monitor and manage risks from future infrastructure projects and PPPs:
  - More than half of Government Action Plan projects expected to be financed by private sector (mainly PPPs); PPP law enacted in 2016; as of April 2020, no PPP signed.
  - Future PPPs should be properly reflected in fiscal accounts and contingent liabilities carefully assessed.

### Supporting economic resilience and near-term policy options
- Growth context:
  - Growth potential estimated at 6.7 percent (2019 Article IV report).
  - Baseline 2020 slowdown: activity projected to decelerate strongly due to COVID-19 and border closure.
  - Downside scenario in Annex III: growth could decelerate by another 1½ percentage point in 2020 (from 3.2 to 1.7 percent) with longer border closure and more adverse pandemic conditions.
- Short-term additional measures if situation deteriorates:
  - Increasing size or expanding coverage of transfers to vulnerable households.
  - Improving access to credit for cash-constrained businesses through guarantees or subsidized loans.
  - Broadening inputs or production factors covered by cost-based tax incentives.
  - Accelerating government payments to private sector suppliers.
  - Reducing turnover tax for micro and small enterprises.
- Reduce role of informal trade:
  - Informal re-exports represent almost half of Benin’s exports.
  - Measures: support formalization of businesses; promote digitalization of transactions (mobile banking, e-tax); strengthen risk-based tax compliance; develop special tax regimes for micro and small enterprises; accelerate digitalization and simplification of trade procedures to reduce informality.

### Banking sector resilience and regulatory issues
- Banking sector has rebuilt buffers over past two years (Basel II/III and IFRS9 move); aggregate capital adequacy exceeded regulatory minimum at end-June 2019.
- NPLs have declined significantly; formalization of real estate guarantees formalized 916 guarantees corresponding to CFAF 104 billion (1.2 percent of GDP) of underlying collateral.
- Digital “e-notary” platform launched in April 2020 to lower cost and duration of conversion of occupancy permits to real estate titles.
- Vulnerabilities remain:
  - Banks are significantly exposed to sectors likely hit by containment (e.g., hotels and restaurants).
  - Three banks (out of 15), representing 10 percent of the banking system’s assets, fail to meet capital requirements.
  - Merger of two small public banks underway; third undercapitalized private bank raising capital.
- Recommendations:
  - All banks should continue to apply existing prudential rules while using regional framework flexibility to support borrowers.
  - Banks should report NPLs and potential losses accurately.
  - Strengthen corporate governance to mitigate risk of contagion across the banking sector.

### Structural reform priorities to boost resilience and growth
- Medium-term growth strategy should prioritize economic diversification through:
  1. Improving business environment: access to finance, infrastructure quality, governance.
  2. Promoting industrial development and moving up the agricultural quality ladder.
  3. Closing gaps in education and health outcomes.
- Governance, anti-corruption, and AML/CFT:
  - Anti-corruption: draft law submitted in April 2020 to create High Commission for the Prevention of Corruption (HCPC) to replace ANLC and focus on prevention. Suggested further actions: update 2001 national anti-corruption strategy; ensure asset declaration practices for senior officials align with international best practices and are effectively implemented; Chamber of Accounts to enhance verification and sanctions; improve access to asset declarations. Compliance rates range between 60 and 100 percent among senior public officials.
  - AML/CFT: improve effective implementation and address deficiencies identified in the draft GIABA report (expected approval in October 2020).

### Program performance and IMF augmentation request
- Performance through end-December 2019: all end-December QPCs and the indicative target for priority social spending met; all SBs under review met.
- Overall 2017-20 program performance: very positive; almost all performance criteria and SBs met; advances in fiscal discipline, revenue mobilization, and debt management; uneven progress on private sector development and public investment management.
- Authorities requested a program augmentation. Proposed augmentation at 6th review to meet fiscal financing and BoP needs arising from higher expenditure to contain the virus and loss of tax and customs revenues due to the pandemic and border closure.
  - Proposed augmentation: 61.4 percent of quota — corresponding to SDR 76.013 million for the last disbursement — would bring outstanding IMF credit to 173 percent of quota at the end of the program.
  - Proposed augmentation consistent with applicable normal access limits under an ECF arrangement.

*Source: IMF staff report excerpt (Text and tables provided in the supplied content).*

### 32.      Upside risk on financing needs.  As  shown  in  Annex  III,  a  further  deterioration  of  the

### 32.      Upside risk on financing needs.  As  shown  in  Annex  III,  a  further  deterioration  of  the

### Upside risk on financing needs
- A further deterioration of the economic environment could increase the tax revenue shortfall.
- The fiscal deficit is supposed to be partly covered by issuances on the domestic debt market, which may become more difficult in the near future.
- Financing needs could prove challenging to fill, especially if downside risks materialize.
- Staff’s view: the authorities could address this in part by seeking additional Fund support.

### Catastrophe Containment and Relief Trust (CCRT)
- On April 13, 2020, Benin, like 24 other countries, was granted relief on its debt service to the IMF over April-October 2020, amounting to SDR 7.4 million (CFAF 6.4 billion), as part of the IMF response to the crisis and the enhancement to its CCRT.

### Successor arrangement
- The authorities have expressed interest in continuing their medium-term collaboration with the IMF after the current program expires (see attached Letter of Intent).
- The mission discussed available options to signal commitment to reforms and catalyze financing from other sources.
- Discussions will continue later this year to identify the most appropriate form of engagement with the Fund.

### Financing assurances
- The program is fully financed until the end of the arrangement (July 2020).
- Expenditure reallocation, domestic financing, and external grants helped reduce the residual gap, which was closed with additional donor support, as shown in Tables 4 and 5.

### Capacity to repay the Fund
- Benin’s capacity is assessed to be adequate.
- The country has a track record of meeting its obligations to the Fund.
- At end-April 2020, outstanding Fund credit (including the GRA) was around 98.6 percent of quota or SDR 122.03 million.
- Debt service payments to the Fund will remain manageable, with obligations peaking in 2020 at 1 percent of government revenue.

### Safeguard assessment
- The BCEAO has only one recommendation outstanding from the 2018 safeguards assessment: strengthening of the risk management function, which is in process.
- The assessment found that overall the central bank has maintained a strong control culture.

### Staff appraisal — macroeconomic impact and policy response
- Growth and outlook:
  - Growth reached almost 7 percent in 2019, driven by the construction and manufacturing sectors.
  - In 2020, economic activity is expected to decelerate to 3.2 percent, as result of the pandemic.
  - Macroeconomic projections are subject to a high degree of uncertainty given the rapidly evolving impacts of the COVID-19; if the pandemic persists and spreads further, the 2020 macroeconomic performance may worsen even more.
- Authorities’ COVID-19 response:
  - The authorities’ plan will raise healthcare spending, grant cash transfers to vulnerable households, and provide support to impacted businesses.
  - The 2020 fiscal deficit is forecast to widen to 3.5 percent of GDP to accommodate the new measures and the revenue shortfall.
  - Financing will rely mostly on greater financial support from donors; authorities also plan to reallocate, within the budget, spending from less urgent projects towards new priorities defined by the response plan.
- Public finance management and transparency:
  - Once the size of the COVID-19 spending is fully assessed, the authorities will most likely need to prepare a supplementary budget to maintain budget transparency.
  - Careful monitoring and ex-post audit of the execution of the new measures will strengthen accountability and ensure that the additional funds are spent as intended.
  - The mission welcomes the authorities’ commitment to publish next year’s audit of the response plan as well as the procurement documents for the main projects.
- Medium-term fiscal path and reforms:
  - Once the shocks wear off, the authorities should revert to their medium-term fiscal path by maintaining the fiscal deficit below the regional ceiling to ensure the crisis does not jeopardize fiscal sustainability.
  - Economic reform priorities to be pursued: diversification of the economic structure, improvement of the business environment, and strengthening of the banking sector.
- Program performance and outlook:
  - Staff commends the authorities’ very satisfactory performance under the Fund-supported program.
  - All QPCs at end-December 2019 and the SBs under review were met; continuous PCs received so far continue to be observed.
  - Over the three-year program, all semi-annual QPCs and most SBs have been met.
  - The fiscal deficit ratio declined sharply from 4.4 percent of rebased GDP in 2016 (before the program started) to 0.5 percent of GDP in 2019.
  - The sound policies under the program enabled Benin to issue its first Eurobond in March 2019 and brought it closer to frontier market status.
- IMF staff recommendations and decisions:
  - Staff supports the authorities’ request for completion of the sixth review of the ECF-supported program and augmentation of access. The augmentation will help the authorities address the human and economic implications of the COVID-19 pandemic. The capacity to repay the Fund is adequate.
  - Staff also recommends that Benin be placed on the standard 12-month cycle for Article IV Consultations.

*INTERNATIONAL MONETARY FUND*

### 192.0  Met

### 1benea2020002 - 192.0  Met

### Structural benchmarks and policy actions (2018–20)
- Submit a 2019 budget consistent with the ECF-supported program to the parliamentary commission — Prior action for Third Review. Rationale: Preserve fiscal sustainability. Status: Met.
- Government should submit a 2020 budget consistent with the ECF-supported program to the parliamentary commission — Prior action for Fifth Review. Rationale: Preserve fiscal sustainability. Status: Met.
- Limit the granting of special conventions outside the investment code to exceptional cases after decision by the Council of Ministers. Date: June 2018 (continuous thereafter). Rationale: Boost revenue collection. Status: Met.
- Implement a plan to strengthen tax compliance. Date: June 2018. Rationale: Boost tax revenues by improving tax compliance-risk management. Status: Met.
- The 2019 adopted budget eliminates tax expenditures equivalent to CFAF 60 billion. Date: December 2018. Rationale: Boost tax revenues. Status: Met.
- Ministry of Finance implements system of control and verification of investments under the investment code and special economic zones. Date: November 2019. Rationale: Rationalize exemptions and fight tax fraud. Status: Met.
- Strengthen research and statistics office within customs administration by staffing with statistics personnel to improve risk analysis, monitoring of exemptions, and fraud detection. Date: December 2019. Rationale: Improve customs revenues and fight customs fraud. Status: Met.
- Adopt a 2020 budget that includes a tax package with revenue-raising measures equivalent to CFAF 45 billion. Date: December 2019. Rationale: Foster revenue mobilization. Status: Met.
- Prepare and adopt in the Council of Ministers a plan for reorganization and professionalization of administrative control bodies of the State. Date: June 2018. Rationale: Improve economic governance. Status: Met.
- Prepare monthly cash flow forecasting plans and comprehensive quarterly budget performance evaluations. Date: June 2018. Rationale: Improve budget information. Status: Met.
- Adopt a comprehensive and high-level regulatory text for public investment, as agreed under the PIMA evaluation. Date: September 2018. Rationale: Improve public investment management and help identify governance weaknesses. Status: Not met (implemented in November 2018).
- Prepare an updated audit of the stock of past debt due by the government to domestic suppliers at end of December 2018. Date: January 2019. Rationale: Enhance fiscal transparency. Status: Met.
- Perform an impact assessment of the transfer of government deposits from commercial banks to the Treasury Single Account. Date: March 2020. Rationale: Reduce fiscal and financial risks. Status: Met.
- Financial inclusion measures: Establish a credit bureau. Date: December 2018. Rationale: Improve crisis management. Status: Met.
- Strengthen regulatory framework for licensing and supervision of microfinance institutions. Date: December 2018. Rationale: Promote financial inclusion. Status: Met.
- SOE reforms: Complete data collection of SOEs’ debt and operationalize monitoring framework. Date: September 2018. Rationale: Better monitor contingent liabilities and improve public debt management. Status: Met.
- Set performance contracts with key SOEs. Date: December 2018. Rationale: Improve SOEs’ contribution to government revenues. Status: Met.
- Trade facilitation: Perform diagnostic assessment of main trade barriers based on WTO Trade Facilitation Agreement notification framework. Date: September 2019. Rationale: Facilitate trade. Status: Met.

### Macroeconomic outlook and projections (selected)
- Real GDP growth: 2018: 6.7; 2019 Est.: 6.4; 2020 EBS/19/103 Est.: 6.9; 2021 Proj.: 6.7; 2022 Proj.: 3.2; 2023 Proj.: 6.0; 2024 Proj.: 7.0; 2025 Proj.: 7.0.
- Nominal GDP (growth): 2018: 7.3; 2019: 5.6; 2020: 6.5; 2021: 8.0; subsequent projections: 4.2, 7.9, 9.1, 9.4, 8.8, 8.7 (years aligned with table).
- GDP deflator: 2018: 0.6; 2019: -0.8; 2020: -0.3; 2021: 1.2; 2022: 1.0; 2023: 1.8; 2024: 2.0; 2025: 2.2; 2026: 2.0; 2027: 1.8.
- Consumer price inflation (average): 2018: 0.8; 2019: -0.6; 2020: -0.9; 2021: 1.0; 2022: 0.6; 2023: 1.3; 2024: 2.0; 2025: 2.0; 2026: 2.0; 2027: 2.0.
- Overall balance (commitment basis, incl. grants, percent of GDP): 2018: -2.9; 2019: -2.3; 2020: -0.5; 2021: -1.8; 2022: -3.5; 2023: -3.0; 2024: -2.7; 2025: -2.4; 2026: -2.0; 2027: -1.8.
- Current account balance (percent of GDP): 2018: -4.6; 2019: -4.9; 2020: -4.3; 2021: -4.7; 2022: -4.6; 2023: -4.5; 2024: -4.5; 2025: -4.3; 2026: -4.0; 2027: -3.9.
- Total public debt (end period, percent of GDP): 2018: 41.1; 2019: 41.1; 2020: 41.2; 2021: 40.1; 2022: 43.3; 2023: 42.2; 2024: 40.4; 2025: 38.4; 2026: 36.6; 2027: 34.9.
- External public debt (percent of GDP): 2018: 19.4; 2019: 24.3; 2020: 24.0; 2021: 23.3; 2022: 25.1; 2023: 24.3; 2024: 23.4; 2025: 22.5; 2026: 21.2; 2027: 20.0.

### Consolidated central government operations (CFAF billion and percent of GDP highlights)
- Total revenue and grants (CFAF billion): 2018: 1,075.8; 2019: 1,205.2; 2020 EBS/19/103 Est.: 1,185.7; 2021 Proj.: 1,307.8; 2022 Proj.: 1,216.7; 2023 Proj.: 1,353.5; 2024 Proj.: 1,476.8; 2025 Proj.: 1,615.8; 2026 Proj.: 1,758.5; 2027 Proj.: 1,910.9.
- Total revenue (excluding grants, CFAF billion): 2018: 1,028.6; 2019: 1,112.4; 2020: 1,088.0; 2021: 1,220.0; 2022: 1,087.0; 2023: 1,261.7; 2024: 1,376.6; 2025: 1,506.2; 2026: 1,639.2; 2027: 1,781.3.
- Tax revenue (CFAF billion): 2018: 811.4; 2019: 935.6; 2020: 893.3; 2021: 1,030.0; 2022: 900.6; 2023: 1,060.7; 2024: 1,157.3; 2025: 1,266.2; 2026: 1,378.0; 2027: 1,497.5.
- Total expenditure and net lending (CFAF billion): 2018: 1,305.9; 2019: 1,395.7; 2020: 1,227.3; 2021: 1,469.2; 2022: 1,528.5; 2023: 1,634.1; 2024: 1,750.9; 2025: 1,883.0; 2026: 2,009.6; 2027: 2,153.1.
- Capital expenditure (CFAF billion): 2018: 445.6; 2019: 451.5; 2020: 330.4; 2021: 500.0; 2022: 469.0; 2023: 517.9; 2024: 554.8; 2025: 595.7; 2026: 636.0; 2027: 704.5.
- Wage bill (CFAF billion): 2018: 356.7; 2019: 397.7; 2020: 369.7; 2021: 405.9; 2022: 405.9; 2023: 437.9; 2024: 477.8; 2025: 522.7; 2026: 568.9; 2027: 618.2.
- Interest payments (CFAF billion): 2018: 126.0; 2019: 153.9; 2020: 134.6; 2021: 162.3; 2022: 162.3; 2023: 210.7; 2024: 228.8; 2025: 251.6; 2026: 246.5; 2027: 223.7.
- Overall balance (commitment basis, incl. grants, CFAF billion): 2018: -230.1; 2019: -190.5; 2020: -41.6; 2021: -161.4; 2022: -311.8; 2023: -280.6; 2024: -274.0; 2025: -267.2; 2026: -251.2; 2027: -242.2.
- Overall balance (cash basis, incl. grants, percent of GDP): 2018: -3.0; 2019: -2.2; 2020: -0.6; 2021: -2.0; 2022: -3.7; 2023: -3.1; 2024: -2.8; 2025: -2.5; 2026: -2.1; 2027: -1.9.
- Financing: Net use of IMF resources (CFAF billion): 2018: 14.1; 2019: 11.9; 2020: 14.5; 2021: 1.4; 2022: 1.8; 2023: -9.4; 2024: -7.3; 2025: -8.6; 2026: -11.1; 2027: -22.9.
- Memo — Additional financing relative to the 5th review (EBS/19/398): 192.4 (CFAF billion). Additional domestic issuances on the regional market: 39.4. Additional external grants: 41.9. Additional external borrowing at concessional terms from donors: 42.9. ECF-supported arrangement augmentation and CCRT: 68.2.

### Balance of payments and external sector (selected)
- Current account balance (CFAF billion): 2018: -367.6; 2019: -410.5; 2020: -363.0; 2021: -424.2; 2022: -400.1; 2023: -423.9; 2024: -462.4; 2025: -481.8; 2026: -492.8; 2027: -520.1.
- Trade balance (CFAF billion): 2018: -315.8; 2019: -489.3; 2020: -328.2; 2021: -477.2; 2022: -415.9; 2023: -318.7; 2024: -365.4; 2025: -391.7; 2026: -419.8; 2027: -454.4.
- Exports, f.o.b. (CFAF billion): 2018: 1,850.4; 2019: 1,175.3; 2020: 1,757.3; 2021: 1,329.3; 2022: 1,647.9; 2023: 2,076.0; 2024: 2,219.9; 2025: 2,432.1; 2026: 2,647.0; 2027: 2,876.5.
- Imports, f.o.b. (CFAF billion): 2018: -2,166.2; 2019: -1,664.6; 2020: -2,085.4; 2021: -1,806.5; 2022: -2,063.9; 2023: -2,394.6; 2024: -2,585.4; 2025: -2,823.9; 2026: -3,066.8; 2027: -3,330.8.
- Financial account balance (CFAF billion): 2018: 444.7; 2019: 696.2; 2020: 261.2; 2021: 631.5; 2022: 196.6; 2023: 275.3; 2024: 302.5; 2025: 308.7; 2026: 227.6; 2027: 253.9.
- Medium- and long-term public capital (disbursements, CFAF billion): 2018: 314.3; 2019: 187.7; 2020: 68.6; 2021: 211.0; 2022: 191.3; 2023: 182.4; 2024: 199.0; 2025: 217.7; 2026: 235.7; 2027: 256.2.
- Amortization due (CFAF billion): 2018: -28.8; 2019: -38.2; 2020: -41.7; 2021: -71.2; 2022: -71.2; 2023: -82.4; 2024: -88.8; 2025: -93.9; 2026: -207.7; 2027: -212.9.
- Use of IMF resources, net (CFAF billion): 2018: -14.1; 2019: -11.9; 2020: -14.5; 2021: -1.4; 2022: -7.8; 2023: 9.4; 2024: 7.3; 2025: 8.6; 2026: 11.1; 2027: 22.9.
- Memo: In 2024 and 2025, the decline in the financial account and overall balance of payments reflects the first repayments of the 2019 eurobond.

### Monetary aggregates and banking sector (selected)
- Broad money (M2, CFAF billion): 2018: 2,209.0; 2019: 2,333.4; 2020: 2,315.5; 2021: 2,519.6; 2022: 2,412.0.
- Net foreign assets (CFAF billion): 2018: 1,185.0; 2019: 1,547.1; 2020: 1,232.7; 2021: 1,932.7; 2022: 1,254.0.
- Credit to the private sector (CFAF billion): 2018: 1,326.7; 2019: 1,446.0; 2020: 1,485.0; 2021: 1,592.1; 2022: 1,517.6.
- Credit to the private sector (annual percentage change): 2018: 8.5; 2019: 9.0; 2020: 11.9; 2021: 10.1; 2022: 2.2.
- Broad money (percent change): 2018: 4.8; 2019: 5.6; 2020: 4.8; 2021: 8.0; 2022: 4.2.
- Velocity of broad money (memorandum): 3.7 (steady).

### ECF arrangement disbursements (schedule)
- SDR 15.917 million (12.9 percent of quota) — April 7, 2017: Executive Board approval of the ECF arrangement.
- SDR 15.917 million (12.9 percent of quota) — October 31, 2017: Observance of end-June 2017 performance criteria; completion of first review.
- SDR 15.917 million (12.9 percent of quota) — April 30, 2018: Observance of end-December 2017 performance criteria; completion of second review.
- SDR 15.917 million (12.9 percent of quota) — October 31, 2018: Observance of end-June 2018 performance criteria; completion of third review.
- SDR 15.917 million (12.9 percent of quota) — April 30, 2019: Observance of end-December 2018 performance criteria; completion of fourth review.
- SDR 15.917 million (12.9 percent of quota) — October 31, 2019: Observance of end-June, 2019 performance criteria; completion of fifth review.
- SDR 91.931 million (15.918 + 76.013) (74.3 percent of quota) — March 23, 2020: Observance of end-December 2019 performance criteria; completion of sixth review.
- Total amount of the arrangement: SDR 187.43 million (111.42 + 76.013) (151.4 percent of quota).
- Note: Includes ECF arrangement augmentation of 61.4 percent of quota (SDR 76.013 million).

### Indicators of capacity to repay the Fund (2020–34, selected)
- IMF obligations based on existing credit (millions of SDRs, principal): 2020: 2.1; 2021: 11.7; 2022: 9.0; 2023: 10.6; 2024: 13.8; 2025: 19.1; 2026: 19.1; 2027: 19.1; 2028: 11.1; 2029: 6.4.
- Total obligations (millions of SDRs): 2020: 2.1; 2021: 11.7; 2022: 9.0; 2023: 10.6; 2024: 13.8; 2025: 28.3; 2026: 37.5; 2027: 37.5; 2028: 29.5; 2029: 24.8; 2030: 9.2.
- Outstanding IMF credit (millions of SDRs): 2020: 211.8; 2021: 200.2; 2022: 191.2; 2023: 180.5; 2024: 166.7; 2025: 138.5; 2026: 101.0; 2027: 63.5; 2028: 34.0; 2029: 9.2.
- Outstanding IMF credit (percent of government revenue): 2020: 15.8; 2021: 12.8; 2022: 11.2; 2023: 9.7; 2024: 8.2; 2025: 6.3; 2026: 4.2; 2027: 2.4; 2028: 1.2; 2029: 0.3.
- Net use of IMF credit (millions of SDRs, annual): 2020: 89.8; 2021: -11.7; 2022: -9.0; 2023: -10.6; 2024: -13.8; 2025: -28.3; 2026: -37.5; 2027: -37.5; 2028: -29.5; 2029: -24.8; 2030: -9.2.
- Memo nominal GDP (billions of CFA francs): 2020: 8,784; 2021: 9,477; 2022: 10,340; 2023: 11,313; 2024: 12,312; 2025: 13,380; 2026: 14,522; 2027: 15,751; 2028: 17,085; 2029: 18,502.

### Financial soundness indicators (banking sector, selected)
- Regulatory capital to risk-weighted assets: 2012: 9.2; 2013: 9.5; 2014: 9.0; 2015: 7.9; 2016: 9.3; 2017: 11.9; 2018 June: 7.6; 2018 Dec: 8.2; 2019 June: 9.6.
- Core capital to risk-weighted assets: 2012: 7.9; 2013: 7.2; 2014: 7.1; 2015: 5.2; 2016: 7.4; 2017: 10.2; 2018 June: 6.7; 2018 Dec: 7.2; 2019 June: 8.7.
- Gross NPLs to total loans: 2012: 18.6; 2013: 21.2; 2014: 21.5; 2015: 22.1; 2016: 21.8; 2017: 19.4; 2018 June: 18.9; 2018 Dec: 21.6; 2019 June: 20.2.
- Provisioning rate (provisions to risk-weighted assets): 2012: 8.6; 2013: 11.4; 2014: 12.1; 2015: 15.6; 2016: 16.0; 2017: 16.4; 2018 June: 12.2; 2018 Dec: 12.6; 2019 June: 11.1.
- Net NPLs to total loans: 2012: 10.8; 2013: 12.3; 2014: 12.3; 2015: 11.3; 2016: 9.1; 2017: 7.5; 2018 June: 6.5; 2018 Dec: 8.5; 2019 June: 9.4.
- Liquid assets to total assets: 2012: 22.9; 2013: 21.9; 2014: 23.0; 2015: 18.9; 2016: 16.2; 2017: 14.5; 2018 June: 14.4; 2018 Dec: 12.5; 2019 June: 11.7.
- Total loans to total deposits: 2012: 80.7; 2013: 84.1; 2014: 82.2; 2015: 72.2; 2016: 79.4; 2017: 84.4; 2018 June: 82.3; 2018 Dec: 83.4; 2019 June: 77.9.

_Italic: Source — Beninese authorities; IMF staff estimates and projections (from the provided IMF content unit)._

### Annex I. Assumptions Underlying the 2020 Growth Projections

### Annex I. Assumptions Underlying the 2020 Growth Projections

### Uncertainty and projection approaches
- GDP growth projections for 2020 are subject to large uncertainty due to the rapidly evolving COVID-19 outbreak and difficulty assessing impacts of containment measures in countries with a large informal sector.
- Staff projected 2020 growth using two alternative approaches: demand-side and supply-side.

### Demand-side assumptions (Text Figure A.1.1.)
- Main assumptions:
  - Public expenditure increases in response to the crisis (consistent with revised budgetary projections).
  - Private demand (consumption and investment) decelerates as a result of containment measures and lower capital inflows.
  - Trade balance deteriorates due to lower reexport activities and lower international demand for Beninese exports.
- Contributions to Real GDP Growth — demand side (2019, 2020, Diff.):
  - Private consumption: 4.6, 1.1, -3.5
  - Private investment: 2.2, 0.3, -1.9
  - Public consumption and investment: 1.0, 3.0, 2.0 (Higher public spending in response to the COVID-19 pandemic)
  - Net Exports: -0.8, -1.2, -0.3 (Reduction in re-export activities due to a 6-months Nigeria border closure; no growth in volume of non-cotton exports; lower imports for domestic consumption due to contraction in total domestic demand)
  - Real GDP: 6.9, 3.2, -3.7

### Supply-side assumptions (Text Figure A.1.2.)
- Main assumptions:
  - Hotel and restaurants, construction and transport sectors will be most affected by the crisis.
  - Negative impacts partly offset by higher contributions of sectors related to government.
- Contributions to Real GDP Growth — supply side (2019, 2020, Diff., Underlying assumptions):
  - Primary: 1.5, 1.5, 0.0 (Fall harvest not expected to be impacted)
  - Secondary: 2.0, 0.8, -1.2
    - Food and Beverage Industries: 0.5, 0.3, -0.3 (Social distancing measures)
    - Other Manufacturing Industries: 0.5, 0.2, -0.3 (Lower external demand)
    - Construction: 0.8, 0.3, -0.5 (Difficulties to implement projects)
    - Other: 0.1, 0.0, -0.1
  - Tertiary: 3.4, 0.8, -2.5
    - Commerce: 0.3, -0.3, -0.6 (Lower household income and domestic consumption)
    - Restaurants and hotels: 0.3, -0.6, -0.8 (Social distancing and containment measures)
    - Transport: 0.4, -0.5, -0.9 (Lower external demand affecting port activities and impact of social distancing on use of public transportation)
    - Public sector*: 1.6, 1.8, 0.2 (Higher public expenditure partly offset by lower taxes)
    - Other: 0.8, 0.4, -0.4
  - Real GDP: 6.9, 3.2, -3.7
  - *Includes public administration and social security, health, education and taxes.

### Key headline projection
- Real GDP growth: 2019 = 6.9; 2020 = 3.2; Diff. = -3.7

_Italic: Source: Annex I. Assumptions Underlying the 2020 Growth Projections (IMF staff text). _

### Appendix I. Letter of Intent

### Appendix I. Letter of Intent

### Overview
- Dated Cotonou, May 8, 2020; addressed to Madame Kristalina GEORGIEVA, Managing Director, International Monetary Fund.
- Government of Benin continuing implementation of the 2016-2021 Government Action Program (GAP) and measures under the IMF Extended Credit Facility (ECF) arrangement for 2017-2020 (expires in July 2020).
- Request for extraordinary IMF support: disbursement of SDR 76.013 million (61.4 percent of Benin’s quota) through the increased access process, plus the last tranche under the ECF arrangement of SDR 15.918 million; total disbursement related to the sixth review to be SDR 91.931 million.
- Commitment to use additional IMF financing for the sole purpose of responding to the health and economic crisis.

### Recent economic developments and program performance
- 2019 macro outcomes:
  - Real GDP growth: 6.9 percent (INSAE estimate for 2019).
  - Average annual inflation: -0.9 percent.
  - Fiscal deficit (including grants): 0.5 percent of GDP in 2019 (compared to 2.9 percent of GDP in 2018).
  - Current account deficit: projected at around 4.3 percent of GDP for 2019.
- Program performance under the sixth review:
  - All quantitative performance criteria were met at end-December 2019.
  - All structural benchmarks were met, including:
    - Implementation of a mechanism for monitoring and verification of investments under the Investment Code and special economic zones.
    - Strengthening the research and statistics unit within the customs administration by adding statisticians.
    - Adoption of the 2020 Budget Law that includes fiscal measures generating CFAF 45 billion.
    - Assessment of the impact of transferring government deposits from commercial banks to the Treasury Single Account.
- Longer-term program achievements since 2017:
  - All semi-annual quantitative performance criteria met; almost all structural benchmarks met.
  - Fiscal deficit reduced considerably over the past three years.
  - Strengthened tax administration, revenue mobilization, and public financial management.
  - Successful March 2019 Eurobond issuance.

### COVID-19 impact and response plan
- Epidemiological situation (as of April 20, 2020):
  - Confirmed cases: 50.
  - Recovered cases: 27.
  - Deaths: 1.
- Growth outlook revision:
  - 2020 growth revised to 3.2 percent (from 6.74 percent before the pandemic).
- Cost of the 2020 response plan: CFAF 150 billion (1.7 percent of GDP).
- Response plan components and allocations:
  - Public health measures: increase in health spending by CFAF 60 billion to purchase medical equipment, construct temporary centers, and arrange quarantine for at-risk populations.
  - Social protection and support to vulnerable households: CFAF 50 billion to strengthen ARCH and ACCESS programs and various social transfers (covering more than 550,000 households), disbursed via mobile banking, utility bill payments, or food distribution.
  - Business support: CFAF 40 billion package for targeted and temporary tax exemptions and relaxation of certain payment rules for struggling businesses.
- Measures already taken:
  - Border and airport measures in collaboration with WHO and World Bank since February.
  - Land borders closed to movement of persons; movement of goods allowed.
  - Mandatory quarantine for air arrivals; cordons sanitaires; strict controls on taxis; suspension of other public transport.
  - Prohibition of gatherings of more than 10 persons; mandatory wearing of protective masks; minimum distancing of one meter.
  - Daily transparent communication with multiple infographics and a dedicated website listing official documents and support information.
- Transparency and accountability:
  - Accounting Chamber to perform an independent audit in 2021 of the use and effectiveness of funds committed; audit to be published in its annual activity report and made available on its internet website.
  - Procurement documents and contracts for major projects under the response plan will be published, indicating amounts and names of beneficial owners of awarded companies.

### Financing of the response and fiscal implications
- Planned financing measures:
  - Increase in domestic funding: CFAF 65 billion (0.7 percent of GDP).
  - Reallocation of non-priority spending: CFAF 51 billion (0.6 percent of GDP).
  - Additional donor support already received as of mid-April 2020; continued calls for increased concessional funding.
- Fiscal deficit revision for 2020:
  - Revised to 3.5 percent of GDP (from 1.8 percent of GDP originally planned).
- Commitment on fiscal stance:
  - Increase in the fiscal deficit in 2020 is temporary.
  - Objective to keep the fiscal deficit below the WAEMU convergence criterion of 3 percent of GDP from 2021 onwards.
  - Continued efforts to strengthen tax administration, revenue mobilization, and public financial management.

### Macroeconomic priorities and structural reforms
- Four core areas of the modernization agenda:
  - (i) Maintenance of macroeconomic stability through credible and prudent fiscal policy.
  - (ii) Structural investments in infrastructure (transport and energy) with private sector participation.
  - (iii) Promotion of inclusive growth and protection of vulnerable populations.
  - (iv) Development of the private sector and improvement of the business climate.
- Infrastructure and PPPs:
  - Preparation of a catalogue of GAP projects suitable for public-private partnerships (PPPs).
  - Commitment to integrate PPP investments into budget documents and government finance statistics, and to evaluate and annex PPP-related liabilities to the budget law.
  - Existence of a unit for management of fiscal risks related to PPPs established in 2018 within the Ministry of Economy and Finance; capacity-building underway to make it fully operational.
- Social protection:
  - ARCH pilot phase in 2019 covered 300,000 people; plan to extend the program to the entire population in 2021.
- Business environment reforms (since 2018), areas of reform include:
  - Business creation; access to electricity and water; obtaining building permits; payment of taxes and fees; cross-border trade; access to public contracts; transfer of property; obtaining loans.
  - New Investment Code adopted January 29, 2020, establishing conditions and general rules for direct investment.
  - Draft law sent to the National Assembly to improve enforcement of contracts and protection of minority investors.

### Future collaboration with the IMF
- Benin intends to maintain a productive relationship with the IMF after the current program expires in summer 2020.
- Plan to consult with IMF staff to assess the optimal form of future support aligned with President Talon’s policy of structural investments in physical infrastructure and human capital.

*Letter signed by Romuald WADAGNI, Minister of Economy and Finance. Attachments referenced: Table of the Quantitative Performance Criteria and Indicative Targets, 2019; Table of the Structural Benchmarks for 2019-20; Technical Memorandum of Understanding.*

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

### This Technical Memorandum of Understanding (the “Memorandum”) defines the performance criteria, quantitative benchmarks, and structural benchmarks of the Republic of Benin’s program supported by the Extended Credit Facility (ECF)

### Purpose and Data Reporting
- Defines performance criteria, quantitative benchmarks, and structural benchmarks for Benin’s ECF-supported program.
- Specifies frequency and deadlines for data reporting to IMF staff for program monitoring purposes.

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

### Definitions — Government and Debt
- Government:
  - “Government” means the central government of the Republic of Benin and excludes political subdivisions (local governments), 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 (per point 8 of IMF Executive Board Decision No. 6230-(79/140), as amended on December 5, 2014 by Decision No. 15688-(14/107)):
  - General: A current (not contingent) liability under contract, requiring future payments in assets or services that discharge principal and/or interest.
  - Primary forms:
    - i. Loans: advances of money (including deposits, bonds, debentures, commercial loans, buyers’ credits) and temporary exchanges equivalent to fully collateralized loans (e.g., repurchase agreements, official swap arrangements).
    - ii. Suppliers’ credits: supplier-permitted deferred payments after delivery of goods/services.
    - iii. Leases: debt equals the present value (at lease inception) of all lease payments expected during the agreement period, excluding payments for operation, repair, or maintenance.
    - iv. Treasury bills and bonds issued in CFA francs on the WAEMU regional market are included in public debt for this Memorandum.
  - Arrears, penalties, and judicially awarded damages arising from failure to pay contractual debt are also debt.
  - Present value (PV) calculations:
    - PV of loans calculated using a single discount rate set at 5 percent.
    - For variable-rate debts expressed as benchmark rate plus fixed spread, PV uses a program reference rate plus the fixed spread (basis points) in the contract.
    - Program reference rate for six-month USD LIBOR is 2.63 percent (fixed for program duration).
    - Spreads (over six-month USD LIBOR):
      - Euro: -294 basis points
      - JPY: -260 basis points
      - GBP: -197 basis points
      - Other currencies: -200 basis points
    - Where variable rate is linked to a benchmark other than six-month USD LIBOR, add a spread reflecting the difference between that benchmark and six-month USD LIBOR (rounded to the nearest 50 bps).
  - Domestic debt: debt denominated in CFA francs.
  - External debt: debt denominated in any currency other than the CFA franc.

### Quantitative Performance Criteria

A. Ceiling on Net Domestic Financing (NDF) of the Government
- Definitions:
  - NDF = (i) net bank credit to the government; plus (ii) net nonbank financing (including proceeds of sale of government assets, privatizations, Treasury bills and other securitized obligations issued in CFA francs on the WAEMU regional market, and any BCEAO credit to the government, including drawings on the CFA franc counterpart of the SDR allocation).
  - Net bank credit: balance between debts and claims of the government vis-à-vis the central bank and local commercial banks (scope used by the BCEAO).
  - Government claims include CFA franc cash balance, postal checking accounts, customs duty bills, and all deposits with the BCEAO and commercial banks of government-owned entities, except EPICs and government corporations (excluded).
  - Government debt to the banking system includes all debt to the central bank and local commercial banks, including Treasury bills and other securitized debt.
  - Valid program data sources: net bank credit and net amount of Treasury bills and bonds in CFA francs on WAEMU market (calculated by BCEAO) and 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/grants, use of IMF resources, and HIPC/MDRI debt relief). Net external budgetary assistance = gross external budgetary assistance minus total debt service on all external debt (interest payments and amortizations on external loans, including IMF charges and project-related loans but excluding repayment obligations to the IMF) and all payments of external arrears.

- Performance criteria and indicative targets (NDF cumulative since January 1):
  - 2018:
    - CFAF 74.7 billion at end-March 2018
    - CFAF 190.9 billion at end-June 2018 (performance criterion)
    - CFAF 103,0 billion at end-September 2018 (indicative target)
    - CFAF 118.8 billion at end-December 2018 (performance criterion)
  - 2019:
    - CFAF 15 billion at end-March 2019
    - CFAF -38.0 billion at end-June 2019 (performance criterion)
    - CFAF -158.5 billion at end-September 2019 (indicative target)
    - CFAF – 289.0 billion at end-December 2019 (performance criterion)

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

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

- Performance criteria and indicative targets (cumulative since January 1):
  - 2018:
    - Not less than CFAF -69.7 billion at end-March 2018
    - Not less than CFAF -47.5 billion at end-June 2018 (performance criterion)
    - Not less than CFAF -20.3. billion at end-September 2018 (indicative target)
    - Not less than CFAF +3.9 billion at end-December 2018 (performance criterion)
  - 2019:
    - Not less than CFAF +15.6 billion at end-March 2019
    - Not less than CFAF +44.5 billion at end-June 2019 (performance criterion)
    - Not less than CFAF 47.7 billion at end-September 2019 (indicative target)
    - Not less than CFAF 101.7 billion at end-December 2019 (performance criterion)

- Adjustments:
  - Floor adjusted downwards by customs revenue deficit relative to program projections (CFAF 412 billion for 2019) in event of prolonged Benin/Nigeria border closure, capped:
    - CFAF 10 billion if closure lasts until end-October 2019
    - CFAF 20 billion if closure lasts until end-November 2019
    - CFAF 30 billion if closure lasts until end-December 2019

C. Floor of Total Government Revenue
- Definition:
  - Total government revenue includes tax and nontax revenue as shown in the TOFE, but excludes external grants, revenue of autonomous agencies, and privatization receipts.

- Performance criteria and indicative targets (cumulative since January 1):
  - 2018:
    - Not less than CFAF 204.8 billion at end-March 2018
    - Not less than CFAF 445.5 billion at end-June 2018 (performance criterion)
    - Not less than CFAF 701.1 billion at end-September 2018 (indicative target)
    - Not less than CFAF 1021.6 billion at end-December 2018 (performance criterion)
  - 2019:
    - Not less than CFAF 235.1 billion at end-March 2019
    - Not less than CFAF 505.5 billion at end-June 2019 (performance criterion)
    - Not less than CFAF 762.5 billion at end-September 2019 (indicative target)
    - Not less than CFAF 1112.4 billion at end-December 2019 (performance criterion)

- Adjustments:
  - Revenue floor adjusted downward by customs revenue shortfall relative to program projections (CFAF 412 billion for 2019) in event of prolonged Benin/Nigeria border closure, capped:
    - CFAF 10 billion if closure lasts until end-October 2019
    - CFAF 20 billion if closure lasts until end-November 2019
    - CFAF 30 billion if closure lasts until end-December 2019

D. Non-Accumulation of New Domestic Payments Arrears by the Government
- Definition:
  - Domestic payments arrears = domestic payments due but not paid by government after a 90-day grace period, unless payment arrangements specify a longer repayment period.
  - Autonomous Amortization Fund (CAA) and the Treasury record and update data on accumulation and reduction of domestic payments arrears.
  - Definitions of debt (paragraph 4a), domestic debt (paragraph 4d), and government (paragraph 3) apply.

- Continuous performance criterion:
  - Government undertakes not to accumulate any new domestic payments arrears.
  - Non-accumulation of new domestic payments arrears will be continuously monitored throughout the program.

E. Non-Accumulation of External Payments Arrears by the Government
- Definition:
  - External public payments arrears = payments due but not paid by the government as of the due date specified in the contract, considering any applicable grace periods, on external debt of the government or external debt guaranteed by the government.
  - Definitions of debt (paragraph 4a), external debt (paragraph 4e), and government (paragraph 3) apply.

- Continuous performance criterion:
  - Government undertakes not to accumulate any external public payments arrears, except arrears related to debt subject to renegotiation or rescheduling.
  - This performance criterion will be continuously monitored throughout the program.

F. Ceiling on the Present Value of New External Debt Contracted or Guaranteed by the Government with Maturity ≥ One Year
- Definition:
  - Applies to debt as defined in paragraph 4a and to commitments contracted or guaranteed by government for which no value has been received (including lease-purchase contracts).
  - Applies to private sector debt guaranteed by government (a contingent liability).
  - External debt excludes Treasury bills and bonds issued in CFA francs on the WAEMU regional market.

- Scope of “government” for this criterion:
  - Includes government (paragraph 3), local governments, and all public enterprises, including EPA, scientific and technical public agencies, professional public agencies, and enterprises jointly owned by Beninese government with other governments.

- Continuous performance criterion:
  - Present value of new external borrowing contracted or guaranteed by the government in 2019 will not exceed cumulative CFAF 797 billion.
  - Changes to this ceiling may be made (subject to IMF Executive Board approval) based on results of the public debt sustainability analysis prepared jointly by World Bank and IMF staffs.

G. Ceiling on Pre-Financing Contracts for Public Investments
- Definition:
  - Pre-financing contracts: concurrent steps where (i) government entrusts private entity with execution of public works financed by a loan to the entity from a domestic commercial bank(s); (ii) Minister of Finance guarantees the loan and signs an unconditional and 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.

- Continuous performance criterion:
  - Government undertakes not to enter into any pre-financing contracts during the program.
  - This criterion will be continuously monitored throughout the program.

### Indicative Targets — Priority Social Expenditures
- Definition:
  - Priority social expenditures determined in line with priority programs identified in the GAP.
  - Consist of selected (nonwage) expenditures in sectors including: health; energy, water, and mines; agriculture; livestock and fisheries; social affairs; education; and living standards.
  - Execution monitored on a payment order basis through the Integrated Government Finance Management System (SIGFIP).

- Indicative target definition:
  - Total amount (cumulative since January 1 of the same year) of payment orders issued under the budget lines indicated below.

- Priority Social Expenditure Categories (budget code — Description):
  - 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
  - 38 — Ministry of Tourism, Culture and Arts
  - 40 — Ministry of Sport

*Source: This Technical Memorandum of Understanding for the Republic of Benin’s ECF-supported program.*

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

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

### Indicative targets for priority social expenditures
- For 2018 (cumulative 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
- For 2019 (cumulative 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 — Required data and frequency
- Every month:
  - 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
- Other monthly data:
  - Bank supervision indicators for bank and nonbank financial institutions within eight weeks of the end of the month
- Other quarterly data:
  - 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 Analysis — key findings and ratings
- Risk ratings:
  - Risk of external debt distress: Moderate
  - Overall risk of debt distress: Moderate
  - Granularity in the risk rating: Limited space to absorb shocks
  - Application of judgement: No
- Macroeconomic revision highlighted:
  - 2020 real GDP growth is revised down from 6.7 percent to 3.2 percent
- Summary of projected indicators and caveats:
  - All projected external debt burden indicators are below their thresholds under the baseline
  - Debt service-to-revenue ratio exceeds its threshold in the case of an extreme depreciation shock
  - Compared to the previous DSA, the room to absorb shocks narrowed from “some space” to “limited space”
  - Policy slippages and vulnerabilities due to the COVID-19 and the Nigeria border closure shocks are downside risks to the baseline
- Approved by: Dominique Desruelle and Craig Beaumont (IMF) and Marcello Estevão (IDA)
- Prepared by: staffs of the International Monetary Fund (IMF) and the International Development Association (IDA)

### Public debt coverage and treatment of SOEs and arrears
- Public debt coverage:
  - Public debt covers both the debt of the central government as well as the 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
- Government arrears:
  - Audit completed in January 2019 found a stock of arrears to suppliers of 0.2 percent GDP incurred before 2016; added to the 2019 debt stock
  - Fiscal projections assume a gradual clearance of the arrears over 2020-22 at a pace of 0.1 percent of GDP per year
- State-owned enterprises (SOEs):
  - Guaranteed SOE debt is included in the baseline analysis
  - Authorities estimated non-guaranteed commercial debt of 13 state-owned companies at 0.6 percent of GDP at end-2018; estimated at 0.5 percent of GDP at end-2019
  - DSA approach:
    - All guaranteed SOE debt is included in the debt stock in the baseline
    - Non-guaranteed SOE debt is captured as a contingent liability shock set at 0.5 percent of GDP
    - Further work needed to consolidate general government fiscal accounts with SOE financial statements; authorities working with AFRITAC WEST

### Background on debt levels and structure (selected figures)
- Total public debt (external plus domestic) evolution:
  - 2014: 22.3 percent of GDP
  - 2015: 30.9 percent of GDP
  - 2019: 41.2 percent of GDP
- Domestic debt:
  - Increased from 7.8 percent of GDP in 2014 to 23.7 percent of GDP in 2017 (tripled over three years)
  - Total domestic debt as of end-2019: CFAF 1,455.9 billion
  - Composition at end-2019: Bonds CFAF 1,190.1; Other local banks CFAF 243.9; T-bills CFAF 21.9
  - About 82 percent of domestic liabilities consisted of government securities issued on the regional financial market at end-2019
- External debt:
  - Total external debt as of end-2019: CFAF 2,020.7 billion (about US$ 3.4 billion)
  - External debt composition at end-2019: Multilateral creditors CFAF 1,150.9; Bilateral creditors CFAF 869.8; Eurobond CFAF 325.0
  - Share of concessional loans: 54 percent of total external debt at end-2019
  - External debt represented 58.1 percent of total debt as of end-December 2019
- Debt service burden:
  - Debt service-to-revenue ratio stood at 43.5 percent in 2019
  - Expected to increase to around 52.2 percent on average in the medium term (because of the amortization of the Eurobond)
  - Expected to decline to around 31 percent on average in the long term (2030-40)

### Market and liquidity conditions (COVID-19 context)
- BCEAO measures and market responses:
  - Weighted average auction rate on the money market at the top of the BCEAO’s corridor (4.5 percent) in Q1 2019; hovered around 3 percent during the rest of 2019
  - BCEAO adopted fixed-rate-full-allotment strategy in late March (year not specified here) allowing banks to satisfy liquidity needs fully at minimum policy rate of 2.5 percent (about 25 basis points lower than hitherto)
  - Some tensions: lower auction subscription rates on the domestic sovereign market; Benin issuance on the regional market on April 3, 2020 was undersubscribed, particularly on the long-term curve
- Eurobond and reprofiling:
  - October 2018 debt reprofiling issued cheap and long-term external debt to buy back more expensive shorter-maturity domestic debt
  - First Eurobond issued in March 2019: EUR 500 million (equivalent to 3.9 percent of 2019 GDP); favorable terms

### Background on macroeconomic forecasts (selected revisions and assumptions)
- Key forecast revisions (compared to November 2019 DSA):
  - 2020 GDP growth revised from 6.7 percent to 3.2 percent (impact of COVID-19 and Nigeria border closure)
  - Primary balance for 2020 revised from 0 percent of GDP to -1.6 percent of GDP
  - Domestic financing increased in 2020 by 0.7 percent of GDP to finance part of the higher fiscal deficit
  - Primary surplus estimated at 0.3 percent of GDP in 2024
  - Non-interest current account deficit expected to decline gradually in the medium to long term
  - CCRT debt relief eligible debt service: SDR 7.4 million (about CFAF 6 billion) covering April 14, 2020 to October 13, 2020
  - World Bank COVID-19 Preparedness and Response project: US$ 10.4 million under the Fast-Track COVID-19 Facility (adopted April 27, 2020)
- Expansion of export perimeter:
  - Informal exports now included in the perimeter of exports and Balance of Payments due to statistical improvements by the BCEAO and a new survey on cross-border trade in 2019

### Risks to baseline and realism of projections
- Downside risks:
  - Extra spending pressures related to the political cycle
  - Failures to implement key reforms (particularly in revenue administration and tax measures)
  - Larger diffusion of COVID-19
  - Extended closure of the border with Nigeria
  - Unresolved banking sector problems
  - Possible contagion of security risks
- Assessment of fiscal and growth projections:
  - Fiscal policy path assessed to be realistic and in the middle of the historical distribution
  - 2020 growth projection below the path predicted by the growth and fiscal adjustment tool; GDP growth expected to rebound in 2021
  - Contribution of public investment to real GDP growth considered realistic and slightly higher than historical contribution

### Country classification and stress tests
- Debt-carrying capacity and Composite Indicator (CI):
  - CI Score: 2.96 (Composite Indicator based on 10-year averages)
  - CI rating: Medium (Medium debt-carrying capacity)
  - Cut-off values: Weak CI <2.69; Medium 2.69 ≤ CI ≤ 3.05; Strong CI >3.05
  - Applicable external debt burden thresholds:
    - PV of debt in % of Exports: 180
    - PV of debt in % of GDP: 40
    - Debt service in % of Exports: 15
    - Debt service in % of Revenue: 18
  - Applicable total public debt benchmark:
    - PV of total public debt in percent of GDP: 55
- Stress tests:
  - Standardized stress tests apply default settings
  - Tailored market financing shock (due to outstanding Eurobond) assumes:
    - Temporary increase in the cost of new commercial external borrowing by 400 basis points
    - Nominal depreciation of 15 percent of the CFAF vis-à-vis the US$
    - Shortening of maturities and of grace periods
  - Considered shortening of maturities of commercial external borrowing:
    - If original maturity > 5 years, new maturity set to 5 years
    - If original maturity < 5 years, new maturity shortened by 0.7 years

*Source: Benin — Sixth Review under the Extended Credit Facility Arrangement and Request for Augmentation of Access — Debt Sustainability Analysis (selected excerpts).*

### 17.      The adverse macroeconomic scenario used in this DSA report is the one presented in the 6

### 17.      The adverse macroeconomic scenario used in this DSA report is the one presented in the 6th review staff report, which accentuates the negative shocks observed in the baseline.

### Adverse macroeconomic scenario (description)
- The adverse scenario assumes: (i) lower international demand for Benin’s exports; (ii) a larger domestic outbreak of the COVID-19 in the country; (iii) a more adverse external environment (with less capital inflows to low-income countries); and (iv) a longer border closure with Nigeria (extended until end-2020).
- Referenced detailed assumptions: Annex III of the Staff Report for the Sixth Review under the ECF-supported arrangement.

### External debt sustainability results (baseline and scenarios)
- Baseline:
  - PV of total PPG external debt is expected to stabilize at about 17.5 percent of GDP on average over 2020–24, reaching 7.5 percent of GDP in 2039.
  - PV of total PPG external debt remains below the corresponding threshold of 40 percent of GDP throughout the projection period.
- Debt service-to-revenue ratio (exchange rate depreciation case and tests):
  - Estimated at 20 percent in 2024, then assumed to decline to 18.5 percent in 2025 and 18.4 percent in 2026, compared to a threshold of 18 percent of GDP.
  - Breaches also occur in 2024 under the real GDP growth and export bound tests, where the ratio reaches 18 percent.
  - Alternative scenario (maintaining key variables at their historical averages in 2020-30) displays a breach in 2024-26 (at 19 percent).
- Debt service-to-exports ratio:
  - Remains at the edge of a breach under the export bound test: 14.9 percent compared to a threshold of 15 percent.
- Drivers and other indicators:
  - Results are mainly explained by the repayment of the Eurobond 2024 onwards.
  - PV of debt-to-GDP ratio and PV of debt-to-exports ratio indicators remain below their thresholds under the extreme shock scenarios.
- Assessment:
  - Breaches of the debt service-to-revenue ratio are the reasons behind the assessment of moderate risk for external debt.
  - The supplementary module qualifies Benin as having “limited space” to absorb shocks (a slight deterioration compared to the November DSA report, where Benin had “some space” to absorb shocks), noting the duration of the shocks and that the breach is very small.

### External debt risk in the adverse macroeconomic scenario
- Under the adverse macroeconomic scenario of the 6th review staff report:
  - External debt burden indicators remain below the policy-dependent thresholds in this adverse scenario overall.
  - Three indicators breach thresholds under the most extreme shocks (as opposed to one indicator in the baseline):
    - (i) the PV of debt-to-exports ratio,
    - (ii) the debt service-to-exports ratio,
    - (iii) the debt service-to-revenue ratio.
  - The risk of external debt distress is assessed as moderate.

### Overall risk of public debt distress (total PPG 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.
- Despite the absence of breach for total debt, the moderate external debt rating motivates the moderate overall risk rating.
- Factors of vulnerability highlighted:
  - Higher uncertainty surrounding projections because of the COVID-19 pandemic;
  - Fast increase in domestic debt in past years;
  - Relatively high ratio of debt service to revenue;
  - Increase in spreads;
  - Possibility of contingent liabilities related to SOEs;
  - Revenue losses induced by the effect of the COVID-19 on economic activity.
- In the adverse macroeconomic scenario of the 6th review staff report, the overall risk of debt distress would remain moderate (no breach observed, risk rating driven by external debt).

### Market module
- All external debt burden indicators remain below the policy-dependent thresholds under the market-financing module.
- The macroeconomic framework in the 6th review staff report does not foresee further Eurobond issuances in the short-term; hence ratios of PV debt to exports, debt service to exports and debt service to revenue are identical under the baseline and market financing scenarios.
- Slight deterioration of the PV of debt-to-GDP ratio under the market financing scenario is due to a one-off FX depreciation shock equivalent to 15 percent in 2021.
- Benin’s EMBI spread is estimated at around 800 bps. as of April 16, 2020, which breaches the benchmark of 570 bps., indicating possible liquidity pressures due to deteriorating market sentiment.

### Conclusion and policy implications
- The updated DSA confirms that Benin stands at moderate risk of external and overall public debt distress; ratings are unchanged relative to the November 2019 Staff Report.
- Policy recommendations/needs:
  - Medium-term fiscal consolidation.
  - Improved debt management.
- Uncertainty and caveats:
  - Macroeconomic and fiscal projections are subject to a high degree of uncertainty because of the rapidly evolving COVID-19 developments.
  - If the pandemic persists and spreads further, the 2020 macroeconomic and budgetary performance may worsen further.

*International Monetary Fund — Benin DSA update (content unit 1benea2020002).*

### 28.      The authorities concur broadly with staff’s assessment. The authorities remain committed to

### 1benea2020002 - 28.      The authorities concur broadly with staff’s assessment. The authorities remain committed to 

### Authorities' position and commitments
- Authorities "concur broadly with staff’s assessment."
- Remain committed to strengthening debt sustainability by:
  - Adhering to medium-term fiscal consolidation.
  - Conducting sound public investment management.
  - Enhancing debt management capacity.

### Program status and recent performance
- Authorities requested completion of the sixth and final review under the ECF arrangement and an augmentation of access of 61.4 percent of Benin’s quota (SDR 76.013 million).
- Program performance (end-December 2019):
  - All quantitative performance criteria (QPCs), continuous QPCs, and structural benchmarks met.
  - Indicative target on priority social spending met.
- Key 2019 outcomes:
  - Real GDP growth: 6.9 percent.
  - Fiscal deficit (including grants): 0.5 percent of GDP.
  - Public debt-to-GDP ratio: 41.2 percent in 2019.
  - Bank credit to private sector: almost 12 percent increase in 2019.
  - Non-performing loans: level has improved (no numeric percent provided).

### COVID-19 impact and recent developments
- First confirmed COVID-19 case: March 16, 2020.
- As of May 12, 2020:
  - Confirmed cases: 327.
  - Currently being treated: 242.
  - Cured: 83.
  - Fatalities: 2.
- Containment measures implemented (examples):
  - Limitation of people transit across land borders.
  - Mandatory quarantine of all air travelers.
  - Temporary ban on religious, cultural and other public gatherings.
  - Partial lockdown of ten cities (sanitary cordons), mandatory face masks.
  - On May 11, 2020: sanitary cordons lifted and schools reopened; other barrier measures remain in force.
- Macroeconomic effects and revisions:
  - 2020 growth projection revised to 3.2 percent from 6.7 percent.
  - Fiscal deficit projected to increase to 3.5 percent of GDP in 2020.
  - Projected fiscal financing gap: CFAF billion 243 or 2.8 percent of GDP.
  - Current account deficit anticipated to expand in 2020 despite positive terms-of-trade shock for oil importer status.

### Policy response to the pandemic
- Three-fold response plan components:
  - Increase in public health spending.
  - Strengthening social programs to protect the most vulnerable.
  - Measures to support the most affected businesses and economic recovery.
- Fiscal cost of the response plan: CFAF 150 billion or 1.7 percent of GDP.
- Planned financing sources:
  - Requested augmentation of access.
  - Debt service relief under the Catastrophe Containment and Relief Trust (CCRT).
  - Concessional financing and grants.
  - Issuances on domestic and regional markets at favorable terms.
  - Reallocation of non-priority spending.
- Social assistance modalities:
  - Social transfers using mobile banking services.
  - Grounding on ARCH (Assurance pour Renforcement du Capital Humain) and World Bank-supported ACCESS program.
  - Traditional forms of transfer (food aid, utility bill subsidies) if needed.
- Transparency and accountability measures:
  - Independent audit by the Accounting Chamber – Cour des Comptes – to be performed in 2021 and results published.
  - Documentation on public procurement of major projects under the response plan (amounts and beneficiaries) to be made available.

### Monetary and financial measures
- Regional central bank (BCEAO) measures:
  - Eased monetary policy stance to limit negative pandemic impact while safeguarding financial stability.
  - Increased banking system liquidity and expansion of collateral base for banks’ access to refinancing.
  - Prolonged strategic measures to boost e-payment.

### Medium-term outlook and risks
- Authorities' baseline expectations:
  - Real GDP growth to resume to 6 percent in 2021 and remain above that over the medium term.
  - Recovery to be supported by upturn in retail and transport sectors.
- Main downside risks:
  - Weaker global growth.
  - Protracted pandemic duration.
  - Developments in Nigeria and prolonged border closure.
  - Regional security threats.

### Fiscal and structural policy priorities post-pandemic
- Fiscal priorities:
  - Continue revenue mobilization: improve tax administration, revenue collection, and public financial management.
  - Implement strategic structural investments policy with increased infrastructure outlays mainly in transport and energy.
  - Greater use of public-private partnerships (PPPs) while monitoring related fiscal risks based on international best practices.
  - Authorities welcome DSA conclusion that Benin’s risk of debt distress remains moderate, even under adverse scenarios.
- Structural reforms and governance:
  - Accelerate reforms to improve business environment, raise access to finance, promote private sector development and export diversification.
  - Accelerate implementation of ARCH program and its extension to the entire population in 2021.
  - Press ahead with procurement reforms, measures to curb corruption, and legislative steps to ensure contract enforcement and protection of minority investors.

### Selected key quantitative indicators (from DSAs and tables)
- External debt (nominal) (percent of GDP):
  - 2019: 24.0
  - 2020: 25.1
- Public sector debt (percent of GDP):
  - 2019: 41.2
  - 2020: 43.3
  - Projection 2030: 26.8 (Table 2 projection)
- External debt sustainability indicators (selected):
  - PV of PPG external debt-to-GDP ratio (sample projections): 18.0; 19.0; 18.3; 17.6; 17.0; 15.8; 14.7; 11.3; 7.1 (values appear across projection years in Table 1).
  - PV of PPG external debt-to-exports ratio (sample projections): 74.8; 87.2; 72.7; 71.2; 68.7; 64.0; 59.5; 46.0; 28.9.
  - PPG debt service-to-exports ratio (sample values): 4.0; 2.3; 3.7; 5.7; 5.3; 5.3; 5.2; 8.6; 8.1; 4.6; 2.8.
  - PPG debt service-to-revenue ratio (sample values): 8.3; 4.7; 6.9; 10.0; 10.1; 9.9; 9.6; 16.0; 15.0; 8.5; 5.1.
- Key macro assumptions (sample):
  - Real GDP growth: 2019: 6.9; 2020 projection: 3.2; 2021 projection: 6.0; medium-term around 6.7, 6.3 in some projections.
  - Government revenues (excluding grants, percent of GDP): 2019: 12.9; 2020: 12.4; projections frequently at 13.3.
  - Grant element of new public sector borrowing (in percent): sample series shows values around 33.2; 33.4; 32.6; 31.9; 28.8; 30.4; 28.8; 28.1; 30.9 (values in Table 1).
  - Gross external financing need (Billion of U.S. dollars) sample: 0.5; 0.5; 0.5; 0.6; 0.6; 0.7; 0.7; 0.9; 1.0; 1.2; 2.3.

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

### Conclusion

### Conclusion

### Progress on ECF-supported program and macroeconomic reforms
- Our Beninese authorities have made remarkable inroads in the implementation of the ECF- supported program, which has been essential to enhance macroeconomic stability and complete far-reaching structural reforms.
- Beyond the immediate COVID-19 challenge and required policy response, they are aware that implementing prudent macroeconomic policies and sound structural reforms will be key to preserving fiscal and debt sustainability, addressing vulnerabilities in the financial sector and promoting high, sustainable and inclusive growth over the medium term.
- 17.
- 4

### Request for Fund support and future engagement
- Against this backdrop, the authorities would appreciate Executive Directors’ support for the completion of the sixth and final review under the ECF arrangement and the request for augmentation of access to help meet the financing needs generated by the COVID-19 crisis.
- Our authorities also consider Fund support as instrumental to catalyze additional assistance from development partners.
- In the future, the authorities have expressed their interest in pursuing close engagement of Benin with the IMF, on an innovative way and discussions on the modalities of such engagement will continue.
- 18.
- 5

*Source: 1benea2020002 - Conclusion*

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_Source: https://www.imf.org/-/media/files/publications/cr/2020/english/1benea2020002.pdf_