## 1benea2022001 ## Source details **Canonical URL:** [1benea2022001](https://www.imf.org/-/media/files/publications/cr/2022/english/1benea2022001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2022/english/1benea2022001.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2022/english/1benea2022001.pdf.json) --- ### Preface and mission - Request from Romuald Wadagni, Minister of State, Ministry of Economy and Finance of Benin. - Fiscal Transparency Assessment (FTE) by IMF Fiscal Affairs Department (FAD) covering: - (i) Benin’s financial information; - (ii) financial forecasting and budgeting; - (iii) fiscal risk analysis and management. - Mission conducted remotely during June 28-July 19, 2021. - Mission team: Sailendra Pattanayak (Head of Mission, FAD); Majdeline El Rayess (FAD); Nicoletta Feruglio (FAD); Bruno Imbert (FAD); Abdoulahi Mfombouot (FAD); Biaka Tedang Djoret (Resident Advisor, AFRITAC West); Adrien Tenne (Expert, FAD); Ismael Zarco (Expert, Statistics Department). - Key stakeholder meetings: MEF units (DGB, DGAE, DGTCP, DPCED, DGML, CSPEF, DGI, CAA, INSD, BCEAO national directorate, DGCL, CONAFIL, CNSS, DGPSIP), sector ministries (Water and Mining; Energy; Interior and Public Security; Living Environment and Sustainable Development), Court of Auditors, IPAB, SBEE, Port Authority of Cotonou, SONEB, NGOs (Social Watch, ALCRER). - Acknowledgements: authorities of Benin; special acknowledgements to Hermann Orou Takou and Elvis Danhoumè; thanks to Younes Zouhar and Joseph Houessou. ### Executive summary — evaluation framework, scope, and overall assessment - Evaluation against IMF Fiscal Transparency Code covering 36 principles across three pillars: - Pillar I: fiscal reporting; - Pillar II: fiscal forecasting and budgeting; - Pillar III: fiscal risk analysis and management. - Applicability: two principles (historical revisions and natural resources) considered not applicable. - Overall ratings (of 36 principles assessed): - 12 practices at the good level. - 5 practices at the advanced level. - 12 practices rated basic. - 5 practices not met. - Relative performance: Benin demonstrates better results compared with similar-income and capacity countries subject to an FTE. - Strength concentration: fiscal forecasting and budgeting, then fiscal reporting. - Main shortfall: fiscal risk analysis and management requires further reforms and consolidation. ### Pillar I — Fiscal reporting: strengths, gaps, key products - Strengths and published outputs: - Publication of annual and in-year budget execution reports providing overview of central government operations. - Financial reports aligned with economic, administrative, functional, and program classifications in accordance with international standards. - Improved periodicity and timeliness of budget execution reports. - Work underway to develop a Table of Government Financial Operations (TOFE) according to GFSM 2001/2014; move toward accrual accounting. - Ongoing modernization of external audit to align with international standards. - Remaining gaps and issues: - Preparation and publication of fiscal statistics need progress. - Public sector composition in 2019: 303 institutional units. - Total public sector expenditure in 2019: 18.2 percent of GDP; central government: 15.6 percent of GDP. - Financial data flows available but scattered and not consolidated. - TOFE institutional coverage limited to budgetary central government and focuses on operations statement. - No report provides an overview of at least the government’s financial balance sheet. - Court of Auditors cannot provide a “true and fair view” opinion pending accrual financial statements and certification. - Key fiscal reporting products (selected, as listed): - Quarterly budget execution reports (RAPEX/RTEB): periodicity Q; timeliness: 90 days; online: Yes. - Annual Report on budget execution: presents expenditure by administrative, economic, and functional classifications. - TOFE: GFS table using GFSM 1986 methodology; basis: Modified cash; periodicity: Annual; timeliness: 90 days; online: Yes. - General Financial Administration Account (CGAF): accounting basis: Cash; annual; not online. - Tax Expenditure Evaluation Report: basis: Cash; annual (December of previous year); online: Yes. - Debt Management Report (CAA): basis: Debt-Cash; annual; online: Yes. - Coverage and consolidation specifics: - Annual and quarterly reports present budgetary central government data including FNRB, CASs, and CAA; DPBEP presents broader information but not consolidated; no information published for financial public corporations. - Coverage of stocks — assessment: Not met. - Debt reports omit stock of currency and bank deposits; CAA publications omit other GFSM 2001/2014 debts (accounts payable, claims toward social security, Treasury deposits, letters of comfort, actuarial pension liabilities). - Some data exist in Government trial balance (BGCE) but unpublished. - DGPED has partial information on government equity in 14 companies at historic cost. - Mission estimates (2019): - Estimated net worth of public sector: approximately 33 percent of GDP. - Estimated public sector assets: 126 percent of GDP. - Estimated public sector liabilities: 86 percent of GDP. - Published stock of public debt of the general government: approximately 41.9 percent of GDP. - Central government gross debt: 41.4 percent of GDP. - Coverage of flows — assessment: Basic. - TOFE presents revenue and financing on cash basis; expenditure on payment order basis; financing transactions presented on a net basis by type rather than by instrument. - Key TOFE aggregates (2016–2019, in billions of CFAF): - Total Revenue: 2016 745.7; 2017 944.4; 2018 1,028.6; 2019 1,088.0 - Tax: 2016 641.1; 2017 712.8; 2018 811.4; 2019 893.3 - Nontax: 2016 104.6; 2017 231.6; 2018 217.2; 2019 194.8 - Total expenditure and net lending: 2016 1,086.3; 2017 1,318.1; 2018 1,305.9; 2019 1,225.9 - Primary current expenditure: 2016 717.8; 2017 713.8; 2018 731.8; 2019 764.8 - Interest: 2016 63.3; 2017 106.4; 2018 126.0; 2019 134.6 - Capital expenditure: 2016 299.6; 2017 491.5; 2018 445.6; 2019 330.4 - Net lending: 2016 5.5; 2017 6.4; 2018 2.5; 2019 -3.9 - Overall deficit (payment order basis): 2016 -340.6; 2017 -373.7; 2018 -277.3; 2019 -137.9 - Overall deficit (cash basis): 2016 -341.3; 2017 -364.4; 2018 -281.4; 2019 -145.2 - Total financing: 2016 341.3; 2017 364.4; 2018 281.4; 2019 145.2 - Domestic financing: 2016 224.2; 2017 185.9; 2018 -51.4; 2019 -304.3 - External financing: 2016 117.0; 2017 178.5; 2018 332.8; 2019 449.5 - Coverage of tax expenditures — assessment: Good. - Tax expenditure estimated at 2.6 percent of GDP in 2019. - Progress: methodological guide introduced June 2020; IMF TA (January 2018) supported improvements. - Measures evaluated (selected): - Direct government taxes: 2019 Measures identified 170; Measures evaluated 37; Share (%) 21.8 - Indirect taxes: 2019 Measures identified 51; Measures evaluated 46; Share (%) 90.2 - Customs and indirect duties: 2019 Measures identified 77; Measures evaluated 76; Share (%) 98.7 - Forecast path: tax expenditure expected to decline from 2.6 percent of GDP in 2019 to 1.9 percent of GDP in 2023; noted discrepancies between forecasts and outturns (example: 2.6 percent forecast vs. 1.6 percent outturn for 2019). - Integrity and timeliness: - Frequency of in-year reporting — assessment: Basic. RAPEX quarterly with lag up to 90 days; target to reduce to 30 days. - Timeliness of annual financial statements — assessment: Basic. Legal deadline: accounts submitted to Court of Auditors no later than June 30 after reference year (Article 106, Decree 2014-571); audited accounts published with significant delays. - Filing/publication examples: - End-of-year RAPEX: 2018 — May 27, 2020; 2019 — June 29, 2021 - RELF: 2018 — January 2020; 2019 — January 2021; 2020 — Pending - DGC: 2018 — January 2020; 2019 — January 2021; 2020 — Pending - Annual Report of the Court of Auditors: Not produced for 2018, 2019, 2020 - Classification — assessment: Advanced. Economic, administrative, functional, program classifications consistent with international standards (TOFE GFSM 1986; budget nomenclature WAEMU; functional classification UN COFOG and GFSM 2001/2014). - Internal consistency — assessment: Good. - Reconciliations: - Two of three Fiscal Transparency Code reconciliations included: reconciliation between budget balance and financing; reconciliation between debt issued and held. - Missing reconciliation: reconciliation of financing and the change in the stock of debt (stock-and-flow adjustment) prepared internally but not published. - Historical revisions: - Major/recurrent TOFE revisions not applied; historical adjustments minimal and do not exceed 0.1 percent of GDP. - Migration to accrual accounting will require revising historical series and documenting methodological changes. ### Pillar II — Fiscal forecasting and budgeting: comprehensiveness, orderliness, credibility - Assessment scope: four areas — budget comprehensiveness; orderliness/timeliness; policy orientation; credibility of forecasts. - Comprehensiveness — Budget unity — assessment: Advanced. - Budget documentation presents revenue, expenditure, and financing of all central government operations on a gross basis; LFI and annexes cover all 33 constitutional institutions and ministries. - Expenditure presented by economic, administrative, functional, and program classifications. - DPBEP contains information on EPAs, CNSS, FNRB, and subnational transfers (not fully specified for EPA own revenue and donor financing). - Macroeconomic forecasts — assessment: Good. - Forecasts published in REF and DPBEP; DPBEP 2022-2024 published end of June 2021. - Shortcomings: assumptions and drivers not fully explained; components of GDP and balance of payments not analyzed; gaps exist between forecasts and outturns (growth overestimation; inflation differentials of 1 to 2 percent absolute differential). - Empirical indicators: - Average discrepancy between real and forecast GDP during 2017-2019: 0.13 percent. - Average discrepancies between forecasts and execution for revenue and expenditure during 2016-2020: 0.3 and 0.9 per cent of GDP respectively. - Average discrepancy in budget expenditure vs execution during 2017-2019: 2.2 per cent of GDP. - Medium-term budget framework — assessment: Advanced. - DPBEP and DPPDs provide three-year envelope framework; DPBEP adopted by Council of Ministers and submitted to Parliament in June. - Documents annexed to Draft Initial Budget Law and published on DGB website. - Investment project management — assessment: Good. - Average public investment (1990–2019): 7.4 percent of GDP (WAEMU average: 7.9 percent). - Decree 2019-193 (July 17, 2019) formalizes project lifecycle; public investment management manual finalized December 2018. - Georeferenced platform for programming and monitoring investment projects in place since 2020; public access since 2021 (some information requires registration). - Project appraisal mandatory (cost-benefit analysis) since 2018; feasibility study and project preparation funds established for 2021: CFAF 2 billion (preparation and management fund) and CFAF 7 billion (feasibility study fund). - Limitation: feasibility studies and selection criteria not published. - Public procurement and PPPs: - Procurement plans of 256 contracting authorities published in public procurement portal. - 2020 statistics: competitive bidding contracts represented 14.5 percent of number of contracts and 68.3 percent of procured value. - PPP legal framework: Law 2016-24 of October 11, 2016; no PPP contracts executed to date per authorities. - Orderliness — legal and timing framework: - LOLF (Law 2013-14) defines content and processes for LFI, LFR, LR; complies with Constitution. - Budget calendar set by Decree 2020-495 of October 7, 2020; calendar published no later than February at DGB portal. - Timeliness examples for Draft Initial Budget Law: - 2019 submission: October 5, 2018; approval: December 20, 2018; promulgation: December 28, 2018; publication of budget law: January 17, 2021. - 2020 submission: September 25, 2019; approval: December 19, 2019; promulgation: December 27, 2019; publication: January 8, 2021. - 2021 submission: October 7, 2020; approval: December 8, 2020; promulgation: December 24, 2020; publication: January 21, 2021. - Policy orientation — monitoring and performance: - Fiscal policy anchored to WAEMU and ECOWAS convergence criteria. - Selected WAEMU convergence indicators (2016–2019, % GDP or rates): - Budget deficit (including grants) regulatory text: >=-3%: 2016 -6.0; 2017 -4.3; 2018 -2.9; 2019 -0.5 - Inflation Rate (CPI) <=3%: 2016 -0.8; 2017 1.8; 2018 0.8; 2019 -0.9 - Stock of debt (% GDP) <=70%: 2016 49.7; 2017 39.7; 2018 41.1; 2019 41.2 - Wage bill over tax revenue <=35%: 2016 55.2; 2017 47.3; 2018 44.0; 2019 41.4 - Fiscal pressure >=20%: 2016 12.6; 2017 9.7; 2018 10.3; 2019 10.6 - Public participation: revised budget timetable since 2018 with 10 stages; public participation constrained by COVID-19, financial literacy, and internet access. - Public participation indicators: Voice and Accountability Index 2020: 50.25 out of 100; Open Budget Survey 2019 public participation index: 24 out of 100. - Credibility — independent evaluation: - Independent evaluation — assessment: Basic. - Lack of external evaluation of government forecasts; proposals to merge IPAB and UNACEB into a stronger independent institution. ### Pillar III — Fiscal risk analysis and management: coverage, disclosure, quantification, and institutional framework - Overall assessment: mixed — majority basic (6) and good (2); three practices not met; one not applicable. - Exposure and vulnerabilities: - Nigeria accounts for approximately 75 percent of Benin’s exports. - Cotton accounts for approximately 12 percent of GDP. - COVID-19: growth revised to 2.3 percent from initial forecast of 7.6 percent; resulting revenue decline: CFAF 221.3 billion. - A 10 percent decline in the naira would lead to a 1 percent reduction in industrial output and a 2.7 percent decline in tax revenue. - Fiscal risk reporting progress: - Publication of fiscal risk analysis report annexed to 2021 Draft Budget Law (DRB) in December 2020; to become annual. - DPBEP includes uncertainties and alternative scenarios; fiscal risk statement presents macroeconomic, debt, financial, and other risks. - Quality and scope of DRB analyses: - Analyses largely qualitative; quantitative analyses limited and require expansion and better articulation. - Mechanisms for identifying/analyzing fiscal risks under development; existing risk mapping not updated since 2018. - Examples of quantified impacts (selected, preserved verbatim): - Price of cotton: Scope High; Probability High; Impact on public revenue: -1.5% of GDP; Shock: 10% decline in cotton prices. - Impact of a change in the exchange rate: Scope High; Probability Low; Impact on fiscal revenue: -2.7 % of GDP; Shock: 10% decline in the naira against the CFA franc. - Impact of a major health crisis: Scope High; Probability Low; Impact on public revenue: -2.5 % of GDP; Trigger: Impact of the COVID crisis. - Refinancing risks (public debt): Scope Low; Probability High; Impact on public expenditure: 0.1 % of GDP; Shock: One-year deferral of debt payment (impact on interest payable as a result of a 1% increase in interest rates). - FNRB (pension fund) risk: Scope High; Probability High; Impact on public expenditure: 0.7 % of GDP. - Deposit guarantees for savers (financial sector): Scope High; Probability Low; Impact on public expenditure: 0-5% of GDP. - Risks related to recapitalization of a financial institution: Scope Medium; Probability Low; Impact on public expenditure: 0.3 % of GDP. - Impacts of natural disasters: Scope High; Probability High; Loss of assets: 0.26% of GDP. - Subnational government arrears to be assumed by government: Scope Medium; Probability High; Impact on public expenditure: 0.1% of GDP. - Public corporations: default on on-lending and government payment: Scope Medium; Probability High; Impact on public expenditure: 0.2% of GDP. - Long-term fiscal sustainability — assessment: Not met. - Annual debt sustainability analysis with approximately 20-year horizon present, but long-term sustainability analyses for social security/health insurance/pension funds not regularly published. - Latest actuarial study for FNRB dates to 2009; CNSS actuarial studies 2016 and 2018 not regularly published. - FNRB 2017-2022 projections: without reform, deficit would persist and amount to more than [CFAF] 100 billion in 2050, equivalent to 1.1 percent of GDP in 2020. - Fiscal risk management instruments and issues: - Budgetary contingencies: global appropriations and a Special Treasury Account (CST) “Disaster Prevention and Management”. - Reserves averaged approximately 10 percent of Initial Budget Law appropriations over past four years (2018–2021), compared with 1–3 percent in other countries. - Contingency figures (Billions of CFA francs and percent of reserves / budget expenditure): - 2018: Total government budget expenditure 1,406.32; Common expenditure 161.54; Percent of reserves / budget expenditure 11.5 % - 2019: Total government budget expenditure 1,373.04; Common expenditure 138.48; Percent of reserves / budget expenditure 10.1 % - 2020: Total government budget expenditure 1,486.90; Common expenditure 168.25; Percent of reserves / budget expenditure 11.3 % - 2021: Total government budget expenditure 1,780.23; Common expenditure 241.37; Percent of reserves / budget expenditure 13.6 % - Mechanisms for estimating and reporting use of reserves unclear; use of appropriations not reported in RTEB. - Asset and liability management — assessment: Basic. - Borrowing authorized by Budget Law and only Minister of Finance may undertake borrowing; public debt management under CAA. - At end-2020, debt ratio reported as 46 percent of GDP (increase of +5 percentage points connected with COVID-19). - No consolidated view of financial assets; government cash flow still divided among several accounts despite Treasury Single Account. - Guarantees — assessment: Good. - Legal framework present (LOLF articles and regulatory texts); CAA monitors guarantees and onlending; Debt Management Report inventories guarantees. - Only guarantee listed to date: SBEE loan of CFAF 27 billion granted in 2018. - Public-private partnerships (PPPs) — assessment: Not met. - PPPs prominent in PAG (61 percent of projects) but no PPP contracts concluded to date. - Legal framework (Law 2016-24) partially covers fiscal risks; lacks ceiling for PPP commitments and publication requirements for government rights/obligations under PPPs. - Financial sector exposure — assessment: Not met. - Banking and insurance regulated at WAMU/CIMA level; 14 banks licensed by BCEAO at end-2020. - Prudential ratios (December 31, 2020, consolidated): - Minimum ratio (CET 1): 15.03% — Regulatory threshold: 6.25% - Minimum ratio (T 1): 13.68% — Regulatory threshold: 7.25% - Total solvency ratio: 14.53% — Regulatory threshold: 9.5% - Leverage ratio: 5.7% — Regulatory threshold: 3% - Liquidity ratio: 111.6% — Regulatory threshold: 75% - BIIC (bank formed from merger) balance sheet at end-2020: CFAF 265 billion (4.1 percent of GDP noted elsewhere). - Several quasi-bank entities (CDCB, PADME, FNM) create fiscal exposures; CDCB equity capital: CFAF 78 billion (initial capitalization CFAF 10 billion). - Bank deposits (end-2020): Demand deposits CFAF 1.513 trillion (22 percent of GDP); Time deposits CFAF 1.728 trillion (25 percent of GDP). - Lack of published analyses on financial sector stability and explicit government support prevents full assessment. - Natural resources — assessment: N/A. - Extractive sector contribution: just under 0.4 percent of GDP (2015–2020 share 0.4% annually). - Value added of extractive sector (Billions of CFA francs): 2015 26.09; 2016 26.56; 2017 28.27; 2018 30.50; 2019 34.40; 2020 39.08. - Environmental risks — assessment: Basic. - World Disaster Risk Index rankings: 30th worldwide; 10th in Sub-Saharan Africa. - 2010 flooding losses: approximately CFAF 126 billion. - National contingency plan 2020: main hazards include floods, epidemics, fires, coastal erosion. - Environmental funds: FNEC budget CFAF 1.5 billion in 2020; CFAF 3 billion in 2021; FNEC limited project budget CFAF 24 million in 2020. - Subnational governments (CTDs): - CTDs: 77 municipalities; revenue/expenditure (billions CFAF): Revenue 2018 81.1; 2019 90.2; 2020 84.2; 2021 (forecast) 87.3. Expenditure 2018 66.0; 2019 67.2; 2020 68.5; 2021 (forecast) 70.4. - CTD expenditure share: 0.8 percent of GDP (2018–2021 forecast). - Borrowing: in practice CTDs do not borrow but no formal cap exists. - Public corporations: - Nonfinancial public corporations: 24 entities; revenue in 2019: CFAF 386 billion (5.9 points of GDP); net result in 2019: CFAF 60 billion (1 point of GDP). - Onlending arrangements by public corporations at end-2019: CFAF 293 billion (~4.5 percent of GDP). - Public corporations’ assets account for 11.6 percent of GDP (Table 3.9). - Liabilities example: public entities have liabilities of approximately CFAF 77 billion with CNSS. - DGPED produces an annual portfolio paper on performance and risks. - Quasi-budgetary activities and reporting gaps: SBEE and SONEB quasi-budgetary activities reporting fragmented; late reporting of public corporations’ accounts limits fiscal assessment. ### Main recommendations (seven overarching and pillar-specific) - Recommendation 1.1: Improve coverage, production, and dissemination of government finance statistics. - Expand TOFE coverage to all units of general government; produce explanatory notes and reduce statistical gap; prepare and publish at least an annual financial balance sheet for budgetary central government; release GFSM 2001/2014-based TOFE; publish bridge tables between methodologies. - Recommendation 1.2: Improve presentation and external audit of government accounts and reduce dissemination lags for audit certification. - Publish quarterly/monthly budget execution reports with one-month lag; accelerate implementation of new Court of Auditors; reduce lag for publication of audited accounts toward six months (interim target seven months). - Recommendation 2.1: Strengthen credibility of multiyear and annual fiscal and budget forecasts. - Strengthen reconciliation exercises; develop analysis of drivers and assumptions for macro aggregates; establish independent evaluation (merge IPAB and UNACEB into stronger institution). - Recommendation 2.2: Enhance information and analyses in budget programming documents and reports. - Improve presentation of EPAs funding sources; conduct general review of budget programs; harmonize and improve performance reporting; publish appraisal and selection criteria and feasibility studies for investment projects. - Recommendation 3.1: Supplement publication of fiscal and budgetary data to improve transparency and fiscal risk analysis. - Publish actuarial studies, municipal financial information, government investment strategy, comprehensive DGPED analyses, PPP obligations and expected payments, mining exploration results, information on all government holdings. - Recommendation 3.2: Expand quantitative analysis of fiscal risks toward best practices. - Update internal risk mapping annually; generalize quantitative DRB analyses and probability assessment; conduct actuarial studies at least once every five years; analyze government explicit support to financial sector; strengthen SOE performance analysis (eg, SOE Health Check Tool). - Recommendation 3.3: Strengthen institutional and legal framework for monitoring fiscal risks. - Ensure consolidated monitoring of government financial assets; introduce legal limits on PPP cumulative obligations and subnational borrowing; develop consolidated government portfolio reporting; specify rules/conditions for use of global appropriations. ### Action Plan 2021–2024 (Annex I) — selected actions and targets by pillar - Pillar I — Financial reporting (Recommendation 1.1 & 1.2) selected actions: - Action 1.1.1: Produce TOFE including EPAs, EPICs, CNSS, and subnational governments. Responsible: CSPEF. - Action 1.1.3: Develop and publish at least an annual financial balance sheet for budgetary central government; expand to consolidated public sector. Responsible: DGTCP, DGPED, CSPEF, CAA. - Action 1.2.1 targets: (i) Release quarterly outturn reports within one month; (ii) prepare monthly data and release within 30 days. Responsible: DGB. - Action 1.2.3 interim target: reduce audit publication delay to seven months; final target: six months. Responsible: CC, MEF. - Pillar II — Forecasting and budgeting (Recommendation 2.1 & 2.2) selected actions: - Action 2.1.1: Present qualitative analysis of successive forecast developments in DPBEP 2022-2024 and implement reconciliation methods in DPBEP 2023-2025. Responsible: DGAE. - Action 2.1.3: Establish assessment team on merger of IPAB and UNACEB and adopt law to establish independent institution; produce first independent evaluation of forecasts. Responsible: National Action Plan (PAN), PR. - Action 2.2.4: Publish appraisal criteria and feasibility studies for investment projects. Responsible: Financial literacy initiatives and specified units. - Pillar III — Fiscal risk analysis and management (Recommendation 3.1–3.3) selected actions: - Action 3.1.2: Prepare DPPD for guarantee and endorsement account and DPPD for “Disaster management and prevention” special appropriation account; prepare annexed statement of off-balance sheet exposures. Responsible: DGB, DGCPT. - Action 3.2.3: Conduct actuarial studies of social security/pension/health funds at least once every five years; develop analyses for government support to financial sector; strengthen SOE performance analyses. Responsible: DGAE, DGB, Directorate General of the Financial Sector, CAA, DGPED, CNSS, FNRB. - Action 3.3.2: Introduce limits into law: limit on cumulative PPP obligations and limit on subnational borrowing. Responsible: DGB, BAI, CONAFIL. - Action 3.3.4: Specify rules and conditions for use of global appropriations set aside for contingencies. Responsible: Directorate General of Budget (DGB). - Annex II: data-source mapping provided to guide estimation of public sector financial balance sheet across subsectors (Budgetary central government; Extrabudgetary central government; Social Security Funds; Subnational governments; Nonfinancial public corporations; National branch of BCEAO). ### Key public sector snapshot (2019) — selected exact figures (percent of GDP unless noted) - Total public sector expenditure: 18.2 percent of GDP. - Central government expenditure: 15.6 percent of GDP. - Public sector: 303 institutional units. - Consolidated central government — Transactions (selected entries from Table 0.2): - Revenue: 19.5 - Expenditure: 18.2 - Charges: 10.0 - Net investment in nonfinancial assets: 1.7 - Funding capacity/requirement: 1.3 - Outstanding balance — Assets (selected): - Financial: 32.0 - Nonfinancial: 93.8 - Outstanding balance — Liabilities (selected): - Borrowing: 31.3 - Securities: 14.4 - Net financial value: -54.1 - Additional quantitative notes: - Expenditure of public sector entities not covered by the TOFE: estimated at approximately 8 percent of GDP. - Central government assets estimated at 90 percent of GDP. - Tax expenditure estimated at approximately 2.6 percent of GDP in 2019. - Approximately 78 management accounts submitted annually to the Court of Auditors. - Migration to certification of accounts probably beginning in 2023. - INStaD planned to publish a more inclusive pre-release schedule before the end of the third quarter of 2021. *Source: IMF mission assessment as presented in the Executive Summary and body of the FTE (June 28-July 19, 2021).* ### PREFACE ___________________________________________________________________________________________________ 8 ### PREFACE ### Mission and mandate - Request from Romuald Wadagni, Minister of State, Ministry of Economy and Finance of Benin. - A Fiscal Transparency Assessment (FTE) was conducted by a team from the Fiscal Affairs Department (FAD), International Monetary Fund (IMF). - The assessment followed the rules defined in the IMF Fiscal Transparency Code and covered: - (i) Benin’s financial information; - (ii) financial forecasting and budgeting; - (iii) fiscal risk analysis and management. - The assessment is based on the data available and shared by the authorities with the mission. ### Mission timing and modality - The mission was conducted entirely on a remote basis during June 28-July 19, 2021. ### Mission team - Sailendra Pattanayak (Head of Mission, FAD) - Majdeline El Rayess (FAD) - Nicoletta Feruglio (FAD) - Bruno Imbert (FAD) - Abdoulahi Mfombouot (FAD) - Biaka Tedang Djoret (Resident Advisor, Regional Technical Assistance Center for West Africa—AFRITAC West) - Adrien Tenne (Expert, FAD) - Ismael Zarco (Expert, Statistics Department) ### Stakeholder engagement and meetings - Feedback meeting held with Romuald Wadagni. - Meetings held with the following organizations and institutions: - Directorate General of Budget (DGB) - Directorate General of Economic Affairs (DGAE) - Directorate General of Treasury and Public Accounting (DPCTCP) - Directorate General of Government Holdings and Denationalization (DPCED) - Directorate General of Materials and Logistics (DGML) - Economic and Financial Program Monitoring Unit (CSPEF) - Directorate General of Taxes (DGI) - Caisse Autonome d’Amortissement (CAA) - National Statistics and Demography Office (INSD) - National Directorate of the Central Bank of West African States (BCEAO) - Directorate General of Subnational Governments (DGCL) - National Local Finance Commission (CONAFIL) - National Social Security Fund (CNSS) - Directorate General of Public Investment Programming and Monitoring (DGPSIP) - Ministry of Water and Mining - Ministry of Energy - Ministry of Interior and Public Security - Ministry of Living Environment and Sustainable Development - National Timber Office (ONAB) - National Environment and Climate Fund (FNEC) - Court of Auditors - Parliamentary Institute of Benin (IPAB) - Société béninoise d’énergie électrique (SBEE) - Port Authority of Cotonou - Société nationale des eaux du Bénin (SONEB) - Non-governmental organizations Social Watch and ALCRER ### Acknowledgements - The mission thanks the authorities of Benin for excellent cooperation and for frank and open exchanges on all issues discussed. - Special acknowledgements to Hermann Orou Takou and Elvis Danhoumè for their support. - Special thanks to Younes Zouhar, IMF Resident Representative in Benin, and Joseph Houessou from the Office of the Resident Representative for assistance and facilitation of the meetings. *Preface, Fiscal Transparency Assessment mission (June 28-July 19, 2021).* ### EXECUTIVE SUMMARY ### EXECUTIVE SUMMARY ### Evaluation framework and scope - The evaluation assesses fiscal transparency practices (FTE) in Benin according to the IMF’s Fiscal Transparency Code. - The evaluation focuses on 36 principles covering three pillars of the Code: (I) fiscal reporting; (II) fiscal forecasting and budgeting; and (III) fiscal risk analysis and management. - The Code distinguishes three levels of practices for each principle: basic, good, and advanced. A practice is considered “not met” if it has not met the Code’s requirements for basic level. - Two principles—relating to historical revisions and natural resources—were considered not applicable and therefore were not assessed for Benin. ### Overall assessment - Of the 36 principles assessed: - 12 practices are at the good level. - 5 practices are at the advanced level. - 12 practices received basic ratings. - 5 practices were considered not met. - Benin demonstrates better results compared with countries of similar income levels and institutional capacity that have been subject to an FTE. - Strengths are concentrated primarily in fiscal forecasting and budgeting practices, followed by fiscal reporting practices. - Fiscal risk analysis and management practices require acceleration of reforms and consolidation of ongoing efforts. ### I. Fiscal Reporting — summary of findings - Most practices under Pillar I are good or basic; one practice is advanced; two practices are not met. - Strengths and published outputs: - Publication of annual and in-year reports on budget execution that provide an overview of operations related to the central government budget. - Financial reports presenting information according to economic, administrative, functional, and program classifications in accordance with international standards. - Budget execution reports with improved periodicity and timeliness. - Work underway to develop a Table of Government Financial Operations (TOFE) according to the standards of the Government Finance Statistics Manual (GFSM) 2001/2014 to broaden coverage and implement accrual accounting. - Ongoing efforts to modernize the external audit function to align with international standards in the near future. - Remaining gaps and issues: - Preparation and publication of financial data, particularly fiscal statistics, need progress. - In 2019, Benin’s public sector consisted of 303 institutional units. - Total public sector expenditure in 2019 represented 18.2 percent of GDP, including 15.6 percent of GDP for the central government. - Financial data flows are available for different subsectors but are scattered and not consolidated. - Institutional coverage of the TOFE is limited to the budgetary central government and focuses only on production of an operations statement. - No report provides an overview of at least the government’s financial balance sheet. - The report suggests preparing and disseminating a financial balance sheet before full migration to accrual accounting; this can be carried out with existing information though it may be approximate and incomplete. - The Court of Auditors cannot yet provide a “true and fair view” opinion on government accounts pending preparation of financial statements on an accrual basis. ### I — Key fiscal reporting products (selected, as listed in the report) - Quarterly budget execution reports (RAPEX/RTEB): revenue/expenditure/cash; periodicity: Q; timeliness: 90 days; online: Yes. - Annual Report on budget execution: analyzes revenue mobilization and execution; presents expenditure by administrative, economic, and functional classifications. - Table of Government Financial Operations (TOFE): GFS table using GFSM 1986 methodology; basis: Modified cash; periodicity: Annual; timeliness: 90 days; online: Yes. - General Financial Administration Account (CGAF): presents result of budget operations, balance of cash transactions; accounting basis: Cash; annual; not online. - Tax Expenditure Evaluation Report: presents data on tax waivers and assessment; basis: Cash; annual (December of previous year); online: Yes. - Debt Management Report (CAA): debt plan, debt structure, public debt service, contingent liabilities; basis: Debt-Cash; annual; online: Yes. ### II. Fiscal Forecasting and Budgeting — summary of findings - Benin has made substantial progress; most practices are good or advanced. - Key strengths: - The general government budget covers all central government operations and comprehensive budget documentation is disseminated. - Three-year macroeconomic and macrobudgetary outlooks provide a framework for annual budget preparation. - Major investment projects are subject to established transparent procedures for analysis, selection, budgeting, and monitoring (with scope for further improvement). - Fiscal policy is anchored in the convergence criteria established by the West African Economic and Monetary Union (WAEMU) and the Economic Community of West African States (ECOWAS) and is subject to comprehensive monitoring. - The public is informed of the impacts of budget policies with specialized documentation adapted to the audience and released in a timely manner. - Recommended improvements to reinforce the budget process: - More comprehensive macroeconomic projections and their underlying assumptions. - A strengthened mechanism for independent evaluation of the government’s economic and fiscal forecasts. - Further deepening of the practice of reconciling successive vintages of forecasts. - Harmonizing performance monitoring reports and generalizing their use in each major area of government intervention. ### III. Fiscal Risk Analysis and Management — summary of findings - Practices are mixed: majority at basic (6) and good (2) levels; one practice not applicable; three practices not met. - Authorities demonstrate a proactive approach to improving transparency in this area. - Benin faces significant macroeconomic risks and is sensitive to international macroeconomic developments. - Efforts and outputs: - Significant efforts to analyze main fiscal risks during annual budget preparation. - Publication of a fiscal risk analysis report annexed to the 2021 Draft Budget Law. - Extensive documentation with data and information on specific risks is available online. - Gaps and required actions: - Mechanisms for identifying and analyzing fiscal risks are still being developed and need consolidation. - Analyses in the fiscal risk report are mainly qualitative and need better articulation. - Analysis of certain risks (such as government investment in public corporations) should be more comprehensive. - Quantification of risk exposures and fiscal impacts should be expanded to cover all types of fiscal risks. - Data disclosure can be improved: examples include actuarial projections prepared for social security funds and stress tests for financial sector institutions which could be published. - Strengthening administrative organization and the legal framework would facilitate monitoring and supervision of certain risks. ### Main recommendations (seven) - Recommendation 1.1: The coverage, production, and dissemination of government finance statistics should be improved. - Recommendation 1.2: The presentation and external audit of the government’s financial accounts and the time frame for disseminating audit certification should be improved. - Recommendation 2.1: The process of strengthening the credibility of the fiscal and budget forecasts—both multiyear and annual—of the government should be accelerated. - Recommendation 2.2: The information and analyses included in budget programming documents and budget reports should be enhanced. - Recommendation 3.1: The publication of fiscal and budgetary data should be more comprehensive to further improve transparency and facilitate fiscal risk analysis. - Recommendation 3.2: Quantitative analysis of fiscal risks should be expanded and generalized to move towards international best practices. - Recommendation 3.3: The institutional and legal framework for monitoring fiscal risks should be strengthened. - Several recommendations are within reach in the short term; they are accompanied by an action plan (Annex I). ### Public sector financial snapshot (2019) — selected exact figures (percentage of GDP) - Total public sector expenditure in 2019 represented 18.2 percent of GDP. - Central government expenditure: 15.6 percent of GDP. - Public sector composition in 2019: 303 institutional units. - Consolidated central government — Transactions (selected entries from Table 0.2): - Revenue: 19.5 - Expenditure: 18.2 - Charges: 10.0 - Net investment in nonfinancial assets: 1.7 - Funding capacity/requirement: 1.3 - Outstanding balance — Assets (selected entries): - Financial: 32.0 - Nonfinancial: 93.8 - Outstanding balance — Liabilities, of which: - Borrowing: 31.3 - Securities: 14.4 - Net financial value (selected entry): -54.1 *Source: IMF mission assessment as presented in the Executive Summary.* ### 3. In 2019, Benin’s public sector consisted of 303 institutional units. The Ministry of ### 3. In 2019, Benin’s public sector consisted of 303 institutional units. ### Institutional composition of the public sector (2019) - Total public sector: 303 institutional units. - Composition reported by the Ministry of Economy and Finance (MEF) includes: - Budgetary central government: Ten constitutional bodies; 22 ministries; 12 devolved departments; the Caisse Autonome d’Amortissement (CAA); the National Pension Fund of Benin (FNRB); and five special appropriation accounts (CAS). - Extrabudgetary central government: 148 Public administrative institutions (EPAs). - Local government: 77 municipalities. - Social Security Fund: National Social Security Fund (CNSS). - Public corporations: 24 nonfinancial public corporations (public industrial and commercial institutions—EPICs) and two financial public corporations (Banque internationale pour l’industrie et le commerce—BIIC and the national branch of the BCEAO). - Table 1.1 aggregates (Percentage of GDP): - Public sector (303): Revenue 19.5; Expenditure 18.2; Net balance -1.3; Intra-sectoral expenditure of the public sector 0.0; Net expenditure 18.2; Percentage of net expenditure 100.0 - General government (277): Revenue 16.2; Expenditure 15.7; Net balance 0.5; Intra-sectoral expenditure 0.0; Net expenditure 15.7; Percentage of net expenditure 86.4 - Central government (200): Revenue 15.8; Expenditure 15.6; Net balance 0.2; Intra-sectoral 0.0; Net expenditure 15.6; Percentage of net expenditure 85.9 - Budgetary (51): Revenue 12.9; Expenditure 14.6; Net balance -1.7; Intra-sectoral 2.3; Net expenditure 12.3; Percentage of net expenditure 67.7 - Extrabudgetary (148): Revenue 3.3; Expenditure 1.8; Net balance 1.5; Intra-sectoral 0.0; Net expenditure 1.8; Percentage of net expenditure 10.0 - Social security fund (1): Revenue 1.9; Expenditure 1.5; Net balance 0.4; Intra-sectoral 0.0; Net expenditure 1.5; Percentage of net expenditure 8.2 - Local government (77): Revenue 1.1; Expenditure 0.8; Net balance 0.3; Intra-sectoral 0.7; Net expenditure 0.1; Percentage of net expenditure 0.5 - Central bank* (1): Revenue 0.5; Expenditure 0.4; Net balance 0.1; Intra-sectoral 0.0; Net expenditure 0.4; Percentage of net expenditure 2.2 - Nonfinancial public corporations (24): Revenue 4.6; Expenditure 3.9; Net balance 0.7; Intra-sectoral 1.8; Net expenditure 2.1; Percentage of net expenditure 11.4 - Other financial public corporations** (1): NA values as data were not available. - Note: *Central Bank = national branch of the BCEAO; **Other financial public corporations: data not available at the date the table was prepared. ### Coverage and consolidation of fiscal data - Financial data and flows are available across subsectors but are scattered and not consolidated. - Annual and quarterly budget reports present financial data for the budgetary central government, including FNRB, CASs, and the CAA; this is reflected in the TOFE which presents statistical data. - The multiannual budget and economic programming paper (DPBEP) presents broader financial information (including extrabudgetary entities, CNSS, subnational governments, and nonfinancial public corporations) but the information is not consolidated and cannot be used to determine subsector sizes. - No information is published for financial public corporations. ### Public sector size and expenditure composition (2019) - Public sector expenditure: 18.2 percent of GDP in 2019. - Central government expenditure: 15.6 percent of GDP. - Budgetary central government (budget units) expenditure: approximately 14.6 percent of GDP. - Subnational governments expenditure: 0.8 percent of GDP. - Social security expenditure: 1.5 percent of GDP. - Presentation of this information is dispersed in budget documentation; government finance statistics include only budgetary central government. ### Plans to expand statistical coverage - Directive 10/2009/CM/UEMOA related to the TOFE requires production of a TOFE for general government based on GFSM 2001/2014. - Work in progress on collecting source data, especially for extrabudgetary entities and subnational governments. - Production of the new TOFE will begin in 2022 with preparation of a TOFE for budgetary central government based on GFSM 2001/2014; scope will be expanded gradually as data availability improves. ### Coverage of stocks - Assessment: Not met (basic level requirement for financial reports covering treasury operations, bank deposits, and all debts not satisfied). - Debt data are published but dissemination does not include stock of currency and bank deposits. - CAA publishes quarterly statistical bulletin on public debt covering loans and debt securities but does not reflect other government debts defined by GFSM 2001/2014 (accounts payable, claims toward social security, deposits of public entities within the Treasury, appropriations relating to letters of comfort, actuarial pension liabilities). - Some data exist in the Government trial balance (BGCE) but are not published. - DGPED has partial information on government equity holdings in 14 companies at historic cost, without explanations. - Mission estimates (2019): - Estimated net worth of the public sector: approximately 33 percent of GDP. - Estimated public sector assets: 126 percent of GDP. - Estimated public sector liabilities: 86 percent of GDP. - Published stock of public debt of the general government: approximately 41.9 percent of GDP. - Central government gross debt: 41.4 percent of GDP. - Debt reports do not include payment arrears or actuarial pension liabilities. - Latest actuarial study for the National Pension Fund of Benin (FNRB) dates back to 2009. ### Accrual accounting and balance sheet reforms - Current BGCE uses cash-basis accounting and cannot reconstitute all outstanding asset and liability balances; financial information in BGCE is partial and unpublished. - Decree 2014-571 of October 7, 2014 establishes accounting standards; a reform plan to modernize central government accounting is being implemented: - Chart of accounts updated. - Work in progress to prepare legislative texts updating accounting standards. - Overhaul of financial information system to adapt to new chart of accounts and migration to accrual accounting. - Opening balance sheet planned for January 2022. ### Coverage of flows - Assessment: Basic. - TOFE presents revenue, expenditure, and financing primarily on a modified cash basis: - Revenue and financing: cash basis. - Expenditure: payment order basis. - Financing transactions presented on a net basis by type (bank or nonbank) rather than by instrument with itemized flows of assets and liabilities. - Table 1.2 — Key aggregates in the 2016-2019 TOFE (In billions of CFAF): - Total Revenue: 2016 745.7; 2017 944.4; 2018 1,028.6; 2019 1,088.0 - Tax: 2016 641.1; 2017 712.8; 2018 811.4; 2019 893.3 - Nontax: 2016 104.6; 2017 231.6; 2018 217.2; 2019 194.8 - Total expenditure and net lending: 2016 1,086.3; 2017 1,318.1; 2018 1,305.9; 2019 1,225.9 - Primary current expenditure: 2016 717.8; 2017 713.8; 2018 731.8; 2019 764.8 - Interest: 2016 63.3; 2017 106.4; 2018 126.0; 2019 134.6 - Capital expenditure: 2016 299.6; 2017 491.5; 2018 445.6; 2019 330.4 - Net lending: 2016 5.5; 2017 6.4; 2018 2.5; 2019 -3.9 - Overall deficit (payment order basis): 2016 -340.6; 2017 -373.7; 2018 -277.3; 2019 -137.9 - Change in arrears: 2016 -1.4; 2017 -5.3; 2018 -0.4; 2019 0.0 - Reconciliation payment: 2016 0.8; 2017 14.7; 2018 -3.7; 2019 -7.3 - Overall deficit (cash basis): 2016 -341.3; 2017 -364.4; 2018 -281.4; 2019 -145.2 - Total financing: 2016 341.3; 2017 364.4; 2018 281.4; 2019 145.2 - Domestic financing: 2016 224.2; 2017 185.9; 2018 -51.4; 2019 -304.3 - External financing: 2016 117.0; 2017 178.5; 2018 332.8; 2019 449.5 - Coverage limitations: - Absence of accrual accounting prevents recording of nonmonetary flows (accrued interest not yet due, transactions in kind, fixed capital consumption). - Holding gains/losses and other changes in volume are not recorded; stocks and flows cannot be fully integrated. - Availability of public debt in foreign currency could provide information on holding gains/losses on foreign-currency debt. ### Coverage and management of tax expenditures - Assessment: Good. - Tax Policy Unit produces annual report on tax expenditure appended to the draft budget law; reports include methodology. - Evaluation for 2018 and 2019 is based on a reference tax system. - Tax expenditure estimated at 2.6 percent of GDP in 2019. - Report assesses tax expenditure by levy and tax, beneficiary, objective, and ministry; covers entire tax system in Benin. - Performance measures established to monitor objectives and guide policies to control tax expenditure. - Two evaluation studies on tax exemptions are in progress with the Economic Community of West African States Commission. - Regional comparison (Figure 1.4): Benin (2019) tax expenditure losses reported as 2.6 percent of GDP (visual comparison with Burkina Faso, Cote d'Ivoire, Senegal, Mali as presented). - Progress and measurement status: - IMF Technical Assistance Mission (January 2018) supported improvements. - Methodological guide for preparing tax expenditure introduced June 2020. - Measures evaluated (Table 1.3): - Direct government taxes: - 2017: Measures identified 175; Measures evaluated 23; Share (%) 13.1 - 2018: Measures identified 175; Measures evaluated 36; Share (%) 20.6 - 2019: Measures identified 170; Measures evaluated 37; Share (%) 21.8 - Indirect taxes: - 2017: Measures identified 51; Measures evaluated 27; Share (%) 52.9 - 2018: Measures identified 51; Measures evaluated 36; Share (%) 70.6 - 2019: Measures identified 51; Measures evaluated 46; Share (%) 90.2 - Customs and indirect duties: - 2017: Measures identified 87; Measures evaluated 84; Share (%) 96.6 - 2018: Measures identified 87; Measures evaluated 84; Share (%) 96.6 - 2019: Measures identified 77; Measures evaluated 76; Share (%) 98.7 - Observations: - Percentage of measures evaluated increased substantially for indirect taxes (from 53 percent to 90 percent) and modestly for direct taxes (from 13 percent to 22 percent) due to a matrix inventory and comprehensive tax reference system. - Tax expenditure expected to decline from 2.6 percent of GDP in 2019 to 1.9 percent of GDP in 2023, but substantial discrepancies have been observed between forecasts and outturns (e.g., 2.6 percent forecast vs. 1.6 percent outturn for 2019; 2.2 percent forecast vs. 1.4 percent outturn for 2020). - Expansion in scope of assessments and improved projection methods may justify future discrepancies. ### Integrity and timeliness of fiscal information - Frequency of in-year reporting: Basic. - Quarterly and semiannual reports produced and published: - Directorate General of Budget (DGB) produces RAPEX quarterly with a maximum lag of 90 days after quarter end; also produces quarterly budget law execution report and semiannual Midyear Report with a lag of three months. - Directorate General of Economic Affairs (DGAE) publishes a quarterly report on economic conditions with a lag of 90 days. - CAA produces quarterly statistical bulletin on domestic and foreign debt with a lag of 30 days after period end; includes government guarantees and fiscal risk analysis. - To achieve a good level of practice, quarterly reports must be published with a lag not exceeding 30 days; authorities are working to reduce RAPEX lag to 30 days. - Timeliness of annual financial statements: Basic. - National regulations: annual government accounts (CGAF and ETAF) must be submitted to the Court of Auditors no later than June 30 of the fiscal year after the reference year (per Article 106 of Decree 2014-571). - Draft Supplementary Budget Law (PLR), accompanied by CGAF, ETAFs, general compliance declaration (DGC), and budget law execution report (RELF) prepared by the Court of Auditors, are submitted to Parliament by the first day of the budget session opening after the year of budget execution (Articles 53 and 66 of the Organic Law on Budget laws (LOLF)). - Publication timing for audited accounts is imprecise; RELF and DGC publication relative to PLR filing is unclear. - Recent practice and delays: - For past three fiscal years, audited accounts were published much later than 12 months after fiscal year end. - Currently only CGAF accompanies the general administrative account; ETAFs cannot be produced until transition to accrual accounting in 2022. - RELF and DGC were published on the DGB website with delays; Ministry of Finance publishing Court of Auditors’ documents may raise independence concerns. - Filing/publication dates (Table 1.4): - Publication of End-of-year RAPEX: For 2018 — May 27, 2020; For 2019 — June 29, 2021 - Publication of the RELF: For 2018 — January 2020; For 2019 — January 2021; For 2020 — Pending publication - Publication of the DGC: For 2018 — January 2020; For 2019 — January 2021; For 2020 — Pending publication - Publication of the Annual Report of the Court of Auditors: Not produced for 2018, 2019, 2020 - Note: The DGC will be replaced beginning in 2023 with the certification of accounts after the transition to accrual accounting scheduled for 2022. ### Quality of fiscal information - Classification: Advanced. - Fiscal reports presented according to economic, administrative, functional, and program classifications consistent with international standards. - Economic classification in the TOFE: in accordance with GFSM 1986. - Budget nomenclature: based on WAEMU standards. - Functional classification: observes UN COFOG and GFSM 2001/2014. - RAPEX annex provides expenditure execution by economic, administrative, and functional classifications; annex should present program classification but Annex III has not been published on the DGB website since 2019. - Midyear report presents program execution on a commitment and payment order basis and provides cross-presentation of administrative and economic classifications; a bridge table illustrates developments in expenditure by functional classification from administrative classification data. - Internal consistency: Good. *Source: Authorities and calculations by the mission; FINSTAT 2020, DGAE; Tax Expenditure Reports for 2020 and 2021; RGCP; Decree 2014-571 of October 7, 2014.* ### 19. Fisc al reporting includes two of the three reconciliations required by the Fiscal ### 19. Fiscal reporting includes two of the three reconciliations required by the Fiscal Transparency Code ### Reconciliations and debt reporting - Two of the three reconciliations required by the Fiscal Transparency Code are included: - Reconciliation between the budget balance and financing: - The TOFE presents a general deficit on payment order basis that is adjusted (for example, change in arrears, payment during the complementary period) to produce the overall deficit on a cash basis, which is theoretically equal to total financing. - This estimate is described as "somewhat artificial" and results in a residual (statistical gap) that is added to domestic financing in the other nonbank financing section. - Reconciliation between debt issued and held: - Two reconciliations are published between debt issued and debt held by creditors (not fully detailed). - The CAA publishes an annual debt management report with the structure of the stock of external debt by lender and a quarterly debt bulletin presenting outstanding balance and drawings on an infra-annual basis. - WAEMU Securities publishes in its quarterly statistical bulletin the stock of public securities issued by Benin (total amount, date of issuance, maturity, and ISIN). - WAEMU requires the WAMU Securities Agency to produce a monthly report on the distribution of holdings of Benin Treasury Bills and Bonds on the secondary market, based on monthly information transmitted by authorized subscribers; the BCEAO National Office in Benin is responsible for broad dissemination of this report. - In 2021 the authorities prepared a form to collect this information and are awaiting responses from data providers; no precise date for publication exists. - Missing reconciliation: - The reconciliation of financing and the change in the stock of debt (a stock-and-flow adjustment) has been prepared internally (experimental exercise) but has not been published. - A framework should provide a breakdown of the stock-and-flow adjustment between the change in the debt-to-GDP ratio according to debt-generating flows (primary deficit, automatic debt dynamics—interest rate and exchange rate effects—and residuals). - The extent of the residual determines the quality of the adjustment (possible causes include changes in debt scope, debt relief, or reclassifications). ### Historical revisions - Major and recurrent revisions of the TOFE are not applied; historical series are rarely reviewed. - Adjustments when made are minimal and do not exceed 0.1 percent of GDP. - Migration to accrual accounting (GFSM 2001/2014) will require revising historical data series and documenting methodological changes; a memorandum should accompany the new TOFE to explain observed differences. ### Integrity of fiscal information - Statistical integrity — Good: - Responsibilities for production and publication of statistical data are clearly established: - Government finance statistics: Economic and Financial Program Monitoring Unit (CSPEF), reporting to the MEF. - Real sector statistics: National Statistics and Demography Office (INStaD). - Balance of payments, financial and monetary statistics: National Directorate of the BCEAO. - These data are mostly compiled and disseminated in accordance with recognized international standards (SNA 2008, 2000 Monetary and Financial Statistics Manual, BPM6). - The GDP-TOFE Committee oversees production, analysis, and dissemination of coherent government finance statistics and national accounts; CSPEF provides the permanent secretariat. The Committee has three technical subcommittees (SFP, SRAC, CMB). Meetings are irregular and steering unit members are not effectively mobilized. - Benin has joined the enhanced general data dissemination system (e-GDDS) and committed to: - Publish annual TOFE for central government with a lag of one quarter and annual TOFE for general government with a lag of nine months (commitments not yet honored). - Publish quarterly status of central government debt with a lag of two quarters (not currently done). - Present economic and financial data and indicators in "key economic indicators", expand TOFE to include subnational governments, and create a website for medium-term data and metadata (no dissemination schedule yet). - INStaD issues a pre-release schedule for statistics it manages; GFS, BP, and MSFM are not yet included. INStaD plans to publish a more inclusive pre-release schedule before the end of the third quarter of 2021. - External audit — Basic: - Constitutional change elevated the Chamber of Auditors to a Court of Auditors with powers of a supreme fiscal audit institution (INTOSAI definition); established by Law 2020-38 of December 30, 2020; first officials recently appointed. - Until bodies and procedures are fully established, the Court operates under former Chamber conditions. - The Court: - Judges accounts of public accountants (approximately 78 management accounts submitted each year). - Prepares and publishes a RELF and DGC every year (pending migration to certification of accounts, probably beginning in 2023). - Prepares annual audit reports on disbursements of external financing, certifies performance of program budget execution, audits World Bank projects, management control reports from certain organizations, and public corporations. - The Court is not yet in a position to express an opinion on the fair view of the government's accounts because certification of accounts has not yet been implemented. - Identified weaknesses and challenges: - Absence of an annual report. - Inefficient mechanism for monitoring audit recommendations. - Very limited action on budget discipline. - No formal action plan to meet prerequisites for certification of accounts (including capacity building for audit judges and Court website problems). - Comparability of fiscal data — Good: - Budget execution and forecasts as well as final accounts are presented in a comparable manner with published reconciliations. - RAPEX presents an overview between budget forecasts and execution for main budget aggregates; year-end report presents comparison on a commitment basis. - A reconciliation between budget execution and final accounts is prepared for submission of the CGAF to the Court of Auditors and elements are published in the RELF. - The reconciliation between the budget data and financial statistics is not published: bridge tables used to prepare the TOFE from budget data are not published and no explanatory notes are circulated for adjustments. ### Conclusions and key findings - There is scope for progress in development and dissemination of financial data despite recent improvements. - Current situation highlights: - Annual and infra-annual budget execution reports provide an overview of government budget operations and additional (nonconsolidated) information on other public sector players, but government finance statistics remain limited. - TOFE has limited institutional coverage and focuses on a statement of operations; no overview of a government financial balance sheet is produced. - Reforms to improve coverage and move toward accrual-based accounting are underway; a financial balance sheet can be prepared and disseminated on an incomplete basis before full migration to accrual accounting, and it can be upgraded as source data quality improves. - Modernization of the external audit function is underway; issues with logistics around publication of audited financial statements persist. The Court of Auditors cannot yet issue an opinion on the fair view of government accounts until certification of accounts and accrual financial statements are in place. - Quantitative and scope notes preserved from the assessment: - Adjustments to historical TOFE figures do not exceed 0.1 percent of GDP. - Expenditure of public sector entities not covered by the TOFE is estimated at approximately 8 percent of GDP. - Central government assets are estimated at 90 percent of GDP. - Tax expenditure was estimated at a low level of approximately 2.6 percent of GDP in 2019. - The report on budget execution is produced quarterly within a maximum lag of 90 days. - RELF and DGC are prepared with a lag of nine months by the Court of Auditors but are published with a lag of 12 months. - Approximately 78 management accounts are submitted to the Court of Auditors every year. - Migration to certification of accounts is probably beginning in 2023. - INStaD plans to publish a more inclusive pre-release schedule before the end of the third quarter of 2021. ### Policy recommendations (two main recommendations with sub-actions) - Recommendation 1.1: Accelerate the process of improving coverage, production, and dissemination of government finance statistics. - Expand coverage of the current TOFE to all units of general government where information is available within the MEF; begin with presentation of revenue and expenditure and expand TOFE gradually with financing information when available. - Improve production of the TOFE by reducing the statistical gap and producing explanatory notes covering methodology and source data used. - Initiate preparation and publication of at least an annual financial balance sheet for budgetary central government (Annex II suggests a preparation approach) even if accrual accounting is not yet in place. - Release a TOFE based on GFSM 2001/2014: even if piloting and data quality are not yet optimal, begin informing the public that such information exists prior to full migration. - Disseminate a memorandum and a bridge table between the two methodologies (fiscal data and fiscal statistics) to facilitate understanding of the new presentation. - Recommendation 1.2: Improve production and external auditing of government accounts and reduce lags for disseminating certification. - Improve periodicity and timeliness of budget execution reports based on the information system; explore publishing quarterly and monthly budget execution reports with a lag of one month after the reference period. - Accelerate implementation of the new Court of Auditors by establishing its bodies and procedures, developing capacities of judges of accounts for certification, making its website operational, and correcting implementation problems. - Undertake a process to shorten the lag for publication of audited government accounts to six months in the medium term, as suggested by international best practices. *Source: 1benea2022001 - 19. Fiscal reporting includes two of the three reconciliations required by the Fiscal Transparency Code* ### 30. This section assesses the quality of Benin's financial forecasting and budgeting ### 30. This section assesses the quality of Benin's financial forecasting and budgeting ### Overview: scope and structure of assessment - Analysis addresses four areas: - i. The comprehensiveness of the budget and associated documentation; - ii. The orderliness and timeliness of the budget process; - iii. Policy orientation; and - iv. The credibility of the fiscal forecasts and budget proposals. - Main legislative texts and fiscal/budget documents consulted are listed (Constitution; Organic Law on Budget Laws (LOLF) (Law 2013-14); Law establishing the Public Procurement Code (Law 2017-04); Law establishing PPP framework (Law 2016-24); Decree 2015-035 on the Transparency Code; Decree 2014-041 on preparation of the table of government financial operations (TOFE); Decree 2020-495 approving timetable for budget activities; other decrees and budget documents). ### Comprehensiveness — Budget unity (Assessment: Advanced) - Coverage and presentation: - Budget documentation presents revenue, expenditure, and financing of all central government operations on a gross basis. - The Initial Budget Law and annexes present all tax and nontax revenue (including own revenue of the government units), exceptional revenue, and project grants and loans for all 33 constitutional institutions and ministries. - Expenditure is presented by economic and administrative type, by program, and function. - Information on revenue and expenditure of various special treasury accounts is available. - Other government entities: - DPBEP contains section on overall own revenue and transfers from the government to subnational authorities and their aggregate expenditure by type. - Information available for CNSS and FNRB. - Multiyear Economic and Budget Programming Papers for 2020-2022 and 2021-2023 contain information on public administrative entities (EPA). - 2021 draft budget included overall report of EPA revenue and expenditure covering 2017-2020, distinguishing operating and capital subsidies received from the government. - Limitation: other sources of funding for EPAs (own revenue, financing from donors, and loans) are not specified. ### Macroeconomic forecasts (Assessment: Good) - Forecast publication and documents: - Forecasts and underlying assumptions published by the Directorate General of Economic Affairs (DGAE) in: - Economic and Financial Report (REF) — annual approach. - DPBEP — multiyear approach: June (budget orientation discussions) and updated in September appended to the Draft Initial Budget Law (PLFI). - DPBEP 2022-2024 published at the end of June 2021 includes outlook for 2022-2024. - Content of DPBEP and REF (Box 2.1): - DPBEP: analysis of recent trends, situation in current year, projections for the four macroeconomic accounts; projected indicators cover growth rate in GDP, inflation, and balance of payments balances and components; forecast TOFE includes assumptions on donor financial commitments; macroeconomic framework model covers all four accounts and provides consistent results. - REF: recent international and subregional developments, review of macro forecasts for first half of year, government finance execution, economic and financial outlook highlighting main options of the Draft Budget Law. - Recommendation noted: consider gradual extension of scope of macroeconomic variables presented (terms of trade, exchange rates, interest rates, etc.). - Shortcomings in transparency and explanation: - Trends in components of macroeconomic variables and assumptions are not explained in DPBEP. - Developments in different components of GDP and balance of payments are not analyzed. - Factors underpinning key macro assumptions are not highlighted. - Empirical discrepancies: - Figure 2.1: overestimation of growth rates between final result and growth rate used to prepare the Budget Law; gap larger in three-year projections. - Figure 2.2: inflation differentials (measured using GDP deflator) are substantial (from 1 to 2 percent as an absolute differential). - Figures 2.3 and 2.4: - Revenue: no substantial differences between revenue forecasts and execution during 2016-2020. - Expenditure: execution generally fell short of forecasts for 2016-2020. ### Medium-term budget framework (Assessment: Advanced) - DPBEP and DPPD roles: - DPBEP contains overall forecasts of revenue, expenditure, and financing with a three-year horizon; medium-term expenditure forecasts presented by budget headings and by function; summary of budget results from previous two fiscal years. - DPBEP adopted by Council of Ministers and submitted for budget orientation discussions in Parliament in June, accompanied by ministries' DPPDs developed based on sector trend envelopes. - Process and envelopes: - Directorate General of Budget (DGB) notifies ministries of three-year envelopes when budget call circular is issued. - Indicative envelopes are communicated based on Parliament guidelines to enable ministries to finalize DPPDs. - DPPDs present expenditure for next three years by program, administrative, economic and functional classification, and source of funding; multiyear expenditure presented in cross-classification matrices. - All documents submitted to Parliament annexed to Draft Initial Budget Law and published on the Directorate General of Budget’s website. - Note: For 2022, envelopes were submitted electronically as a test through the public financial management computer system. ### Investment projects (Assessment: Good) - Overall investment intensity: - Between 1990 and 2019, average public investment accounted for 7.4 percent of GDP, slightly below WAEMU average of 7.9 percent of GDP for the same period. - Improvements in public investment management: - Decree 2019-193 of July 17, 2019 formally establishes project life cycle stages (programming, budgeting, execution, monitoring and assessment) and technical/organizational procedures. - A public investment management manual finalized in December 2018. - Recent reform merged responsibilities of Directorate General of Budget and Directorate General of Public Investment Programming and Monitoring (DPSIP) to improve coordination of recurrent and capital budget preparation and strengthen budget unity. - Georeferenced platform for programming and monitoring investment projects in place since 2020; accessible to the public since 2021 (some information requires registration and prior authorization). - PIP and appraisal: - Planning and Development Ministry (DMP) prepares rolling three-year Public Investment Program (PIP) each year, with capital expenditure broken down by ministry. - PIP presents: total project cost (updated annually); cumulative project expenditure; commitment authorizations (AE) and payment appropriations (CP) for the next year; schedule of disbursements for next three years. - PIP presented to Parliament as annex to Draft Budget Law and published on Ministry and DGB portals. - Project appraisal, selection, and financing: - Project appraisal including cost-benefit analysis is mandatory per Decree on public investment management (Article 7); since 2018 no projects included in PIP without prior feasibility study including cost-benefit analysis. - Government established a project preparation and management fund of CFAF 2 billion in 2021 and a feasibility study fund of CFAF 7 billion for 2021. - A manual to develop feasibility studies was developed with GIZ support. - Project selection: two-stage process — preliminary vetting (technical assessment) and vetting based on policy; selection criteria for new and ongoing projects allow assessment of execution status and possible removal from PIP. - Limitation: feasibility studies or summaries and project selection criteria are not published. - Public procurement and transparency: - Public Procurement Code (Law 2017-04 of October 19, 2017): - For tenders exceeding public procurement award threshold, open requests for tenders are generally the rule (Article 31). - Article 63: public procurement tenders must be published in the public procurement journal or other national/international publication, as well as electronically. - Article 18: creation of the Public Procurement Regulatory Authority (ARMP) to review complaints related to public procurement awards. - Article 138: ARMP must issue its decision within seven business days from the date the appeal process ended. *Source: Mission.* ### 43. The Public Procurement Code seems to be effectively applied. Procurement plans ### 43. The Public Procurement Code seems to be effectively applied. Procurement plans ### Public procurement implementation and transparency - Procurement plans of 256 contracting authorities are published in the public procurement portal. - The Public Procurement Journal is available online and contains notices of public procurement awards. - Appeal decisions are published at the ARMP’s website. - According to statistics from 2020 published at the Public Procurement Portal: - Competitive bidding contracts represented 14.5 percent of the total number of contracts executed in 2020. - Competitive bidding contracts represented 68.3 percent of the total procured value in 2020. ### Public-private partnerships (PPPs) - PPPs are subject to a separate procurement process. - Article 18 of Law 2016-24 of October 11, 2016 on the Legal Framework for PPPs: PPPs are subject either to international tenders and executed by private agreement, or subject to spontaneous bidding. - According to the authorities, no PPP contracts have so far been executed. ### Orderliness — Fiscal legislation - Benin adopted Law 2013 of September 27, 2013 on the Organic Law on Budget Laws (LOLF), pursuant to WAEMU Directive 06/2009/CM/WAEMU of June 26, 2009 on Budget Laws. - The LOLF defines: - Content of the budget laws: Initial Budget Law (LFI), Supplementary Budget Law (LFR), and Budget Review Law (LR). - Major stages of the budgeting and adoption process: Budget Orientation Discussions—DOB, preparation, submission, and voting of the Draft Budget Law; and promulgation of the Budget Law. - Respective roles of the executive and legislative branches (see Table 2.2 in source). - The LOLF is in compliance with the Constitution of the Republic of Benin (Law 90-32 of December 11, 1990 as amended by Law 2016-40 of November 7, 2019), including provisions on: - Initiative of laws (Article 105). - Members’ power to amend the Budget Law (Article 107). - Content, filing deadline, and procedure for voting on the Initial Draft Budget Law (Article 109). - Special circumstances for establishing the budget by order or through the authorization of provisional twelfths (Articles 68, 110, and 111). ### Orderliness — Budget calendar and preparation - A detailed timetable for budget preparation is developed each year for drafting the PLFI and the DPBEP/DPPD. - Decree 2020-495 of October 7, 2020 approves the budget calendar and requires the Ministry of Economy and Finance to adopt a decree each year establishing the budget calendar for DPBEP/DPPD and the PLFI. - The calendar identifies agencies/departments involved, stages and tasks of budget preparation, and expected deliverables and deadlines; it is published no later than February at the DGB portal. - Decree 2020-495 of October 7, 2020 repeals Decree 2011-554 of August 24, 2011 and any conflicting prior provisions. ### Timeliness of budget documents - Legal deadlines observed during 2019–2021: - Draft Initial Budget Law must be submitted to the National Assembly no later than one week before the opening of the October session (three months before the fiscal year). - National Assembly has until December 31 to analyze and vote on the budget (per LOLF). - President must promulgate the budget law before the beginning of the fiscal year (January 1). - Table 2.3: Major deadlines for the Draft Initial Budget Law - 2019 Draft Budget Law: - Submission to the National Assembly: October 5, 2018 - Publication of the draft budget law: October 11, 2018 - Approval by the National Assembly: December 20, 2018 - Promulgation: December 28, 2018 - Publication of the budget law: January 17, 2021 - 2020 Draft Budget Law: - Submission to the National Assembly: September 25, 2019 - Publication of the draft budget law: October 18, 2019 - Approval by the National Assembly: December 19, 2019 - Promulgation: December 27, 2019 - Publication of the budget law: January 8, 2021 - 2021 Draft Budget Law: - Submission to the National Assembly: October 7, 2020 - Publication of the draft budget law: October 20, 2020 - Approval by the National Assembly: December 8, 2020 - Promulgation: December 24, 2020 - Publication of the budget law: January 21, 2021 - Draft Initial Budget Law and annexes are published at the DGB’s website after submission to the National Assembly; after promulgation the budget law and annexes are published in the Official Journal and at the DGB portal. ### Policy orientation — Fiscal policy objectives and monitoring - Fiscal policy is guided by WAEMU and ECOWAS convergence criteria. - Benin’s performance on selected WAEMU convergence criteria, 2016–2019 (Table 2.4): - Budget deficit (including grants, % GDP) — regulatory text: >=-3%: - 2016: -6.0 - 2017: -4.3 - 2018: -2.9 - 2019: -0.5 - Inflation Rate (CPI) <=3%: - 2016: -0.8 - 2017: 1.8 - 2018: 0.8 - 2019: -0.9 - Stock of debt (% GDP) <=70%: - 2016: 49.7 - 2017: 39.7 - 2018: 41.1 - 2019: 41.2 - Wage bill over tax revenue <=35%: - 2016: 55.2 - 2017: 47.3 - 2018: 44.0 - 2019: 41.4 - Fiscal pressure >=20%: - 2016: 12.6 - 2017: 9.7 - 2018: 10.3 - 2019: 10.6 - On April 27, 2020, the convergence criterion on the budget deficit was temporarily suspended at the WAEMU meeting of heads of state to give member countries budget space to address COVID-19 effects. - Monitoring: - The Regional Integration Monitoring Unit (CSIR) prepares a quarterly report on the economic and financial situation, including convergence status, for WAEMU and ECOWAS. - WAEMU publishes a semester report summarizing member countries’ performance. - Monitoring of convergence criteria and their targets for the next three years are presented in the DPBEP appended to the PLFI. ### Policy orientation — Performance information and program budgeting - The Organic Budget Law promotes results-based management; implementation began experimentally on January 1, 2021. - Government budget structured into programs with objectives and results reflecting three criteria: socioeconomic impact, quality of public service, and efficiency in use of public funds. - Effective change to program budgeting scheduled for January 1, 2022. - Budget documentation includes the National Development Plan (PND) (2018-2025), Growth and Sustainable Development Program (PC2D 2018-2021), and government action program (PAG 2016-2021). - Annual performance projects (PAP) and annual performance reports (APR) appended to PLR: - PAPs commit program managers to annual or medium-term performance targets; APRs are required at year-end. - Presentation of performance information is incomplete and not uniform. - Midyear and year-end reports provide summary by ministry and by program. - APRs published at the DGB's portal for a number of ministries (five available for 2019); two ministries submitted APRs to the Court of Auditors. - For other ministries, transmission slips for draft APRs to internal audits were submitted to the mission. - Quality issues in PAPs and APRs: - Absence of explicit linkages between DPPD/PAP objectives and the National Development Plan and SDGs. - Program managers not appointed in many ministries; decree defining appointment modalities only recently issued. - Indicator formulation needs improvement: many indicators per program, limiting reporting capacity (unit, reference value, historical values, target values). - No general review of all programs and performance frameworks since program budget launch in 2016. - APRs posted at the DGB portal do not provide adequate information to reflect performance. ### Policy orientation — Public participation - Since 2018, the government revised the budget timetable to introduce 10 specific stages of public participation. - Due to COVID-19 and other issues, not all participation stages could take place; current public participation consists of: - Analysis of the Multiyear Economic and Budget Programming Paper (DPBEP). - Budget conferences at subnational level. - Review of the Draft Initial Budget Law (PLFI). - The National Assembly’s Finance and Trade Commission holds meetings with unions, civil society, the private sector, and the Chamber of Agriculture and Trades on the PLFI and considers comments from advocacy documents. - Constraints to broader participation: - Limited financial literacy. - Internet access problems limiting online publication reach. - Public participation indicators: - Benin’s rating of 50.25 out of 100 on the Voice and Accountability Index of the World Bank’s Governance Indicators for 2020. - Benin’s rating of 24 out of 100 in the public participation index in the 2019 Open Budget Survey. - The Government publishes citizen-friendly versions of several budget documents (DPBEP, PLFI, LFI), public awareness materials on PLFI and LFI, videos translated into several national languages, and a comic on the government budget. ### Credibility — Independent evaluation and parliamentary support units - Independent evaluation is at a Basic level; best-practice independent evaluation is not yet effective. - Most officials met were unfamiliar with independent evaluation, and government economic and financial forecasts have never been subject to an external evaluation as described in Annex III. - Two technical support units in the National Assembly: - Government Budget Analysis, Control, and Assessment Unit (UNACEB). - Parliamentary Institute of Benin (IPAB). - Limitations: - Duties of UNACEB and IPAB overlap; independence to conduct and publish assessments without political interference is not sufficiently established. - Operation is dependent on financing from technical and financial partners, which is declining. - Box 2.2 — Main tasks (summary): - IPAB: analysis and evaluation of public policies; strengthen National Assembly capacity in budget analysis and control; develop studies and research programs; five research units including Government Finance and Economics Research Unit. - UNACEB: strengthen technical capacity in analysis, control, and evaluation of the government budget; reduce communication gap between National Assembly and public; multidisciplinary team conducts seminars, training, studies, publications, and technical support based on an annual program. *Source: 1benea2022001 - 43. The Public Procurement Code seems to be effectively applied. Procurement plans.* ### 58. The Supplementary Budget Law (LFR) is one of three budget laws instituted by the ### 1benea2022001 - 58. The Supplementary Budget Law (LFR) is one of three budget laws instituted by the ### Supplementary Budget Law (LFR): usage and practice - Article 51 of the LOLF recommends use of supplementary budget when: - (i) the main lines of the budget and financial balance defined by the budget law for the year are not respected, because of the introduction of decrees on advances or those canceling appropriations; - (ii) when actual revenue substantially exceeds the provisions of the budget law for the year; or - (iii) when there are legislative or regulatory measures substantially affecting budget execution. - In practice: - From 2016 to date, the government has adopted only two supplementary budget laws, inter alia, to regularize expenditure for the 2016 presidential elections and for COVID-19 in 2020. - Use of supplementary budget law is still fairly limited and generally occurs to a lesser extent to regularize expenditure after the fact. - Overrun orders (an unknown activity under the LOLF and its implementing texts) have produced discrepancies of as much as 196.6 percent (see Table 2.5 for 2018 fiscal year). - During 2013–2020, expenditure and revenue, on average, were respectively 10 and 27 percent below the approved budget. ### Forecast reconciliation: status and gaps - Current practice: - The Economic and Financial Report (REF) presents and explains differences between budget projections disaggregated by revenue, expenditure, and financing for year n and year n+1, but discrepancies are not provided in sufficient detail or quantified with an indication of underlying causes. - As part of the Draft Budget Review Law preparation, discrepancies versus the Initial Budget Law are systematically presented and explained in accompanying budget documentation. - Revisions can be significant in budget revenue and expenditure, while changes in GDP growth forecasts are minor. - Requirements for a good reconciling system (as described): - Quantify and explain discrepancies between successive macroeconomic and fiscal projections according to: - (i) changes in accounting treatment or classification; - (ii) changes in macroeconomic projections deriving from changes in the baseline, assumptions, or demographic parameters; - (iii) the impact of new policies adopted during the year. - Empirical indicators preserved from source: - Average discrepancy between real and forecast GDP during 2017-2019: 0.13 percent. - Average discrepancies between forecasts and execution for revenue and expenditure were respectively 0.3 and 0.9 per cent of GDP during 2016-2020. - Average discrepancy in budget expenditure as against execution during 2017-2019 represents 2.2 per cent of GDP. ### Conclusions: strengths in budget transparency - Main strengths identified: - The stages of the annual budget preparation are properly sequenced and organized as prescribed by the decree establishing the budget preparation calendar and its implementing decree. - The government submits the government budget to the National Assembly before the deadline established by law, and it is voted before the beginning of the fiscal year. - Fiscal policy is firmly anchored to the convergence criteria established by WAEMU and ECOWAS observed since 2015. - A three-year macroeconomic and macro budgetary outlook provides the framework for each annual budget and Parliament deliberation. - All central government operations are covered by the general government budget. - Content of budget documentation and public information has improved and is provided in a timely manner. - Major investment projects are subject to well-established, transparent procedures for analysis, selection, budgeting, and monitoring (though scope for improvement exists). ### Identified constraints and shortcomings - Forecasts and budget processes affected by: - Insufficient explanation of results of macroeconomic projections and underlying assumptions. - Economic and financial forecasts and costs of new government policies are not subject to true independent evaluations. - The practice of reconciling successive forecasts is only in early stages. - Significant sector adjustments observed in appropriations, particularly in 2017 and 2019. - Quality and harmonization of performance reporting need improvement; annual performance reports are not harmonized nor generally appended to the Draft Budget Review Law. ### Recommendations (Pillar II) - Recommendation 2.1: Strengthen credibility of multiannual and annual government financial and budget forecasts. - Accelerate process to strengthen credibility. - Strengthen exercise of reconciling forecasts for each year of the projection period. - Develop analysis of components and assumptions of macroeconomic aggregate forecasts (within reach). - Reassess institutional framework and organization of independent assessments, in particular by merging the Parliamentary Institute of Benin (IPAB) and the Government Budget Analysis, Control, and Assessment Unit (UNACEB) into a stronger institution whose mandate and independence (financial and operational) should be defined by law. - Recommendation 2.2: Enhance information and analysis of programming documents and budget reporting. - Improve presentation of public administrative establishments in budget documentation by identifying sources of funding (government subsidies, own revenue, donor financing, and loans) (within reach). - Organize a general review of budget programs to improve formulation of objectives, results, and indicators, conducted by a dedicated interministerial authority. - Strengthen efforts to inform the public and promote citizens’ participation in the budget process through improved financial literacy, publication of a citizens’ version of the subnational government budget, and compliance with public participation stages in the budget timetable (within reach). - Publish all criteria for appraisal and selection of investment projects as well as feasibility studies to improve transparency (within reach). ### Fiscal risk analysis and management: overview - Assessment focus areas: - Reporting and analysis of specific macroeconomic and fiscal risks; - Monitoring, publication, and management of specific fiscal risks; - Coordination in financial decision making in the public area. - Exposure and vulnerabilities: - Benin is particularly exposed to changes in trade and foreign exchange policies in neighboring Nigeria, its largest trading partner, accounting for approximately 75 percent of its exports. - Economy adversely affected by devaluation of approximately 50 percent of the naira in 2016 and by border closures in 2019. - Country exposed to fluctuations in commodity prices, including cotton, which accounts for approximately 12 percent of GDP and the bulk of foreign exchange inflows. - COVID-19 impact: economic growth rate revised to 2.3 percent from an initial forecast of 7.6 percent, and resulting decline in revenue amounting to CFAF 221.3 billion. - A 10 percent decline in the value of the naira would lead to a one percent reduction in industrial output and a 2.7 percent decline in tax revenue. - Progress on fiscal risk reporting: - Since 2020, a fiscal risk statement has been appended to the draft budget law presenting main risks (macroeconomic risks, public debt, etc.) and mitigation measures. - The DPBEP framework had earlier included a section presenting main uncertainties affecting the macroeconomic and budget framework. - An abundant supply of documentation provides data and information on specific risks (see selection of reports listed in source). ### Fiscal risk disclosure and analysis: macroeconomic risks - Assessment: Good. - Observations: - Benin’s volatility in nominal GDP is low compared with other Sub-Saharan African countries for 2000-2019. - Government revenue growth is steady and smoother than regional peers; volatility in nominal GDP growth rate and central government revenue well below regional average for 2000-2019. - Identified macroeconomic risk factors include fluctuations in commodity prices (cotton) and imported products (petroleum products), exchange rates, and fluctuations in external financing. - A 10 percent decline in international cotton prices below expectations would reduce the economy’s growth rate by 0.19 percent and government revenue by 1.5 percent. - COVID-19 revisions to real growth: projected 7.6 percent before COVID-19; revised to 3.5 percent in April 2020; then to 2.3 percent in December 2020; and finally increased to 3.8 percent according to June 2021 estimates. *Source: IMF country report excerpt.* ### 69. Two documents appended to the draft budget law every year analyzes and reports ### 1benea2022001 - 69. Two documents appended to the draft budget law every year analyzes and reports ### Macroeconomic risk analysis in budget documents - Two documents appended to the draft budget law every year analyze and report on macroeconomic risks. - The DPBEP presents the factors of uncertainty related to the macroeconomic framework, for alternative (optimistic and pessimistic) scenarios to the central scenario and, in the annexes, provides detailed tables on the impact of simulated shocks on the four macroeconomic accounts. - A statement on fiscal risks established in December 2020 by the DGAE reflects sensitivity analyses for macroeconomic fiscal risks; it does not include analyses of alternative scenarios. - The paper analyzed risks related to Nigeria's trade and foreign exchange policies and risks related to commodity price fluctuations. - The practice does not include any probabilistic quantification of macroeconomic shocks. - A macroeconomic framework model and a computable dynamic general equilibrium model are used to quantify impact of shocks; measurement of impacts is limited to growth and revenue. - The analysis is not based on a selection of the main macroeconomic risks from a comprehensive inventory with precise description according to criteria including the probability of occurrence and potential budget impact. - Impacts of some complex shocks, such as the closing of the borders with Nigeria, are not quantified. ### Publication and institutionalization of fiscal risk statements - In December 2020, the first fiscal risks statement was published in Benin and is now expected to become an annual exercise. - Until then, fiscal risks had primarily been presented in summary form in the DPBEP framework in a chapter devoted to uncertainties potentially affecting the budget; that DPBEP section will be retained for macroeconomic risks and issues, but the fiscal risk statement published annually by the DGAE will be the main source of fiscal risk analysis. - Consistency between DPBEP and the DGAE fiscal risk statement should be maintained to ensure the use of a variety of approaches to draw consistent conclusions. - Mechanisms for identifying and analyzing fiscal risks are still being developed: current identification relies on a risk mapping exercise not communicated to the mission and not updated since 2018, and on the expertise of main administrations (DGAE, CAA, DGPED). - The government mentioned strengthening mechanisms to capture changes in risks, but a formal, detailed institutional framework is lacking; in the absence of a robust systematic identification process, it is difficult to ensure main issues are identified. - The fiscal risk report organization draws from international best practices and includes macroeconomic risks, financial risks, public debt risks, and other specific fiscal risks (government contingent liabilities, legal risks, natural disasters, pension systems, PPPs, institutional risks). - The report might include an introductory chapter on the framework for identifying and analyzing fiscal risks to present Benin’s approach more effectively. ### Quality and scope of analyses in the fiscal risk statement - The analyses presented in the fiscal risk statement are substantially qualitative; quantitative analyses require continued effort. - Various risks are included in qualitative presentations with details and main issues highlighted; quantitative analysis is less uniform and probability analyses are not present. - Modeling is used to reflect the scale of macroeconomic risks and their fiscal impact; analyses for other risks are more limited or nonexistent. - The mission assessed the impact of certain risks based on available information and suggested enhancement with completion of the fiscal risk analysis document. ### Review of quantitative analyses presented (high-level findings) - Public guarantees: Amount of public guarantees presented; fiscal impact of the risk not quantified—area for improvement: fiscal impact of the risk. - Financial sector: Fiscal stability factors and indicators presented; area for improvement: explicit government support for the financial sector. - Public debt: Presentation of refinancing risk, interest rate risk, and foreign exchange risk; area for improvement: fiscal impacts of these risks. - Public corporations: Amount of public enterprise debt presented; area for improvement: analysis of performance and fiscal impacts (debt, liquidity). - Pensions: Changes in results of the CNSS and FNRB and short-term projections presented; area for improvement: long-term sustainability analysis based on actuarial studies. - Natural disasters: Presentation and analysis of certain risks (climate, health); area for improvement: selection and analysis of risks identified as priorities in the National Contingency Plan. - Legal risks: Presentation of risks related to administrative vehicle accidents; area for improvement: analysis of all legal risks (expropriation, major proceedings) or justification of significance. - PPP: Absence of quantitative analyses; area for improvement: presentation of rights, obligations, contingent liabilities, expected revenue and payments. - Institutional risks: Absence of quantitative analyses; area for improvement: identification of key institutional risks and analyses of time series (forecasting gaps, volatilities). ### Specific fiscal risks: selection, quantification, cost impact, mitigation (selected entries preserved verbatim) - Macroeconomic risks - Price of cotton: Scope High; Probability High; Impact on public revenue: -1.5% of GDP; Shock: 10% decline in cotton prices; Mitigation: Promotion of new sectors; Source: DR B. - Impact of a change in the exchange rate: Scope High; Probability Low; Impact on fiscal revenue: -2.7 % of GDP; Shock: 10% decline in the naira against the CFA franc; Mitigation: Modernization of financial authorities; Increase in density of the production fabric; Source: DR B. - Impact of the closing of borders with Nigeria: Scope Medium; Probability High; Quantification: not provided; Source: DR B. - Impact of a major health crisis: Scope High; Probability Low; Impact on public revenue: -2.5 % of GDP; Trigger: Impact of the COVID crisis; Source: DR B. - Public debt risks - Refinancing risks: Scope Low; Probability High; Impact on public expenditure: 0.1 % of GDP; Shock: One-year deferral of debt payment (impact on interest payable as a result of a 1% increase in interest rates); Mitigation: Extension of maturities for portfolio instruments; Source: DR B, AVD. - Interest rate risks: Scope Low; Probability Low; Not quantified; Mitigation: Priority for fixed-rate debt; Source: DR B. - Foreign exchange risks: Scope Medium; Probability Low; Not quantified; Mitigation: Priority for debt in local currency or in euro; Source: DR B. - Pension systems - Risks related to the CNSS: Scope Low; Probability Low; Not quantified. - Risks related to the FNRB: Scope High; Probability High; Impact on public expenditure: 0.7 % of GDP; Impact of the assumption of the FNRB deficit in the government budget for the year; Source: Report on the FNRB 2017-2022 projections. - Financial sector - Risks related to deposit guarantees for savers: Scope High; Probability Low; Impact on public expenditure: 0-5% of GDP; Risk of government compensating savers if there is a shortfall in the regional deposit guarantee system; Mitigation: WAMU Deposit Guarantee and Resolution Fund (FADUMA); Sources: DR B; BCEAO (Annual Reports and Report of the Banking Commission). - Risks related to recapitalization of a financial institution: Scope Medium; Probability Low; Impact on public expenditure: 0.3 % of GDP; Mitigation: recapitalization of a commercial bank; WAMU Deposit Guarantee and Resolution Fund (FAD-UMOA); Prudential rules and capital requirements; Financial Sector Stability Analysis and stress testing; Sources: BCEAO (Annual Reports and Report of the Banking Commission). - Environmental risks - Impacts of natural disasters: Scope High; Probability High; Loss of assets: 0.26% of GDP; Source: 2020 National Contingency Plan. - Subnational governments - Arrears of municipalities to be assumed by the government: Scope Medium; Probability High; Impact on public expenditure: 0.1% of GDP; Mitigation: Monitoring of local finances; Monitoring of budget execution of local authorities; Source: DG CL. - Public corporations (selected) - Increase in subsidies above forecast: Scope Medium; Probability Medium; Impact on public expenditure: 0.1% of GDP; Mitigation: budget exercises with public corporations; monitoring of performance and budget execution; Source: DPBEP. - Default on on-lending arrangement and payment by the government: Scope Medium; Probability High; Impact on public expenditure: 0.2% of GDP; Mitigation: monitoring of public corporations’ performance and debt; Sources: CAA, DGPED. - Recapitalization of a public enterprise: Scope Medium; Probability Low; Impact on public expenditure: 0.1% of GDP; Mitigation: control of public corporations (internal and external audit), monitoring of performance, financial statements; Source: Report of the DGPED. ### Long-term fiscal sustainability analysis (assessment: Not met) - The budget documents contain a debt sustainability analysis carried out annually with a horizon of approximately 20 years. - Scope of debt coverage includes central government domestic and foreign debt, including IMF debt, Treasury bonds, and central government guarantees. - A number of shock scenarios are developed to test long-term debt sustainability. - Long-term financial trajectories for Social Security and Health Insurance Funds were analyzed in actuarial studies: CNSS studies in 2016 and 2018; FNRB in 2009. The 2016 CNSS Actuarial Study includes population and labor market projections with a 40-year horizon. - The FNRB 2017-2022 outlook projected its financial situation for the next 30 years based on reform scenarios without explaining methodology or macroeconomic assumptions used. - Authorities do not regularly publish analyses of financial trajectories of social security and health insurance funds; CNSS actuarial studies are not available on its website. - The FNRB is preparing to launch an actuarial study more than 10 years after the 2009 study; its current deficit was estimated at 0.7 percent of GDP in 2017. - FNRB projections for 2017-2022 show that, without reform, the Fund’s deficit would persist, amounting to more than [CFAF] 100 billion in 2050, equivalent to 1.1 percent of GDP in 2020. - Debt sustainability reports provide information on primary deficit, gross financing requirements, and macroeconomic assumptions, but budget documentation does not contain information on long-term fiscal sustainability and expected trends in overall net worth. - The economy faces complex dynamics influenced by population growth and requires thorough analysis of long-term fiscal developments. - Recommendations: develop long-term budget projections to capture prospect of increased spending on retirement and health care; publish actuarial studies; carry out budget sustainability analyses using a range of macroeconomic and demographic assumptions. ### Fiscal risk management — budgetary contingencies - Different types of reserves are provided to address unforeseen and emergency situations: - Article 17 of the Organic Law of 2013 (LOLF) provides that global appropriations, established as allowances, are provided in a budget law to cover accidental and unpredictable expenditure. - Pending full implementation of organic provisions, an envelope of unallocated global appropriations is provided within the Ministry of Economy and Finance to cover such expenditure. - The budget provides appropriations to cover additional expenditure deriving from natural disasters via a Special Treasury Account (CST) named “Disaster Prevention and Management." - The cumulative amounts of these two envelopes represent an average of approximately 10 percent of the Initial Budget Law appropriations during the past four years, compared with an average of 1-3 percent of appropriations in other countries. - Contingency figures (Billions of CFA francs): total government budget expenditure; reserves, Initial Budget Law; Special appropriation accounts; Common expenditure; Total; Percent of reserves / budget expenditure: - 2018: Total government budget expenditure 1,406.32; Reserves, Initial Budget Law 1.30; Special appropriation accounts 160.24; Common expenditure 161.54; Percent of reserves / budget expenditure 11.5 %. - 2019: Total government budget expenditure 1,373.04; Reserves, Initial Budget Law 0.80; Special appropriation accounts 137.68; Common expenditure 138.48; Percent of reserves / budget expenditure 10.1 %. - 2020: Total government budget expenditure 1,486.90; Reserves, Initial Budget Law 1.5; Special appropriation accounts 166.75; Common expenditure 168.25; Percent of reserves / budget expenditure 11.3 %. - 2021: Total government budget expenditure 1,780.23; Reserves, Initial Budget Law 3.00; Special appropriation accounts 238.37; Common expenditure 241.37; Percent of reserves / budget expenditure 13.6 %. - Mechanisms for estimating these reserves are unclear and budget execution documents cannot be used to establish linkages with the various risks and shocks they are designed to cover: - Calculation mechanisms are not provided in detail in budget documentation; Directorate General of Budget appears to use historical execution observed in previous years as a basis without linkage to fiscal risk analysis. - Use of appropriations is not listed in detail in quarterly budget execution reports (RTEB), so RTEBs do not identify shocks to which appropriations were applied (e.g., 2020 COVID-19 or 2019 consumption of envelope without significant shock). - The overall appropriation envelope appears more as a management facility than a reserve for unforeseen events; some appropriations are pre-allocated within the envelope (contributions to international organizations, conference expenses, mission expenses, feasibility studies, support for modernization of information systems) and thus cannot be considered general reserves. - Implementation of program budgeting, including preparation of an allocation for unforeseen and incidental expenses, will provide an opportunity to specify the basis for calculating allocations and to report on their use more accurately. *Source: Mission; DPBEP; DGAE; Budget Laws 2018–2021; CNSS and FNRB reports as cited in the source content.* ### 81. Conditions for the use of global appropriations are not specified. The second annex ### 1benea2022001 - 81. Conditions for the use of global appropriations are not specified. The second annex ### Global appropriations and contingency use - Conditions for the use of global appropriations are not specified in the main text. - The second annex to the annual circular announcing the appropriations specifies practical mechanisms ministries can use to access the global appropriations (examples listed: prior technical opinions from the DGB; production of a financing sheet validated by the DGB; production of supporting documentation). - The types of situations that may allow release of appropriations through the global appropriation envelope, and the conditions for that purpose, are not specified. - Recommendation/observation: Benin might draw from practices established in some countries (see Box 3.1) to devise a better framework for the terms and conditions for using these appropriations. Box 3.1 — Example rule (South Africa) - Use of the budget contingency reserve is limited to “inevitable and unpredictable” expenditure. - Expenditure items defined as not inevitable and unpredictable: - (i) expenditure known at the time of budget preparation but that has not been adopted in this context; - (ii) increases deriving from tariff adjustments or price increases; - (iii) expenditure relating to an increase in public service resources or the creation of new services. - Natural disasters caused by extreme climate conditions cited as an example of unavoidable and unpredictable situations. ### Asset and liability management — Basic - Borrowing and financial commitments: - Borrowing is authorized by the Budget Law, and only the Minister responsible for Finance may undertake borrowing on behalf of the government. - Article 9 of Decree 2015-581 specifies that only the Minister responsible for Finance is authorized to undertake financial commitments for the government. - Public debt management is under the authority of the Caisse Autonome d’Amortissement (CAA). - WAEMU rules and debt position: - Benin subject to debt regulations defined by the WAEMU Convergence Pact. - Benin required to comply with the rule of 70 percent of GDP defined in the framework of the WAEMU area Convergence Pact. - At end of 2020, debt ratio reported as 46 percent of GDP (noting a recent increase connected with the COVID-19 health crisis: +5 percentage points of GDP). - Fiscal risk analysis coverage: - Medium-term debt strategy (SDMT), annual government debt strategy, the DPBEP, and annual report on fiscal risks contain analyses covering refinancing risks, interest rate risks, and exchange rate risks; analyses are based on debt amortization profiles. - CAA conducts debt sustainability analysis. - Asset and liability stocktaking and reporting gaps: - Authorities taking stock of financial and nonfinancial assets; projects in progress related to accrual accounting and preparation of government balance sheet. - Survey of nonfinancial assets/liabilities to be conducted by Directorate General of Materials and Logistics (DGML). - No consolidated view of financial assets currently determined; DGPED does not track some financial holdings. - Government cash flow still divided among several accounts despite creation of the Treasury Single Account. - Government assets are not subject to risk analysis or public reporting; no analysis of fiscal risks connected with government assets. - Recommendation/observation: conduct fiscal risk analysis exercises to monitor government assets and liabilities more effectively. - Legal framework for acquisition/disposal of key assets: - Major acquisitions/transfers authorized by law but no regulatory framework for systematic supervision of key acquisitions or transfers. - Recommendation/observation: develop and publish a government asset and liability strategy to ensure consistency with public administration objectives. ### Guarantees — Good - Legal framework: - General framework covered by 2013 LOLF, specifically articles 17 and 46, and various regulatory texts detailing mechanisms. - Texts specify: (i) scope of publicly-guaranteed debt; (ii) limits for granting guarantees and annual establishment of a guarantee ceiling within the debt management strategy document annexed to the Budget Law; (iii) competence issues (exclusive competence of the Minister responsible for Finance to grant government guarantees); (iv) entities eligible for government guarantees or onlending; (v) technical conditions for management of guarantees and onlending (processing fee representing one percent of the guaranteed amount, securing reimbursements with escrow account, etc.). - Monitoring and reporting in practice: - CAA ensures processing, centralization, and monitoring of guarantees and onlending arrangements. - Annual Government Debt Strategy Paper and Medium-Term Debt Strategy specify government’s strategy for issuing new guarantees. - Statistical debt bulletin produced and published quarterly; Debt Management Report inventories existing guarantees and outstanding balances. - All these documents are available online at the CAA’s website. - The only guarantee listed to date concerns the SBEE, in connection with a loan of CFAF 27 billion granted in 2018. - This information is included in the fiscal risk analysis paper annexed to the Budget Law and published at the DGB’s website. - Remaining gaps and planned actions: - Framework should be supplemented to comply with provisions of the LOLF and include an assessment of risks of occurrence. - The special account for guarantees and endorsements (Article 46 of the LOLF) and allocation to cover execution of guarantees reflected in the special account have yet to be produced. - Objective of the authorities: start producing this information in 2022. - Suggested reporting vehicles: annual performance document of the Special Guarantee and Endorsement Account; fiscal risk analysis paper; annual public debt strategy paper annexed to the Budget Law. ### Public-private partnerships (PPP) — Not met - Ambitions vs. implementation: - PPPs are prominent in government action program (2016 -2021); PPPs represent 61 percent of the projects in the program for infrastructure deployment in energy, water, road, administrative sectors. - No PPPs concluded to date; several projects in PPP catalog are in feasibility study phase. - Legal/institutional weaknesses: - Legal framework for PPPs established by Law 2016-24 of June 28, 2017. - Framework only partially covers fiscal risks linked to PPPs: does not establish a ceiling for explicit or conditional commitments under PPPs; facilitates spontaneous bids; lacks publication requirement for revenue, expenditure, rights, obligations, or commitments of the government related to PPPs. - Institutional and risk analysis framework: - Institutional framework relies on Ministry of Finance and Analysis and Investigation Office (BAI) reporting to Presidency to conduct feasibility studies and assess fiscal risks. - DGB involved in feasibility and fiscal sustainability studies; mission was not given access to such studies. - Sector ministries involved in selection and monitoring of projects; APIEX involved in promotion. - Fiscal risks related to PPPs are mentioned in annual fiscal risk report but are not analyzed owing to absence of underlying projects; methods for quantifying these risks not provided in detail. - Noted anticipation: - Anticipation of first PPP contracts; effectiveness of institutional/risk framework should be assessed once contracts executed. Additional contextual note from footnotes/boxes: - Footnote: An initial contract on the Glo-Djigbé International Airport reportedly in process of being concluded; initially identified as a PPP; mobilizes both public and private Chinese capital. Mission lacks detailed information on this project. ### Financial sector exposure — Not met - Regulatory framework and supervision: - Banking regulation decided largely at West African Monetary Union (WAMU) level and transposed nationally. - 2016 decisions strengthened prudential supervision in WAMU and consolidated supervision. - Banking chart of accounts revised; regulations approaching Basel II and III frameworks. - Benin is member of the Inter-African Conference of Insurance Markets (CIMA); insurance sector governed by CIMA Code. - Decentralized financial systems (microfinance) regulated and monitored at community level. - Bank ownership and external exposure: - Benin has 14 banks licensed by the BCEAO; all are banks or subsidiaries of international or subregional banks except Banque Internationale pour l’Industrie et le Commerce (BIIC), whose shares are substantially publicly held. - Risks from foreign ownership could be systemic or linked to crises in parent companies’ home countries. - Monitoring institutions: - Community-level monitoring: BCEAO; WAMU Banking Commission (established 1990, texts revised 2007); Financial Stability Committee (established 2010) with macroprudential remit. - BCEAO monitors decentralized financial systems. - National-level monitoring: Insurance Directorate; National Agency for the Surveillance of Decentralized Financial Systems (ANSSFD). - A Directorate General of the Financial Sector expected to be created within the Ministry of Economy and Finance (per Decree 2021-307 of June 9, 2021) with broad responsibilities including implementation of national policy on regulation and consultations with financial sector, insurance market surveillance, and implementation of national financial inclusion strategy. - Publication and analysis gaps: - No published analyses on financial sector stability by authorities; BCEAO conducts internal periodic analyses and stress testing but these are not published. - Balance sheets and income statements of banks and financial institutions are published in consolidated, anonymous form with delay; example given: 2019 items published in March 2021. - These data included in the annual report on fiscal risks. - Prudential status (Table 3.5 figures at December 31, 2020): - Minimum ratio (CET 1): 15.03% — Regulatory threshold: 6.25% - Minimum ratio (T 1): 13.68% — Regulatory threshold: 7.25% - Total solvency ratio: 14.53% — Regulatory threshold: 9.5% - Leverage ratio: 5.7% — Regulatory threshold: 3% - Liquidity ratio: 111.6% — Regulatory threshold: 75% - Source: BCEAO, Annual Report of the Banking Commission. - Observation: At consolidated level, solvency, leverage, and liquidity ratios are above regulatory thresholds; only one bank (not identified in BCEAO documentation) failed to comply with solvency requirements (T1 and total solvency ratios). - Explicit fiscal support and institutions creating fiscal risk: - Several sources of explicit support between financial sector and central government exist without specific analyses or publications. - Creation of Caisse des Dépôts et Consignations du Benin (CDCB) in 2018 entails fiscal risks similar to financial sector: - CDCB not a regulated financial institution but will engage in investment, lending, and guarantee activities similar to a bank. - Government is guarantor of last resort for CDCB liabilities. - CDCB capital ratio: 20 percent (pursuant to Basel II / Basel III standards). - CDCB equity capital: CFAF 78 billion, deriving primarily from initial capitalization of CFAF 10 billion and from asset transfers. - Reporting on CDCB activities and commitments appears limited; information insufficient to assess associated risks. - Box 3.2 — Key sources of explicit fiscal support to the financial sector (selected figures and points) - Direct government holdings in several financial institutions, including BIIC and Africaine des Assurances du Bénin (AAB). BIIC total balance sheet at end-2020: CFAF 265 billion. - Shareholding in AAB: government just under 3 percent; CNSS 15 percent. - Consolidated list of government holdings in the financial sector is not published. - Postal Service of Benin offers financial services but is not subject to BCEAO supervision; supervised primarily by ARCEP. - PADME (microfinance association established by government): balance sheet CFAF 37 billion at end-2020; company will be converted into public enterprise with CFAF 25 billion in public shareholding. - National Microfinance Fund (FNM): balance sheet of more than CFAF 50 billion; carries out financing activities similar to banks; not licensed, not regulated, not supervised by BCEAO; benefits from internal/external control mechanisms and IGF controls. - UMOA Deposit Guarantee and Resolution Fund (FGDR UMOA): established 2014 to insure savers’ deposits; no analysis available on adequacy of its resources. - Bank deposits in Benin at end-2020: - Demand deposits: CFAF 1.513 trillion (22 percent of GDP) - Time deposits: CFAF 1.728 trillion (25 percent of GDP) - Deposits in decentralized financial systems at end-2020: - Demand deposits: CFAF 67 billion (1 percent of GDP) - Time deposits: CFAF 60 billion (1 percent of GDP) *Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1benea2022001.pdf* ### 101. This lack of information concerning explicit support to the financial sector prevents ### 1benea2022001 - 101. This lack of information concerning explicit support to the financial sector prevents ### Financial sector interventions and fiscal risk - Lack of information concerning explicit support to the financial sector prevents an adequate assessment of financial sector related risk, although the government has intervened in the financial sector during recent years. - International experience has shown that fiscal risks in connection with the financial sector have traditionally been substantial. While they have also materialized in Benin, no complete history was communicated to the mission. - Government interventions cited: - Banque Internationale du Bénin (BIBE) in 2014: subsequently held 55 percent by the government and 45 percent by the CNSS. - Banque Africaine pour l’Industrie et le Commerce (BAIC) in 2017. - The two entities were merged in 2020 to create the BIIC. - Note: The exact amounts of various interventions and recapitalizations were not communicated to the mission. ### Natural resources - Not applicable (section heading). - Current exploitation and contribution: - To date, no significant natural resources are being exploited in Benin and the potential resources are not being estimated. - Extraction resources contribute just under 0.4 percent of GDP. - Identified resources (no reliable estimates of volume or value available): - Gold, construction materials (such as limestone and marble), iron, and phosphates. - Exploration areas: Nickel, rutile, zirconia, and diamonds. - Table 3.6. Contribution of the Extractive Sector to Benin’s Economy (values in Billions of CFA francs): - Value added of the extractive sector: 2015: 26.09; 2016: 26.56; 2017: 28.27; 2018: 30.50; 2019: 34.40; 2020: 39.08 - Share of GDP: 0.4% (2015), 0.4% (2016), 0.4% (2017), 0.4% (2018), 0.4% (2019), 0.4% (2020) - Value of exports: 2015: -; 2016: -; 2017: -; 2018: 0.01; 2019: 0.27; 2020: 0.29 - Developments and policy signals: - Since 2016, the government has intensified its research activity with a view to future exploitation starts. - A new mining code was being discussed in the National Assembly at the time of the mission to make the sector more attractive and to develop investment. - Footnotes/related figures: - For example, on the microcredit program for the poorest sectors, with a fund of nearly CFAF 20 billion, the FNM disbursed CFAF 72 billion at September 30, 2019 (including the disbursement of reimbursements), with a reimbursement rate of 74 percent. - The capital stock of BAIC, initially CFAF 14 billion, was increased to CFAF 24 billion during the operation, that was fully subscribed by the government and the public sector. ### Environmental risks - Overall assessment: - Benin faces several types of environmental risks that are clearly identified and published, but their financial impact is subject to different interpretations despite a high level of priority. - The World Disaster Risk Index (WRI) ranks Benin thirtieth among the world’s highest risk countries and tenth in Sub-Saharan Africa. - Historical impacts: - Flooding episode in 2010 caused significant losses and damage (approximately CFAF 126 billion) and affected the agricultural sector. - COVID-19 pandemic caused a loss of GDP growth in 2020: 3.8 percent, as against an initial forecast of 7.6 percent. - National assessments and major identified risks: - National Contingency Plan (2020) classified main hazards and highlighted major risks: floods, epidemics, fires, and coastal erosion. Fires and coastal erosion are not included in the fiscal risk analysis and are not subject to quantified estimates. - Table 3.7. Classification of the Main Environmental Risks in Benin (selected entries): - Floods: Vulnerability 13; Occurrence of hazard 14; Risk Total effective 1.65%; Ranking 1 - Epidemics: Vulnerability 14; Occurrence of hazard 12; Risk Total effective 1.52%; Ranking 2 - Fires: Vulnerability 10; Occurrence of hazard 12; Risk Total effective 1.09%; Ranking 3 - Coastal erosion: Vulnerability 9; Occurrence of hazard 12; Risk Total effective 0.98%; Ranking 4 - Sociopolitical crises: Vulnerability 12; Occurrence of hazard 9; Risk Total effective 0.98%; Ranking 4 - Other hazards listed with values include Piracy, Nuclear/radiological/biological/chemical risks, Earthquakes, Marine pollution, Strong winds, Earth displacement, Landslides, Terrorism, Transhumance, Drought (each with corresponding vulnerability, occurrence, risk total effective, and ranking as detailed in Table 3.7). - Financial instruments and capacities: - Two existing instruments: National Disaster Response Fund (FONCAT) and Environment and Climate Adaptation Fund (FNEC). - FNEC budget (special appropriation account managed by MEF): CFAF 1.5 billion in 2020, and CFAF 3 billion in 2021; FNEC as public institution reports to the Ministry of Living Environment and Sustainable Development (MCVDD) and finances projects to fight climate change with a limited budget (CFAF 24 million in 2020). - Benin is a member of African Risk Capacity. - Strategic and institutional issues: - Environmental risk strategy appears fragmented and difficult to assess; multiple strategic documents lack overall consistency. - National Policy on Integrated Disaster Prevention and Management (NRGIC) developed in 2016; National Contingency Plan updated in 2020. - Strategic plan for FNEC since 2016; Benin submitted its nationally-determined contribution under the Paris Climate Accords in 2015. - Sector-level strategic documents exist (e.g., agricultural sector), but coordination and quantification of risks and mitigation requirements are inconsistent. - Efforts since 2019 to develop a National Climate Change Adaptation Plan (CTPNA) to provide a comprehensive, coordinated overview and promote integration of climate change issues into public policies. ### Fiscal coordination — Subnational governments (CTDs) - Institutional and fiscal profile: - CTDs comprised of 77 municipalities, including special status municipalities (Cotonou, Porto Novo, Parakou). - They receive earmarked and non-earmarked transfers from the Community Development Support Fund (FADEC) and have own resources (fees and taxes). - Revenue and expenditure of CTDs have accounted for less than 1 percent of GDP during recent years. - DPBEP devotes several sections to CTDs in accordance with the LOLF (Articles 56 and 58); DPBEP and an analytical memorandum present aggregated information at the national level and three-year outlook. - CONAFIL publishes detailed revenue and expenditure information and comparative ratios, and prepares an annual publication analyzing municipal finances; latest website data dated to 2018 at the time of the mission and last physical publication dated to 2016. - Table 3.8. Benin: CTD Revenue and Expenditure 2018-21 (In billions of CFAF): - Revenue: 2018: 81.1; 2019: 90.2; 2020: 84.2; 2021 (forecast): 87.3 - Expenditure: 2018: 66.0; 2019: 67.2; 2020: 68.5; 2021 (forecast): 70.4 - Percent of GDP (expenditure): 0.8% (2018), 0.8% (2019), 0.8% (2020), 0.8% (2021 forecast) - Borrowing framework and risks: - In practice, subnational governments do not have recourse to borrowing, but borrowing is not subject to any rules or limits. - Main legal texts focus on procedural rules (obligation to submit detailed list of debts to the Minister responsible for Finance; Prefect’s control over borrowing activities) but do not cap recourse to borrowing. - Government intends to strengthen access for CTDs to borrowing through establishment of a single window managed by the CAA — this merits special attention given lack of borrowing limits. ### Fiscal coordination — Public corporations - Scope, size, and economic importance: - Public enterprise sector comprised of 24 nonfinancial public corporations under Law 2020-20 of September 2, 2020. - DGPED responsible for monitoring the government’s portfolio since 2016; corporations also subject to line ministry oversight. - Public corporation revenue in 2019: CFAF 386 billion (5.9 points of GDP); net result in 2019: CFAF 60 billion (1 point of GDP). - Some corporations operate in monopoly situations in key sectors (e.g., supply of energy, drinking water, transportation). - Some large public corporations (SBEE, PAC) have been placed under management mandate with 10-year performance agreements. - Coverage and monitoring gaps: - Scope of public corporations under DGPED supervision does not cover all companies in which the government holds stakes; there are more than 60 government investments (majority and minority) according to information provided to the mission. - No consolidated monitoring system for all government holdings (public corporations and other corporations in which government has holdings). - Financial flows and risks: - Main financial transfers between central government and public corporations are presented in DPBEP (subsidies, taxes, and dividends). - Onlending arrangements by public corporations amounted to CFAF 293 billion at the end of 2019, equivalent to almost 4.5 percent of GDP. - Key risk: servicing onlending arrangements depends on public corporation cash flow, potentially creating the need for escrow accounts to cover debt service. Central government services onlending arrangements with lenders and then collects funds from government corporations, undertaking risk of default or delays by public corporations. - Multiple transmission mechanisms create significant risks for government deficit and debt: debt, recapitalization, restructuring, guarantees, onlending arrangements, subsidies, and impact on government revenue. - Example liabilities: public entities (including public corporations) have liabilities of approximately CFAF 77 billion with the CNSS. - Policy and institutional responses: - Authorities are considering measures to take risks from public corporations into account in the overall fiscal risk analysis framework. - Institutional framework established for monitoring and management: strengthening role of DGPED and CAA in collecting and analyzing unsecured bank debt of public corporations; plan to introduce measures to consolidate central government tax accounts with financial statements of public corporations. - In 2018, government adopted an investment policy (yet to be published) and has developed performance contracts to establish targets for public corporations and improve performance; as of December 2019, eight contracts had been executed (ONAB, CNCB, COBENAM, SOGEMA, LNB, SOBEMAP, CNERTP, LPB). - Government participation strategy defined in December 2018 is pending validation and has not been published; it presents legal/regulatory framework and strategic thrusts (improved management, returns on assets, rehabilitation of financial relations, enhanced monitoring and supervision) and defines mechanisms for evaluation and monitoring. *Italic: Extracted from 1benea2022001 PDF content provided.* ### 115. The DGPED produces an annual paper on the developments and performance of ### 1benea2022001 - 115. The DGPED produces an annual paper on the developments and performance of ### Portfolio analysis and DGPED paper - The DGPED produces an annual paper presenting: - the financial performance of the portfolio, - major developments in the portfolio, - main issues in governance and portfolio monitoring or oversight. - The performance analysis may be supported by ratios to measure financial performance, liquidity risks, or solvency risks of public corporations (examples given: operating profit or loss margin, net profit or loss margin, return on assets, return on capital, liquidity ratio, and leverage ratio). - The paper might be gradually extended to cover all performance and risk issues affecting the government’s portfolio. ### Quasi-budgetary activities and reporting gaps - Some public corporations (including SBEE and SONEB) engage in quasi-budgetary activities (such as public infrastructure financing) or are subject to mandatory social tariffs or regulated prices. - Reporting on the cost of these activities is fragmented and cannot be used to prepare accurate estimates, creating the risk that activities will be compensated below costs (on a forecast or execution basis). ### Fiscal risk estimation challenges - Fiscal risks linked to the public corporations portfolio are difficult to estimate in Benin due to the absence of a consolidated monitoring document. - Available information appears insufficient for fiscal information communicated to Parliament for the annual Budget Law approval. - Multiple forms of financing exist: transfers, guarantees, on-lending, reciprocal claims, etc. - Lack of information is also attributable to very late reporting of public corporations accounts. ### Conclusions and overarching recommendations - Benin has initiated a virtuous dynamic in fiscal risk analysis and publication of fiscal and financial data, reflected in the publication of a fiscal risk analysis document appended to the draft budget law (PLF 2021) and extensive documentation available online. - These efforts should be consolidated to reach best practices: - Supplement current analysis to better monitor risks associated with government holdings in public corporations and generalize quantification of identified risks and their fiscal and financial impacts. - Continue publishing documents required by the Fiscal Transparency Code (examples: actuarial projections of social security funds, stress tests of financial sector institutions). - Improve administrative organization and legal frameworks (examples: Directorate General of the Financial Sector; legal development for PPPs and subnational governments). - Better coordinate the risk analysis function with financial and budget instruments designed to mitigate risks (budget reserves, disaster funds, etc.). ### Detailed recommendations (Three key recommendations for Pillar III) - Recommendation 3.1 — Publication of budget and financial data should be supplemented: - Continue process of publishing fiscal and financial information per the Fiscal Transparency Code; specific components to continue publishing (marked “within reach”): - Reports on actuarial studies and analyses of long-term financial situation of existing social security funds, health insurance funds, and pension schemes (CNSS and FNRB) (within reach); - Current financial information from the municipalities and recent versions of the publication "The Municipalities of Benin in Figures" (within reach); - The 2018 government investment strategy (within reach); - Comprehensive analyses of the performance of public corporations within the framework of the annual paper published by DGPED (within reach); - The government’s rights, obligations, and other commitments, including conditional commitments, in connection with PPPs, and the related revenue and payments expected during the term of the contracts; - Information on mining resources as the results of prospecting activities become available; - Information relating to all of the government’s holdings (including in financial public corporations). - Supplement budget and accounting documents in accordance with the organic law and the PCE (examples: the DPPD on Guarantee and Endorsement Account, DPPD on Special Appropriation Account for disaster management and prevention, endowment for non-reimbursement or execution of guarantees, statement on off-balance sheet commitments (EHB), and, if applicable, the justification for the allocated amounts consistently with the information provided in the fiscal risks statement). - Report the use of these appropriations in the quarterly budget execution report and monitor them in the annual cash flow plan (within reach). - Recommendation 3.2 — Expand fiscal risk analysis toward best practices: - Update internal risk mapping annually and systematically coordinate it with the chapter on uncertainty in the DPBEP and fiscal risk statement (DRB). - Generalize quantitative analysis in the fiscal risk statement (DRB) and estimate impacts of economic shocks on revenue, expenditure, wage bill, and debt, including: - Development of a systematic assessment of the scale of fiscal risks; - Introduction of estimation of the probability that the principal fiscal risks will occur; - Assessment of the criticality of each risk based on previous assessments. - Supplement analyses for specific risks and incorporate them into the fiscal risk statement: - Environmental risks/natural disasters: cover all priorities defined by the national contingency plan and refine analysis to better understand fiscal impact; - Pension and social security systems: conduct actuarial studies of all social security, pension, and health insurance funds regularly (at least once every five years); - Guarantees: establish a methodology to assess and classify the level of risk associated with each guarantee and report this in the budget; - Financial sector: expand analysis of the government’s explicit support to the financial sector to reflect all government holdings in the financial sector and mechanisms to guarantee savers’ deposits (banking sector and decentralized financial sector); - Public corporations: strengthen analysis of public corporations’ performance (for example, using the SOE Health Check Tool developed by the IMF). - Recommendation 3.3 — Strengthen the institutional and legal framework: - Ensure consolidated monitoring of the government’s financial assets (including treasury cash, in connection with the Treasury Single Account, and the government’s holdings) and develop a government asset strategy in connection with deployment of accrual accounting. - Introduce a limit into the law on the government’s cumulative obligations in connection with public-private partnerships (for example, a limit on future annual payments under the PPP portfolio) and a limit on local government recourse to borrowing. - Continue development of a consolidated view of the government portfolio related to public corporations and assure supervision of the government’s financial holdings, including the financial activities of the Postal Service of Benin. - Develop a framework document specifying rules and conditions for the use of global appropriations set aside for addressing contingencies. ### Key statistics and assessments (from Table 3.9 summary) - Public corporations’ assets account for 11.6 percent of GDP. - The FNRB deficit was 0.7 percent in 2017. - The ambitions of the PAG in terms of mobilizing PPPs: 61 per cent of projects. - Example financial sector exposure: BIIC balance sheet: 4.1 percent of GDP. - Extraction resources contribute just under 0.4 per cent of GDP. - Decentralized local authorities (CTD) finances accounted for an average of less than 1 percent of GDP during the past four years. - Budget reserves represent an average of more than 10 percent of the appropriations established. - Actuarial studies of social security, pension, and health insurance funds should be conducted regularly (at least once every five years). - Summary of principle-level assessments (selected): - 3.1.1 Macroeconomic risks: Good; Importance Medium; Recommendation 3.2. - 3.1.2 Specific fiscal risks: Basic; Importance High; Recommendation 3.1, 3.2. - 3.1.3 Long-term fiscal sustainability analysis: Not met; Importance High; Recommendation 3.1, 3.2. - 3.2.1 Budgetary contingencies: Basic; Importance Medium; Recommendation 3.1. - 3.2.2 Asset and liability management: Basic; Importance Low; Recommendation 3.3. - 3.2.3 Guarantees: Good; Importance Low. - 3.2.4 Public-private partnerships: Not met; Importance High; Recommendation 3.3. - 3.2.5 Financial sector exposure: Not met; Importance High; Recommendation 3.2, 3.3. - 3.2.6 Natural resources: N/A; Importance Low. - 3.2.7 Environmental risks: Basic; Importance Medium; Recommendation 3.1. - 3.3.1 Subnational governments: Basic; Importance Low; Recommendation 3.1, 3.3. - 3.3.2 Public corporations: Basic; Importance High; Recommendation 3.1, 3.2, 3.3. *Content unit: 1benea2022001 - 115. The DGPED produces an annual paper on the developments and performance of* ### Annex I. Action Plan 2021-2024 ### Annex I. Action Plan 2021-2024 ### Pillar I. Financial reporting — Recommendation 1.1: Improve coverage, production, and dissemination of government finance statistics - Action 1.1.1: Expand coverage of the current TOFE to all units of general government for information available at the MEF. - Produce a TOFE that includes revenue and expenditure aggregates available from EPAs, EPICs, CNSS, and subnational governments. - Expand information to provide breakdowns of major aggregates when data become available. - Produce a consolidated TOFE for all units of general government. - Responsible: CSPEF - Action 1.1.2: Improve TOFE production by reducing the statistical gap and producing explanatory notes covering methodology and source data. - Publish a methodological note explaining data preparation. - Identify sources of discrepancies and target reductions; reflect improvements in pilot GFSM 2001/2014-based TOFE. - Responsible: CSPEF - Action 1.1.3: Develop and publish at least an annual financial balance sheet for budgetary central government. - Use debt statement, balance of the Treasury Single Account, government holdings, and the BGCE for budgetary central government. - Expand to include all of general government and aim for public release. - With introduction of accrual accounting, use new BCGE based on new chart of accounts to steer preparation. - (i) Expand to prepare a complete balance sheet for budgetary government. (ii) Expand scope to prepare a consolidated public sector balance sheet. - Responsible: DGTCP, DGPED, CSPEF, CAA - Action 1.1.4: Release the GFSM 2001/2014-based TOFE. - Inform the public that such information exists even during piloting phase. - Strengthen production to generate the financial balance sheet and the statement of government operations; expand to generate all statements provided by the TOFE Directive. - Responsible: CSPEF - Action 1.1.5: Release a note and bridge table between the two methodologies. - Prepare and disseminate a note explaining methodological differences between the two versions of the TOFE; supplement note as change progresses and explain variations in figures. - Publish comparative notes between the budget balance and the statistical balance. - Responsible: DGB, DGTCP, CSPEF ### Pillar I. Financial reporting — Recommendation 1.2: Improve preparation and external auditing of government accounts and certification time frame - Action 1.2.1: Improve periodicity and timeliness of budget execution reports. - Publish quarterly and monthly budget execution reports with a lag of one month after the reference period, based on the information system. - Identify elements of the preparation process to reduce release lag. - Targets: - (i) Release quarterly outturn reports within one month after the reference period. - (ii) Begin preparation of monthly data. - Monthly reports should be released within 30 days after the reference period. - Responsible: DGB - Action 1.2.2: Accelerate implementation of the new Court of Auditors. - Establish bodies and procedures, develop capacities of judges in certification, correct implementation problems. - Adopt code of procedures and establish all bodies. - (i) Adopt and implement a plan to strengthen capacities for certification of accounts; (ii) activate budget discipline procedure. - (i) Conduct a certification exercise on an experimental basis; (ii) issue first decisions on judgments of authorizing officers. - Milestone: First certification exercise. - Responsible: CC - Action 1.2.3: Reduce delay for publication of audited annual government accounts toward six months. - Reactivate Court of Auditors website and systematically publish audited financial statements as available. - Discuss mechanisms to reduce delays with MEF using automated data production facilities offered by the new information system. - Interim target: reduce delay to seven months. - Final target: observe six-month lag as indicated by the Transparency Code. - Responsible: CC, MEF ### Pillar II. Fiscal forecasting and budgeting — Recommendation 2.1: Strengthen credibility of multiyear and annual forecasts - Action 2.1.1: Strengthen forecast reconciliation exercise. - Present a qualitative analysis of developments in successive real sector and fiscal forecasts in the DPBEP 2022-2024. - Develop methods to explain successive forecast discrepancies in respect of key factors; implement in DPBEP 2023-2025. - Prepare a report on implementation of DPBEP 2022-2024 during the first half of the year. - Responsible: DGAE - Action 2.1.2: Develop analysis of key drivers and assumptions for forecasting macroeconomic aggregates. - Incorporate explanation of assumptions and key drivers for real sector and TOFE into DPBEP 2022-2024. - Extend to all four accounts in subsequent DPBEPs: - DPBEP 2024-2026: incorporate assumptions and drivers for all four accounts. - DPBEP 2025-2027: incorporate assumptions and drivers for all four accounts. - Responsible: DGAE - Action 2.1.3: Review institutional framework and organization of independent evaluation. - Establish assessment team on merger of IPAB and UNACEB comprising members of the Executive and Parliament. - Adopt law and establish the independent institution. - Produce first independent evaluation on the government's forecasts. - Produce second independent evaluation on forecasts and, if possible, on cost of new policies. - Responsible: National Action Plan (PAN), PR ### Pillar II. Fiscal forecasting and budgeting — Recommendation 2.2: Enhance information and analysis of programming documents and budget reports - Action 2.2.1: Improve presentation of information on EPAs. - Present revenue of EPAs by funding source in the budget documents: - 2022 fiscal year, 2023 fiscal year, 2024 fiscal year, 2025 fiscal year. - Responsible: DGB - Action 2.2.2: Conduct a general review of budget programs via a dedicated interministerial entity. - Establish the dedicated interministerial entity and define its role and responsibilities. - Conduct the first review; thereafter annual reviews. - Responsible: Ministry of Finance, Ministry of Public Service, units responsible for results-based management and evaluation of public policies - Action 2.2.3: Strengthen efforts to inform the public and promote public participation in the budget process. - Financial literacy initiatives; responsible: DGB, DGPSIP - Prepare citizens' version of the budget of subnational governments: - 10 authorities, 30 authorities, 77 authorities (phased preparation across years). - Action 2.2.4: Publish all criteria for project appraisal and selection of investment projects, along with feasibility studies to increase transparency. - Publish appraisal and selection criteria and feasibility studies. - Responsible: Financial literacy initiatives - Additional transparency and publications: - Publish reports/studies and analyses of long-term financial situation of social security funds, health insurance funds, and pension schemes (CNSS and FNRB) when available; publish FNRB study when validated; conduct and publish CNSS study regularly. - Publish government’s obligations and other commitments in connection with PPPs, and expected revenue and payments during contract term. - Publish information on mining resources as exploration results become available. - Publish current financial information on subnational governments. - Publish analyses of performance of public corporations within DGPED annual paper and provide more detailed information on performance (balance sheet, cash flow, performance and risk analysis ratios, and financial flows with the government). - Publish information on all government holdings (majority and minority), including in public financial corporations. - Responsible: DGAE, CNSS, DNRB, DGB, BAI, Ministry of Water and Mining, CONAFIN, DGPED, CAA ### Pillar III. Analysis and management of fiscal risks — Recommendation 3.1: Supplement publication of budget and financial data to enhance transparency and risk analysis - Action 3.1.1: Strengthen process of publishing fiscal and financial information in line with Transparency Code. - Responsible: DGB, DGCPT - Action 3.1.2: Supplement budget and accounting documentation in accordance with Organic Budget Law and the PCE. - Provide justification of appropriations according to fiscal impact and probability of risks; adjust appropriations where applicable in connection with the DRB. - Prepare DPPD for guarantee and endorsement account, DPPD for “Disaster management and prevention” special appropriation account, and document on allowance for non reimbursement or execution of guarantees. - Prepare annexed statement of off-balance sheet exposures. - Responsible: DGB, DGCPT - Action 3.1.3: Report implementation of appropriations for contingencies. - Use appropriations in the RTEB and monitor in the annual cash flow plan. - Responsible: DGB, DGCPT ### Pillar III. Analysis and management of fiscal risks — Recommendation 3.2: Expand analysis of risks toward best practices - Action 3.2.1: Update internal risk mapping annually and link systematically to chapter on uncertainty in DPBEP and the budget risk analysis paper (DRB). - Ensure DPBEP and DRB align with key risks identified. - Include analysis of macroeconomic risks for alternative scenarios in chapter on uncertainties in DPBEP covering analysis of fiscal risks. - Responsible: DGAE, DGB - Action 3.2.2: Generalize quantitative analysis in the DRB and estimate impact of shocks on revenue, expenditure, wage bill, and debt. - Develop systematic assessment of the level of fiscal risks. - Estimate probability that principal fiscal risks will occur. - Assess criticality of each risk based on previous evaluations. - Responsible: DGAE, DGB, CAA - Action 3.2.3: Supplement risk analyses for specific risks and incorporate into fiscal risk declaration. - Conduct actuarial studies of all social security, pension, and health insurance funds at least once every five years. - Develop analyses for all explicit government support to the financial sector (government holdings in the financial sector, mechanisms to guarantee deposits). - Strengthen analysis of performance of public enterprises (for example, using the SOE Health Check Tool developed by the IMF). - Responsible: DGAE, DGB, Directorate General of the Financial Sector, CAA, DGPED, CNSS, FNRB ### Pillar III. Analysis and management of fiscal risks — Recommendation 3.3: Strengthen institutional and legal framework - Action 3.3.1: Assure consolidated monitoring of the government’s financial assets. - Develop a government asset management strategy in connection with deployment of accrual accounting. - Coordinate monitoring of government’s financial assets with cash management, Treasury Single Account, and monitoring of government holdings. - Responsible: DGPED, DGCPT - Action 3.3.2: Introduce certain limits into law to provide a better framework for certain risks. - Introduce a limit on cumulative government obligations relating to PPPs (such as a limit on future annual payments in connection with the PPP portfolio) in the 2021 PLF. - Introduce a limit on subnational government borrowing. - Responsible: DGB, BAI, CONAFIL - Action 3.3.3: Continue development of a consolidated overview of the government portfolio and assure supervision of government’s financial holdings. - Incorporate comprehensive, consolidated information on government holdings into budget documentation and present analysis of relevant fiscal risks in the DRB. - Identify all government holdings in the financial sector and strengthen their supervision, including the financial activities of the Postal Service of Benin. - Strengthen supervision and include specific analysis of risks connected with government's holdings in the financial sector in fiscal risk analysis report. - Responsible: DGAE, Directorate General of the Financial Sector, DGPED - Action 3.3.4: Specify rules and conditions for use of global appropriations set aside to address contingencies. - Prepare a framework document. - Responsible: Directorate General of Budget (DGB) ### Annex II. Sources of Data for the Estimation of the Public Sector Financial Balance Sheet in Benin — key data-source mapping - Preface: These detailed data sources for each subsector may serve as a basis for a preliminary exercise in preparing the public sector financial balance sheet; they should not be considered permanent or a replacement for improved accounting data and the move to accrual accounting. - 1. Budgetary central government (BCG) - Revenue and expenditure: Data from the TOFE, as currently compiled. - Financial assets: - (i) deposits: BCEAO Statistical Bulletin; - (ii) holdings: DGPD report on government’s holdings (requires updating to determine market value each year); - (iii) data shared by the CAA on onlending to public industrial and commercial institutions. - Liabilities: - (i) debt: debt management report prepared by the CAA; - (ii) other liabilities: government trial balance (BCGE). - 2. Extrabudgetary central government - Revenue and expenditure: Analytical Note for Public administrative institutions (annual information on total revenue and expenditure, breakdown of revenue into own resources and capital and current transfers) and the multiyear economic and budget programming paper (DPBEP). - Financial assets: Deposits from BCEAO Statistical Bulletin. - Liabilities: Stock of liabilities from the BGCE. - 3. Social Security Funds - Mission could not obtain CNSS financial statements; used alternate sources. - Revenue and expenditure: DPBEP. - Pension liabilities: actuarial report (2016 report used for estimates). - Assets: estimates based on previous financial statements (2015); current CNSS financial statements could generate this information easily. - 4. Subnational governments - Revenue and expenditure: Analytical note from subregional governments and DPBEP. - Financial assets: In absence of other sources, mission estimated financial assets as the difference between subnational government revenue and expenditure between 2013 and 2019. - 5. Nonfinancial public corporations - Revenue and expenditure: DPBEP. - Assets: Financial statements from eight companies shared with the mission; where coverage was incomplete, used 2015 financial statements of Société Beninoise d’Énergie Électrique for estimation. - Liabilities: Note on public enterprise debt and partly from onlending arrangements with EPICs shared with the mission by the CAA. - 6. National Branch of the BCEAO - Revenue and expenditure: BCEAO financial statements used; where data are not disaggregated by country, Benin's share of total assets was used to proportionally allocate revenue and expenditure. - Assets and liabilities: BCEAO financial statements as presented in the BCEAO Statistical Bulletin. *Annex I. Action Plan 2021-2024 (source document).* ### Annex III. Issues Related to Independent Evaluation ### Annex III. Issues Related to Independent Evaluation ### Purpose and scope of independent evaluation - An independent entity should evaluate the credibility of the government's forecasts. - External evaluation provides a more targeted assessment than comparison with alternative forecasts because it can examine assumptions, justification, cost indicators, and policy inputs used to prepare forecasts. - The assessment should preferably consider: - (i) whether the forecasting assumptions, such as GDP growth, exchange and interest rates, and commodity prices, are realistic; - (ii) how these assumptions translate into economic and fiscal projections; - (iii) whether they are consistent with historical relations, trends, and models; - (iv) whether budget forecasts accurately reflect the cost of the existing and announced policies. ### Advanced practice: ex-post evaluation - Advanced independent evaluation goes beyond ex-ante assessment to conduct ex-post evaluation of the government's fiscal performance. - Ex-post evaluation focuses on: - government’s actual fiscal performance relative to its declared fiscal objectives; - where appropriate, compliance with fiscal rules. - This dimension adds credibility and transparency to government's performance reports. ### Assuring independence - Independence can be assured through measures such as: - selection of staff based on merit and clear, impartial appointment procedures; - lengthy, nonrenewable terms of office; - protection of the financing of the entity against the discretion of the executive. - The OECD Principles for Independent Fiscal Institutions provide additional guidance (OECD, 2014b). - True measure of independence often derives from the reputation of the entity, which ultimately depends on its history. *Source: IMF publications on this topic.* --- ### Annex IV. Independent Evaluation of Economic and Fiscal Forecasting in Kenya ### Legal establishment and status - Established in 2007 following a resolution of Parliament. - Legal status strengthened by two laws: - The Tax Management Law of 2009 (FMA), that established the Office as an Office of the Parliamentary Services Commission, and then as a Directorate in 2010. - The Law on Public Financial Management, Articles 9 and 10 of which contain other provisions on the prerogatives of the Office. ### Composition and appointment - The Office should be composed of persons appointed by merit on the basis of their experience in the areas of finance, economics, and public policy. ### Roles and functions of the Parliamentary Budget Office - Provide professional services in budget, financial, and economic information to parliamentary commissions; - Prepare reports on budget projections and economic forecasts and make proposals to the parliamentary commissions responsible for budget matters; - Prepare analyses on specific issues, including financial risks posed by government policies and activities to provide guidance to Parliament; - Examine budget proposals and economic trends and make recommendations to the parliamentary commission responsible for such proposals and trends; - Establish and foster relations with the national treasury, county treasuries, and other national and international organizations interested in fiscal and socioeconomic issues that it considers appropriate for the effective, efficient performance of its duties; - Subject to Article 35 of the Constitution, ensure that all reports and other documents produced by the Parliamentary Budget Directorate are prepared, published, and disseminated no later than 14 days after their production; - Report to the relevant commissions of Parliament on any draft law submitted to Parliament having an economic and financial impact, referring to the principles of fiscal responsibility and the financial objectives outlined in the corresponding Fiscal Policy Declaration; - Propose, when appropriate, an alternative budget framework for any fiscal year. ### Principle to observe - In carrying out its functions, the Parliamentary Budget Office of Kenya must observe the principle of public participation in budget matters. --- ### Annex V. Analysis of Forecasting Discrepancies ### Nature of forecasting uncertainty - Forecasts are inherently uncertain due to: - uncertainty as to structural evolution of the economy and unexpected economic events or shocks; - uncertainty connected to policy decisions and future policy measures. - Forecasting gaps between successive years are not rare. ### Accountability and explanations - Accountability requires governments to provide a clear explanation of the impact of macroeconomic developments and discretionary government actions on revenue and expenditure. ### Factors causing changes in forecasts - Changes in macroeconomic and fiscal forecasts are attributable to several factors, including: - (i) changes in accounting treatment or classification; - (ii) changes deriving from modification of the baseline; - (iii) changes in demographic assumptions or parameters; - (iv) impact of new policies adopted during the year. ### Reconciliation of successive forecasts - Structured reconciliation of forecasts: - helps understand changes since the last macroeconomic projections; - reduces speculation on reasons for discrepancies; - improves forecasting methods and lessons on establishing forecasting assumptions. - Reconciliation requires effective archiving of forecasting exercise results. - In fiscal transparency evaluation, reconciliations must focus explicitly on revenue, expenditure, and financing. - Budget documentation and subsequent updates must explain substantial changes to previous fiscal forecasts by explicitly comparing fiscal impact of new policy measures with reference measures. ### Basic short-term practice (qualitative) - Present a table of discrepancies between macroeconomic forecasts and execution, with explanations detailing contributions of different supply and demand sectors to discrepancies. - Present a table of discrepancies between budget forecasts and execution, with qualitative explanations. - Produce tables comparing macroeconomic forecasts with those from previous fiscal year, detailing contributions from supply and demand sectors to revisions; apply same for budget forecasts. - Example: for the PLF for year N+1, revised forecasts for year N should be compared with those of the LFI for year N. ### Medium-term advanced practice (quantitative) - Present a quantitative analysis of reasons for discrepancies between budget forecasts and execution. - Present a quantitative analysis of reasons for revisions of budget forecasts from one fiscal year to another, for example in the following standard form (example of the DPBEP). - Example tables (values as presented in source): - Table A (Total revenue/expenditure): - Year N-1 Year N Year N+1 Year N+2 Year N+3 - DPBEP N - N+2 100 105 112 121 - DPBEP N +1– N+3 103 (exec.) 105 114 119 127 - Revisions breakdown (Total revisions and components): - Total revenue/expenditure - Year N-1 Year N Year N+1 Year N+2 Year N+3 - DPBEP N - N+2 100 105 112 121 - Total revisions 3 0 +2 -2 - - Macro factors -4 +5 0 +7 - - New measures - 0 +3 +2 -5 - - Other factors - 1 +2 0 -4 - DPBEP N +1– N+3 103 (exec.) 105 114 119 127 ### Observational potential - For forecasts over a three-year period, analyses could highlight, for a given year N, at least five observations deriving from five budget laws (N-2 to N+2). - When several projection exercises occur in the same year, the number of observations may increase accordingly. *Source: IMF, from the Fiscal Transparency Handbook, 2018.* --- ### Annex VI. Long-Term Sustainability Analysis ### Rationale and objectives - Social and economic trends and new policy commitments can have significant long-term fiscal effects. - Increased transparency helps understand future costs of current policy decisions, manage long-term risks, and promote sound macroeconomic and budget policies. ### Areas where long-term projections are particularly useful - Public debt: understand how dynamics of public debt are likely to change and identify unsustainable fiscal policies. - Demography and social policy: for countries with high demographic growth and young populations, meeting social demand for infrastructure and employment can create pressures on long-term public expenditure. - Natural resources: project impact of depletion of resources and loss of relevant revenue for resource-dependent countries. - Economic growth: productivity reforms may entail small short-term fiscal benefits but substantial long-term potential. - Environmental considerations: costs of adapting to and mitigating climate change can be substantial and exert pressure on public finance. ### Recommended practices - Governments should at least prepare projections of the budget balance and government debt obligations for a 10-year period. - Projections may take the form of a relatively simple Debt Sustainability Analysis. - Incorporate sensitivity analysis to provide information on public debt trends under less favorable conditions. - For extrabudgetary funds, prepare projections of expenditure, revenue, and balances for at least the next 10 years, or more, to identify any financing deficits that may become a claim on the government budget. - Actuarial projections should: - use macroeconomic assumptions consistent with the debt sustainability analysis; - use demographic projections to identify pressures on spending. *Source: IMF, from the Fiscal Transparency Handbook, 2018.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1benea2022001.pdf_