## Benin: IMF Staff Report Excerpts (1benea2022002) ## Source details **Canonical URL:** [Benin: IMF Staff Report Excerpts (1benea2022002)](https://www.imf.org/-/media/files/publications/cr/2022/english/1benea2022002.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2022/english/1benea2022002.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2022/english/1benea2022002.pdf.json) --- ### Context, program objectives, and modalities - Authorities launched “Revealing Benin” five years prior to revive the economy and improve wellbeing; accessed international capital markets in 2019 and issued a €500 million SDG bond in July 2021. - Current headwinds: deteriorating security at northern borders, pandemic scars, and higher cost of living amid the war in Ukraine. - Program objectives: - Boost revenue mobilization and improve spending efficiency. - Enhance social protection and equitable access to basic public services. - Reinforce PFM, the rule of law, AML/CFT and governance to support inclusive private sector-led growth. - Program modalities: - Staff propose 42-month EFF and ECF arrangements of 391 percent of quota or SDR 484.058 million, with front-loaded access. - Proposed access: SDR 161.349 million (ECF) and SDR 322.709 million (EFF). - Access triggers High-Combined Credit Exposure (HCCE) procedure; staff assess Benin meets all three HCCE criteria. - Program calibrated to absorb near-term shocks and pivot to revenue-based fiscal consolidation starting next year. - Robust capacity development (CD) component included. ### Recent macroeconomic and social developments - COVID-19 vaccination: - About 21 percent of the population (2.7million persons) fully vaccinated as of end-April 2022. - Government goal: vaccinate 60 percent of the targeted population (12-year-old and above) by end-2022. - Security and regional disparities: - Increasing cross-border attacks along northern borders; northern regions lag in access to basic public services and face widespread poverty. - Growth and external sector: - Real GDP growth estimated at 7.2 percent (y/y) in 2021. - Current account deficit widened to an estimated 4.4 percent of GDP in 2021. - Benin consolidated lead cotton producer position in West Africa. - Inflation and prices: - Inflation rebounded in Q1 2022 to 4.1 percent (y/y) (from 1.7 percent in 2021). - Food prices: 7.4 percent (driver of inflation rebound). - Fiscal outturns: - Overall deficit: 4.7 percent of GDP in 2020. - Overall deficit: 5.7 percent of GDP in 2021. - Pandemic-related spending and counter-cyclical infrastructure push: CFAF 289 billion (in 2021). - Extraordinary arrears collection: CFAF 14 billion or 0.15 percent of GDP (2021). - Financing and markets: - Eurobonds: €1 billion raised in January 2021; €500 million SDG bond in July 2021. - Surge in portfolio inflows financed larger current account deficit. ### Outlook and risks - Baseline forecasts: - Growth: 2022 forecasted at 5.7 percent; medium-term convergence to potential of 6 percent. - Inflation: expected to rise to 5 percent in 2022 before stabilizing. - Downside risks: - Further deterioration in security situation; persistent supply shocks and inflationary pressures from the war in Ukraine; tighter global financial conditions; social discontent from higher cost of living. - Fiscal risks from expenditure pressures, heavily frontloaded program access, and contingent security/social demands. ### Program design, conditionality, and safeguards - Fiscal stance: - Program pivots to revenue-based fiscal consolidation starting next year to create fiscal space while preserving debt sustainability. - Emphasis on boosting revenue mobilization and improving spending efficiency. - Social and inclusion: - Enhance social protection and equitable access to basic public services; limit pandemic scars and address pre-existing high income inequality and low social spending. - Institutional reforms and safeguards: - Reinforce PFM, AML/CFT, governance and anti-corruption frameworks. - Security spending subject to PFM processes; military payroll digitalized; security spending audits by the Audit Court. - Monitoring and conditionality: - Semi-annual quantitative criteria and structural conditionality; QPCs on basic primary balance and net domestic financing; IT on tax revenue and priority social spending. - Continuous PCs on external and domestic arrears; PC on PV of newly contracted external public and publicly guaranteed debt (Debt Limits Policy). ### Financing needs, access, and burden sharing - External financing needs after Eurobond in 2025: estimated CFAF 755 billion over 2022–25. - Residual financing needs to be filled by Fund-supported program: estimated CFAF 396 billion over 2022–25. - Program assumes regional domestic bond market financing of about CFAF 430 billion per year from 2022 to 2024. - Proposed access: SDR 484.058 million (391 percent of quota) — SDR 161.349 million (130.33 percent of quota) ECF; SDR 322.709 million (260.67 percent of quota) EFF. - Proposed access equals 3.6 percent of Benin’s 2022 nominal GDP for a 3½-year arrangement. - Fund’s burden share: - Expected to cover about 52 percent of external and fiscal financing gaps under baseline; averages 61 percent in first 18 months (56 percent if adjustor kicks in), declines to average 36 percent in last two years. - Capacity to repay and debt service: - Total obligations peak at 0.47 percent of GDP in 2029 (2.9 percent of total revenues excluding grants and 2.1 percent of exports). - Total Fund credit outstanding peaks at 4.7 percent of GDP in 2023 and 549.8 percent of quota in 2024. - Overall debt service expected to remain elevated around 2 percent of GDP and 14 percent of revenues excluding grants with peaks in 2026 and 2030. ### Key quantitative projections (selected) - Real GDP (annual percent change): 2019: 6.9; 2020: 3.8; 2021: 5.0; 2022: 7.2; 2023: 6.0; 2024: 5.7; 2025: 6.2; 2026: 6.0; 2027: 6.0. - Consumer price index (average): 2019: -0.9; 2020: 3.0; 2021: 2.0; 2022: 1.7; 2023: 2.0; 2024: 5.0; 2025: 1.8; 2026: 2.0; 2027: 2.0. - Total revenue (percent of GDP): 2019: 12.9; 2020: 12.7; 2021: 11.6; 2022: 13.2; 2023: 12.1; 2024: 13.4; 2025: 13.9; 2026: 14.4; 2027: 14.9. - Tax revenue (percent of GDP): 2019: 10.6; 2020: 10.5; 2021: 9.7; 2022: 11.0; 2023: 10.2; 2024: 11.5; 2025: 12.0; 2026: 12.5; 2027: 13.0. - Total expenditure and net lending (percent of GDP): 2019: 14.6; 2020: 19.1; 2021: 17.2; 2022: 19.9; 2023: 16.1; 2024: 19.8; 2025: 19.3; 2026: 18.4; 2027: 18.8. - Overall balance (commitment basis, including grants, percent of GDP): 2019: -0.5; 2020: -4.7; 2021: -4.5; 2022: -5.7; 2023: -3.0; 2024: -5.5; 2025: -4.3; 2026: -2.9; 2027: -2.9. - Basic primary balance (percent of GDP): 2019: 1.1; 2020: -1.5; 2021: -0.9; 2022: -1.5; 2023: 0.4; 2024: -0.6; 2025: -1.1; 2026: -0.5; 2027: 0.9. - Total public debt (end period, percent of GDP): 2019: 41.2; 2020: 46.1; 2021: 45.4; 2022: 49.9; 2023: 44.5; 2024: 51.6; 2025: 52.0; 2026: 50.7; 2027: 49.2. - Current account balance, including official transfers (percent of GDP): 2019: -4.0; 2020: -1.7; 2021: -3.9; 2022: -4.4; 2023: -4.1; 2024: -6.2; 2025: -5.7; 2026: -4.6; 2027: -5.0. - Selected fiscal levels in CFAF billions (total revenue and grants): 2019: 1,185.7; 2020: 1,296.3; 2021: 1,195.2; 2022: 1,387.7; 2023: 1,323.4; 2024: 1,518.4; 2025: 1,550.5; 2026: 1,752.2; 2027: 1,940.0. - Capital expenditure (CFAF billions): 2019: 330.4; 2020: 622.4; 2021: 462.0; 2022: 802.6; 2023: 504.1; 2024: 825.4; 2025: 905.5; 2026: 962.6; 2027: 888.5. ### Debt sustainability, stress tests, and vulnerabilities - Public debt rose from 22 percent of GDP in 2014 to 49.9 percent of GDP in 2021. - DSA classification: moderate risk of external and overall debt distress (unchanged from December 2020). - Public debt projected to peak at 52 percent of GDP at end-2023, then decline to 44 percent of GDP by 2032 under baseline assumptions and revenue-based consolidation. - Stress-test findings: - Three out of four debt-burden indicators breach thresholds under certain stress tests (export shock, currency depreciation, commodity price shock). - PV of debt-to-GDP does not breach thresholds under baseline but may under commodity price shock. - Export stress test calibration: 14 percent reduction in nominal export growth in 2023–24. - Currency depreciation test calibration: 30 percent nominal depreciation of the FCFA against the USD in 2023. - Commodity price shock calibration: 21 percent price shock in 2023 closing over 6 years. - Natural disaster scenario: one-off real GDP shock of around 2 percent in 2023. - Policy implication: sustained revenue mobilization, prudent borrowing, active liability management, maximizing concessional borrowing. ### Social protection, inclusion, and human capital financing - Social spending averaged 5.3 percent of GDP during 2018–21. - ARCH flagship program estimated cost: CFAF 183.8 billion (about 1.8 percent of GDP) over 2021–26; 10 percent planned to be covered by the budget and remainder by development partners. - ARCH health insurance: plan to subsidize health insurance for 5.1 million poor and extremely poor (over 40 percent of total population) by end-2023. - National school feeding program expansion to feed nearly 1.3 million students by end-2023 (doubling from 2021). - IMF staff estimates SDG financing needs in selected areas at 21 percent of GDP to reach SDGs by 2030. - Noted high food insecurity: above 40 percent of the population estimated to be facing food insecurity at end-April 2022 (WFP Heatmap). ### Security strategy and fiscal implications - Authorities’ civilian security plan (2022–26): - Total plan cost: CFAF 662.3 billion or about 6 percent of GDP over 2022–26. - Pillars: (i) identifying vulnerable areas; (ii) assessing and meeting needs; (iii) promoting social cohesion. - Spending by item (Billions of CFAF): Security: 156.9; Repair and Maintenance of Rural Roads: 123.1; Microcredit: 38.3; Promotion of agriculture: 91.5; Village water supply: 181.1; Livestock and migration management: 71.34; Total: 662.3. - Personnel and wages: - New hiring in health: 1,700 in 2023. - New hiring in security and armed forces: 4,000 on average per year over 2022–26. - Permanent increase in the wage bill: about 0.1 ppt of GDP from 2023 after personnel training. - Short-term fiscal flexibility: - Original overall balance target in 2022 budget: 4.5 percent of GDP. - Authorities will issue a supplementary budget targeting an overall deficit of 5.5 percent of GDP. - Security-related spending frontloaded in 2022–23; includes permanent hiring costs. ### Fuel pricing, partial passthrough, and fiscal impact (Box 4 highlights) - As of end-April 2022, Benin had passed more than half of expected annual increase in international oil prices to consumers. - Partial passthrough generates an additional estimated fuel subsidy bill of 0.32 percent of GDP in 2022 (compared with a full passthrough scenario). - Partial passthrough represents an estimated saving of 0.42 ppt of GDP compared with a zero passthrough scenario. - War in Ukraine led to a spike in international oil prices by 50 percent in 2022:Q1, with an expected 38 percent upward revision in 2022 as a whole. - Timeline of adjustments in 2022: - February–March: diesel +14.3 percent; gasoline +15.4 percent (cumulative). - March 23: freeze of fuel pump prices until end-June 2022 announced. - April 20: diesel pump prices hiked by 11 percent, bringing cumulative diesel pump price adjustment to about 28 percent in 2022. - Staff estimate fiscal savings (compared with a zero passthrough scenario) at about 0.4 percent of GDP. ### Revenue mobilization and PFM reforms - Staff tax gap analysis: Benin’s tax gap vis-à-vis peer WAEMU countries rose to about 3 percent of GDP during 2015–19. - 2022 tax package estimated yields (Text Table 5): - Tax policy measures: 40.8 bn CFAF; 0.4 in percent of GDP - Streamlining tax exemptions: 5.9 bn CFAF; 0.1 in percent of GDP - Better valuation of imported goods at Customs: 6.7 bn CFAF; 0.1 in percent of GDP - PIT reform and synthetic business tax: 8.7 bn CFAF; 0.1 in percent of GDP - Tax on goods and services: 13.4 bn CFAF; 0.1 in percent of GDP - International trade taxes (ECOWAS CET): 6.1 bn CFAF; 0.1 in percent of GDP - Administrative measures: 12.8 bn CFAF; 0.1 in percent of GDP - Total: 53.6 bn CFAF; 0.5 in percent of GDP - Proposed structural benchmarks: - MTRS: develop medium-term revenue mobilization strategy — end-September 2023. - Detailed report on 2021 tax expenditures annexed to 2023 draft budget law and strategy for rationalizing them — end-November 2022. - Publish quantitative fiscal risk analysis as part of 2024 draft budget law — end-October 2023. - Publish appraisal/selection criteria and feasibility studies for major investment projects — end-December 2023. - Develop timetable for aligning electricity prices with costs and modernize fuel pricing mechanism. ### Governance, AML/CFT, and transparency measures - Beneficial Ownership (BO) and procurement: - Adopt secondary regulation requiring procurement agencies to collect BO information for contracts above CFAF 10 million — Structural Benchmark end-June 2022. - Publish BO information for such contracts on an accessible government website — Structural Benchmark end-September 2022. - Governance diagnostic: conduct and publish governance diagnostic with IMF TA — Structural Benchmark end-February 2023. - AML/CFT: Council of Ministers expected to adopt two Ministerial decrees to strengthen AML/CFT risk-based supervision and targeted financial sanctions — Structural Benchmark end-June 2022. ### Financial sector resilience and inclusion - Banking sector NPLs: declined from 17.7 percent in 2019 to 14.9 percent in June 2021. - Two small banks (less than 5 percent of sector assets) failed to meet regulatory capital minimum at end-December 2021; WAMU Banking Commission plans to bring them back to conformity. - MFI NPLs: declined from 8.5 percent at end-December 2017 to 6.1 percent at end-December 2021. - Financial inclusion and access to finance: - La Poste du Benin authorized to provide banking services; subject to adequate supervision. - Transpose WAEMU financial inclusion strategy nationally and design comprehensive national financial inclusion strategy — Structural Benchmark end-March 2023. - Recommendation to account for governance, risk management, and formalization of MFIs in national financial inclusion strategy. ### Capital markets access: opportunities and risks (Annex VI highlights) - Eurobond history: - March 2019: first Eurobond €500 million, coupon 5.75 percent, maturity 7 years. - January 2021: €1 billion Eurobond, long maturities, oversubscribed by threefold. - July 2021: €500 million SDG Eurobond, 12.5-year maturity, coupon 4.95 percent. - Benefits: alternative financing, liability management, reduced reliance on domestic short-term debt, lowered interest cost. - Risks: investor sentiment shifts, volatility in spreads, foreign currency and rollover risk; EMBI spreads rose by 70 bps since outset of war as of end-April 2022. - Safeguards: prudent fiscal policy, active debt management, continued reliance on concessional financing, deepen regional public debt market, improve coordination with WAEMU members. ### Capacity development and technical assistance (Annex IX) - CD focus 2022–2025: revenue mobilization, governance and transparency, wage bill management, PFM, government finance statistics, and real sector statistics. - Partners: World Bank (social protection, human capital), European Union (governance and PFM), AfDB (agriculture and infrastructure), WFP (school feeding). - TA priorities include MTRS, tax and customs capacity, beneficial ownership reporting, TSA and cash management, accrual accounting, PIMA update and Climate-PIMA, quarterly national accounts, and producer price index development. ### Program monitoring, adjustors, and data provision - Program reviews: semi-annual with prior action, PCs, ITs, and structural benchmarks; first review assesses end-June 2022 test date; second review end-December 2022. - Adjustors: - Basic primary fiscal balance floor for 2022 adjusted downward by additional budget support beyond programmed CFAF 88 billion, up to CFAF 54 billion at end-December 2022 under conditions. - NDF ceiling adjusted for deviations in net external budgetary assistance (mechanism specified in the TMU). - Data reporting requirements: detailed monthly, quarterly, and other reporting timelines specified in the TMU (TOFE, CPI, monetary survey, public investment implementation, military/security spending data, etc.). ### Concise policy recommendations (selected) - Safeguard yields from 2022 tax policy/administration measures (half percentage point of GDP). - Use near-term fiscal flexibility to address security and war-related pressures while pivoting to medium-term revenue-based consolidation via MTRS. - Quantify and sustain wage bill reforms amid hiring and pending salary revalorization. - Publish quantitative fiscal risk analysis and improve public investment transparency (appraisal, selection criteria, feasibility studies). - Accelerate governance reforms: publish BO information for procurement, implement governance diagnostic, strengthen AML/CFT legislation and supervision. - Finalize social registry, target social protection, and prioritize cost-effective safety nets over generalized subsidies. - Strengthen banking supervision, address under-capitalized banks per WAMU Commission, implement national financial inclusion strategy, and consolidate MFIs. - Pursue proactive liability management, maximize concessional financing, and monitor market access risks. *IMF staff; Benin — Excerpts from the IMF staff report and TMU (1benea2022002)* ### EXECUTIVE SUMMARY ### EXECUTIVE SUMMARY ### Context - The authorities embarked five years ago on an ambitious reform agenda (“Revealing Benin”) to revive the economy and improve wellbeing. - Economic activity accelerated prior to the COVID-19 pandemic, with sound macroeconomic management and enhanced budget transparency culminating in access to international capital markets in 2019 and issuance of the first-ever SDG bond by an African sovereign in July 2021 (€500 million). - Current headwinds include a deteriorating security situation at Benin’s northern borders, pandemic-induced scars, and higher cost of living amidst the war in Ukraine, which could impact macroeconomic gains and cause hardship. - The authorities have requested a Fund-supported program to meet pressing financing needs, preserve macroeconomic stability, and anchor the country’s National Development Plan (PND; 2018–25) centered on achieving the Sustainable Development Goals (SDGs). ### Program objectives and modalities - Program objectives: - Boost revenue mobilization and improve spending efficiency. - Enhance social protection and equitable access to basic public services. - Reinforce PFM, the rule of law, the AML/CFT and governance frameworks to support inclusive private sector-led growth. - Program modalities: - Staff propose 42-month Extended Fund Facility (EFF) and Extended Credit Facility (ECF) arrangements of 391 percent of quota or SDR 484.058 million, with front-loaded access. - The proposed access level is above the combined cumulative normal access limit, triggering the High-Combined Credit Exposure (HCCE) procedure—the first such case since the adoption of the HCCE policy in 2020. - Staff assess that Benin meets all three required criteria for HCCE. - Program design is calibrated flexibly to absorb near-term shocks and pivots to revenue-based fiscal consolidation starting next year to create fiscal space for development and security-related needs while preserving debt sustainability. - The program features a robust capacity development (CD) component to support reform implementation. ### Article IV consultation and mission - Article IV discussions informed program design and focused on: addressing vulnerabilities related to Benin’s transit-centered “entrepot” growth model through economic diversification and an enabling business environment to expand the formal private sector; and limiting pandemic scars in the financial system. - Discussions were held via videoconferences (during March 23–25, 2022) and in person (during April 4–13, 2022 in Cotonou and April 19–22 in Washington D.C.). The mission comprised named IMF staff and was supported by HQ and local office staff; it met with Senior Minister of Economy and Finance Wadagni, Senior Minister of Development and Coordination of the Governmental Action Bio Tchané, President Talon’s Special Advisor Dagnon, and other senior officials, civil society, business community, and various donors. ### Recent developments — macroeconomic and social - COVID-19: - About 21 percent of the population (2.7million persons) were fully vaccinated as of end-April 2022, above WAEMU and SSA averages. - Government goal: vaccinate 60 percent of the targeted population (12-year-old and above) by end-2022. - Security: - Increasing cross-border attacks along northern borders; intensification and expansion of extremist armed groups have spilled over to Benin. - Northern regions lag in access to basic public services and face widespread poverty. - Growth and external sector: - Real GDP growth is estimated at 7.2 percent (y/y) in 2021, driven by a ramp-up in public investment and booming port activity as transit trade resumed with the re-opening of the Nigeria border. - Benin consolidated its position as the lead cotton producer in West Africa due to continued scale-up of cotton production. - The current account deficit widened to an estimated 4.4 percent of GDP in 2021, due to increased imports (higher oil and food prices) and pick-up in public investment; the larger deficit was financed by a surge in portfolio inflows, reflecting Benin’s large Eurobond issuances. - Inflation and prices: - Inflation rebounded in Q1 2022 to 4.1 percent (y/y) (from 1.7 percent in 2021), mainly driven by food prices (7.4 percent), reflecting pandemic-related supply chain disruptions, higher demand from neighboring countries, and soaring international food and energy prices amidst geopolitical tensions. - Authorities adopted measures to contain food and energy prices (Box 4 referenced). - Fiscal: - Overall deficit: 4.7 percent of GDP in 2020 (an expansion of 2.9 ppts of GDP compared with the pre-pandemic forecast). - Overall deficit: 5.7 percent of GDP in 2021 (an expansion of 1.2 ppts of GDP compared with the original target of 4.5 percent of GDP). - Pandemic-related spending and counter-cyclical infrastructure push: CFAF 289 billion (in 2021). - Extraordinary arrears collection of CFAF 14 billion or 0.15 percent of GDP buoyed domestic taxes in 2021. - Financing and markets: - Benin returned to international capital markets, raising €1 billion in Eurobonds in January 2021, partly to retire more expensive and shorter maturity debt. - The country benefited from substantial international support, including Fund emergency financing and the SDR allocation. ### Outlook and risks - Baseline outlook: - Growth: 2022 forecasted at 5.7 percent, reflecting the negative terms of trade shock and reduction in global demand amidst the war in Ukraine. - Medium-term: growth is expected to converge to its potential of 6 percent (Box 2). - Inflation: expected to rise to 5 percent in 2022, driven by the sharp increase in global food and oil prices, before stabilizing at 2 - Risks: - Downside risks include further deterioration in the security situation, persistent supply shocks and inflationary pressures from the war in Ukraine, tighter global financial conditions affecting frontier market spreads, and social discontent from higher cost of living. - Fiscal risks stem from expenditure pressures, heavily frontloaded program access, and possible contingent demands related to security and social needs. ### Policy considerations and program safeguards - Fiscal policy: - The program pivots to revenue-based fiscal consolidation starting next year to create fiscal space for development and security-related needs while preserving debt sustainability. - Key program pillars emphasize boosting revenue mobilization and improving spending efficiency. - Social and inclusion policies: - The program aims to enhance social protection and equitable access to basic public services to limit pandemic scars and address pre-existing high income inequality and low social spending levels. - Institutional reforms: - Reinforce public financial management (PFM), AML/CFT, governance and anti-corruption frameworks to lay foundations for sustained private sector-led growth. - Program design: - Calibrated flexibly to absorb near-term shocks and includes robust CD support to ensure reform implementation and safeguards against social and macroeconomic risks. *IMF staff; Benin: Executive Summary (selected excerpts) — 1benea2022002* ### Box 1. Use of SDR Allocation ### Box 1. Use of SDR Allocation ### Summary of SDR allocation and on-lending - The IMF general SDR allocation of August 2021 was equivalent to around 1.0 percent of GDP for Benin. - The BCEAO, the fiscal agent of WAEMU member countries, on-lent the equivalent CFAF amount (95 billion) to Benin (recorded as domestic debt)1. - The authorities reportedly channeled the funds to additional spending on security, health, and their flagship school feeding program in 2021. ### On-lending terms - The on-lending was subject to a 20-year maturity (with possibility of rollover) at a fixed interest rate of 0.05 percent. ### Text Table 1 — Benin: SDR Allocation Use (In billion CFAF) - Security-support measures: 35.0 - Hiring/training of security personnel: 5.0 - Construction of support facilities in border areas (including police stations, schools, health and youth centers): 30.0 - School Feeding Program: 21.2 - World Food Program (school feeding expenses): 19.6 - Emergency program supplying drinking-water to schools: 1.6 - Health-support measures: 38.8 - Medical supplies and equipment, ambulance services, and medical storage facilities: 38.8 - Total: 95.0 ### Financing breakdown (as presented) - Total Financing, Net: 4.2 5.6 - Domestic Financing, Net: 1.7 -3.9 - Regional bond market: -0.8 -4.4 - Local commercial banks: -0.6 -0.4 - BOAD1: 1.3 0.0 - IMF (central bank onlending): 1.9 1.0 - of which: ECF: 0.8 0.0 - of which: RCF/RFI: 1.1 0.0 - of which: SRD allocation: 0.0 1.0 - External Financing, Net: 2.4 9.5 - Multilateral (excl. IMF): 1.3 1.0 - Bilateral: 0.2 0.9 - Commercial: 0.9 -0.3 - Eurobond: 0.0 7.9 Note: - BOAD treated as domestic financing before 2022. *Source: Beninese authorities and staff calculations* ### Box 3. The Authorities’ ### Box 3. The Authorities’ Civilian Approach to Security Risks ### Overview - The authorities developed a strategy centered on a civilian approach to mitigate security risks. - Total plan cost: CFAF 662.3 billion or about 6 percent of GDP over 2022–26. - Objective: increase state presence (and effectiveness) in communities at risk and improve living conditions to prevent socio-economic drivers of discontent and youth recruitment by terrorist groups. - Spending under the plan covers three types of measures: security, economic, and social, and is partially accommodated within the overall spending envelope under the EFF-ECF arrangements. ### Plan pillars and key initiatives - The plan is centered on three pillars: - (i) identifying vulnerable areas; - (ii) assessing and meeting the needs of populations in these areas; - (iii) promoting social cohesion between local communities. - Initiatives include: - enhanced intelligence; - acquisition of military equipment; - rehabilitation of farm roads and support to farmers; - construction of police stations; - access to water; - combating youth unemployment through microcredit schemes and the promotion of agriculture. ### Authorities’ National Security-Risk Strategy 2022-26 — Spending by item (Text Table 1) - Security: 156.9 (Billions of CFAF) - Repair and Maintenance of Rural Roads: 123.1 (Billions of CFAF) - Microcredit to promote income-generating activities: 38.3 (Billions of CFAF) - Promotion of agriculture: 91.5 (Billions of CFAF) - Village water supply: 181.1 (Billions of CFAF) - Livestock and migration management: 71.34 (Billions of CFAF) - Total: 662.3 (Billions of CFAF) ### Personnel and wage implications - Pending revaluation of salaries of public sector employees, plus: - new hiring in health: 1,700 in 2023; - new hiring in security and armed forces: 4,000 on average per year over 2022–26. - Permanent increase in the wage bill: by about 0.1 ppt of GDP from 2023 after personnel training this year. - Offsets and control measures: - permanent savings from closure of 19 Beninese embassies and consulates; - continued wage bill control, including strict replacement rule for retirees; - ongoing efforts to clean-up the payroll. - The authorities will evaluate ongoing wage bill reform efforts, including with planned IMF technical assistance, to ensure public compensation remains sustainable and identify measures to ensure equity over the medium term. ### Borrowing strategy - Benin will maintain a prudent borrowing strategy focused on preserving debt sustainability, mitigating refinancing risks, and containing borrowing costs. - Priority for concessional resources from multilateral donor partners to keep the interest-to-tax revenue ratio in check. ### Short-term fiscal flexibility and 2022 fiscal stance - The fiscal adjustment envisaged in the original 2022 budget will be paused to accommodate urgent spending needs, consistent with the program’s overall fiscal strategy. - Original overall balance target in the 2022 budget: 4.5 percent of GDP (would have implied primary spending cuts of 1.1 ppt of GDP). - Given unanticipated developments (spillovers from regional security risks, lingering COVID-19, purchasing power erosion amid the war in Ukraine), the envisaged fiscal deficit for 2022 is therefore close to its 2021 level. - Maintaining the fiscal deficit unchanged from 2021 to 2022 requires preserving yields from the tax package in the original budget (0.5 ppt of GDP) and important expenditure reprioritization compared to 2021 allocations. - The authorities will issue a supplementary budget targeting an overall deficit of 5.5 percent of GDP to reflect new developments. - Deviation from the original budget driven mainly by increased expenditure to meet immediate needs, including mitigation of security risks, hiring in the health sector, and salary increases to partly offset cumulative purchasing power erosion. - Security-related spending is frontloaded in 2022–23 (mostly to enhance state presence and effectiveness in vulnerable areas) and includes permanent hiring costs for police and armed forces. ### Measures in response to the war in Ukraine and fuel pricing - Initial measures adopted March 23: temporary freeze on fuel prices at the pump (initially through June 2022), a subsidy on basic food products (rice, flour, and vegetable oil), an export ban on selected agricultural products and a rebate on freight costs. - Authorities pivoted to more targeted and cost-effective support measures and increased diesel pump prices on April 20, bringing cumulative hikes since the beginning of the year to 28 percent. - Staff estimate resulting fiscal savings (compared with a zero passthrough scenario) at about 0.4 percent of GDP (Box 4). - The authorities plan to subsidize fertilizers for the 2022/23 agricultural campaign (about 0.3 ppt of GDP). - Policy measures adopted in response to the war in Ukraine under the program will be unwound in 2023; the increase in fuel subsidies related to the war is expected to dissipate in 2023 given pump price hikes and projected international oil price trend. - Conditional on securing additional concessional budget support, the primary fiscal deficit target for end-December 2022 will be relaxed by up to an additional 0.5 ppt of GDP (for a resulting overall deficit of 6.0 ppt of GDP) to accommodate targeted policy measures in response to the war in Ukraine. ### Box 4 — Partial passthrough and fuel subsidies (summary) - As of end-April 2022, Benin had passed more than half of the expected annual increase in international oil prices related to geopolitical tensions onto consumers. - Partial passthrough generates an additional estimated fuel subsidy bill of 0.32 percent of GDP in 2022 (compared with a full passthrough scenario). - Partial passthrough represents an estimated saving of 0.42 ppt of GDP to Benin compared with a scenario of zero passthrough. - A comparison of WEO oil price forecasts between January and March 2022 suggests the war in Ukraine led to a spike in international oil prices by 50 percent in 2022:Q1, with an expected 38 percent upward revision in 2022 as a whole. - A full passthrough would have entailed a peak increase in pump prices of diesel and gasoline of 55 and 35 percent respectively in Q2, based on the current official pricing formula. - Keeping pump prices unchanged would have entailed an estimated 0.74 percent of GDP cost to the budget in 2022 (with cost persisting beyond 2022). - Timeline of adjustments in 2022: - February–March: cumulative increases of diesel and gasoline by 14.3 percent and 15.4 percent respectively; - March 23: freeze of fuel pump prices until end-June 2022 announced; - April 20: diesel pump prices hiked by 11 percent, bringing cumulative diesel pump price adjustment to about 28 percent in 2022. - Fiscal impact summary (selected figures from Box 4): - Partial passthrough implies fiscal savings of 0.42 ppt of GDP compared to a no passthrough scenario and entails a cost of 0.32 ppt of GDP to the budget compared to a full passthrough scenario. ### Boosting revenue mobilization and strengthening PFM - Financing large spending needs requires sustained efforts in domestic revenue mobilization. - Staff’s tax potential analysis suggests Benin’s tax gap vis-à-vis peer WAEMU countries rose to about 3 percent of GDP during 2015–19. - The authorities will develop a medium-term revenue mobilization strategy (MTRS) — proposed Structural Benchmark for end-September 2023 — to improve tax collection. - A detailed report on 2021 tax expenditures will be annexed to the 2023 draft budget law, and a strategy for rationalizing them over 2023–25 will be developed — proposed Structural Benchmark for end-November 2022. - Removing tax expenditures should consider distributional implications and mechanisms to compensate the vulnerable. - Text Table 5 — Estimated yields from the 2022 tax package: - Tax policy measures: 40.8 bn CFAF; 0.4 in percent of GDP - Streamlining tax exemptions (rice, motorcycles, water/electricity, etc.): 5.9 bn CFAF; 0.1 in percent of GDP - Better valuation of imported goods at Customs: 6.7 bn CFAF; 0.1 in percent of GDP - PIT reform and synthetic business tax: 8.7 bn CFAF; 0.1 in percent of GDP - Tax on goods and services (including excises, tax on gambling, etc.): 13.4 bn CFAF; 0.1 in percent of GDP - International trade taxes (ECOWAS common external tariff): 6.1 bn CFAF; 0.1 in percent of GDP - Administrative measures (tax arrears, digitalization, etc.): 12.8 bn CFAF; 0.1 in percent of GDP - Total: 53.6 bn CFAF; 0.5 in percent of GDP - PFM improvements needed: - Prepare a statement with quantitative analysis of fiscal risks in all key areas as part of the 2024 draft budget law documentation — proposed Structural Benchmark for end-October 2023. - Close monitoring of contingent liabilities from credit guarantee schemes and enhance disclosure on PPPs. - Publish criteria for appraisal and selection of major investment projects, along with feasibility studies — proposed Structural Benchmark for end-December 2023. - Develop timetable for aligning electricity prices with costs and modernize fuel pricing mechanism. - Security spending safeguards: - Subject to standard PFM processes, program-based budgeting under Ministries of the Interior and Public Security and Defense. - Distinct procurement codes and exceptional procurement procedures in place for selected security equipment. - Military payroll digitalized and personnel paid directly into bank accounts. - Security spending subject to audits by the Audit Court; Ministry of Defense completed an internal audit report on small arms. - Authorities will maintain and re-enforce existing PFM safeguards around security spending as needed. ### Promoting inclusion, SDGs, and climate adaptation - Large gaps in human capital and basic infrastructure persist despite robust growth; social spending historically low in absolute and relative terms. - Above 40 percent of the population estimated to be facing food insecurity at end-April 2022 (WFP Heatmap). - IMF staff estimates financing needs to reach SDGs by 2030 in selected areas (health, education, roads, electricity, water and sanitation) amount to 21 percent of GDP. - Adapting to climate change imperative: Benin ranked 12th most vulnerable and 57th least ready in a sample of 192 countries per 2019 ND-GAIN. - Authorities developed a National Policy for the Management of Climatic Changes, including adaptation and mitigation. - A holistic, fiscally sustainable approach to development financing is needed to harness the demographic dividend (median age 19) and alleviate regional disparities, aligned with the “civilian approach” to security risks. - IMF tool for analyzing SDGs financing illustrates socio-economic gains from more ambitious revenue mobilization and greater private sector participation. ### Authorities’ views - Authorities agree on designing fiscal adjustment around meeting urgent near-term needs and ensuring credible fiscal consolidation in the medium term. - Committed to converging to WAEMU norms and maintaining debt sustainability. - Policy response to the war in Ukraine will be contingent on the scope and duration of the war, within the parameters of their Fund-supported program. - Consider revenue mobilization the cornerstone of their reform program and emphasize progress in transparency and PFM; acknowledge budgetary cost of fuel subsidies but stress diesel’s critical role in transport and economy. *Source: Box 3, "The Authorities’ Civilian Approach to Security Risks."* ### Box 4. Partial Passthrough and Fuel Subsidies Associated with the War in Ukraine ### Box 4. Partial Passthrough and Fuel Subsidies Associated with the War in Ukraine (Concluded) ### Partial passthrough and fuel subsidies - Because of partial passthrough and pre-existing fuel subsidies, fuel subsidies remain important, though limited given that household gasoline consumption is mostly satisfied through smuggled gasoline from Nigeria. - Authorities plan to modernize the fuel pricing mechanism to reduce volatility in pump prices while safeguarding budgetary resources (MEFP ¶14). - Authorities will communicate pricing changes clearly and consider schemes for compensating the vulnerable. - Notes on pricing mechanism and policy: - The prevailing pricing mechanism (dating back to 2004) passes monthly changes in international oil prices to pump prices only when the pricing formula implies an adjustment above/below +/- 4 percent. - The government also resorted to a reduction of the margins of oil distribution companies. *Prepared by Younes Zouhar and Joseph Houessou.* ### Strengthening social protection and ARCH program - Spending on social protection: - Averaged 1.1 percent of GDP per year during 2018–21, less than half the average level among LICs. - ARCH (Assurance pour le Renforcement du Capital Humain) flagship program components: health insurance, vocational training and entrepreneurship, microcredit, and retirement. - Health insurance made compulsory in February 2021. - Plan to subsidize health insurance for 5.1 million poor and extremely poor (over 40 percent of total population) by end-2023. - Authorities estimate total cost of ARCH at CFAF 183.8 billion (about 1.8 percent of GDP) over 2021–26, of which 10 percent is planned to be covered by the budget and the remainder by development partners. - School feeding: - Authorities are expanding national school feeding program to all primary schools across Benin, facilitating feeding nearly 1.3 million students by end-2023 (a doubling from 2021). - Social registry and targeting: - Authorities will (1) finalize community validations of vulnerable households identified during the first cycle of proxy-mean test surveys in at least 70 of the 77 communes, and (2) publish aggregate social registry results at the commune level on an accessible government website (proposed Structural Benchmark for end-July 2022). - Authorities’ views: - Committed to inclusion and protecting the vulnerable (MEFP ¶23) but concerned about effectiveness of unconditional cash transfers due to possible leakages and lack of incentive compatibility; they favor schemes facilitating transition back to work and emphasize access to good-quality basic public services. ### Modernizing the economy and fostering private sector development - Need to diversify economy away from cotton and low value-added transit trade with Nigeria; re-exports account for more than 40 percent of Benin’s imports. - Planned logistics improvements at the Port of Cotonou (new terminal, increased containerized transit) to reduce congestion and enhance competitiveness. - Policy priorities to attract FDI and private investment: - Enhanced access to electricity. - Better access to finance. - Continued digitalization of customs and tax administration to strengthen the regulatory environment and formalize the economy. - Diversify industrial sector beyond cotton ginning and processing of some food products. - Prudent use of PPPs and careful development of the new SEZ to avoid revenue leakage and tax administration burden. - Authorities’ views: - Note caveats on external assessment: application of EBA-Lite at country level could bias results; uncertainty from war in Ukraine and COVID-19 weakens price–external adjustment link; scarcity of data on consumption volume of informally imported fuel limits oil import forecasts. - Expect about half of PAG (2021–26) project costs can be financed via PPPs and view the new SEZ as transformative. ### Re-enforcing governance, transparency, and AML/CFT - Publication and legal basis: - BO information for COVID-19 related contracts and validation of delivery is published, but not yet supported by adequate legal basis. - Authorities will adopt secondary regulation requiring procurement agencies to collect BO information for contracts above CFAF 10 million (proposed Structural Benchmark for end-June 2022) and commence regular publication on a government website (proposed Structural Benchmark for end-September 2022). - Audit activity: - The Audit Court conducted an independent audit of COVID-19-related spending and published the results on a government website, meeting the related Prior Action for the new program. - Governance diagnostic and AML/CFT: - Authorities will conduct and publish a governance diagnostic (proposed Structural Benchmark for end-February 2023) with IMF technical support and identify recommendations as program conditionality from the Second Review. - Following the 2021 GIABA Mutual Evaluation Report identifying AML/CFT deficiencies, authorities prepared a detailed action plan. - Council of Ministers expected to adopt two Ministerial decrees to strengthen AML/CFT risk-based supervision and implementation of a targeted financial sanctions regime (proposed Structural Benchmark for end-June 2022). ### Limiting pandemic scars in the financial sector and access to finance - Banking sector resilience and vulnerabilities: - NPLs declined from 17.7 percent in 2019 to 14.9 percent in June 2021. - Two small banks (accounting for less than 5 percent of total banking sector’s assets) failed to meet regulatory capital minimum at end-December 2021; WAMU Banking Commission confirmed they do not pose financial stability risks and plan to bring them back to prudential conformity. - Need enhanced monitoring of sectoral fragilities, including expiration in December 2021 of BCEAO’s loan repayment deferral and high credit concentration among a small number of clients. - Access to finance constraints: - Major impediment to private sector development, especially SMEs. - Authorities implemented schemes to promote SME financing during COVID-19; effectiveness yet to be assessed. - La Poste du Benin authorized to provide banking services; operations to be adequately supervised. - Authorities will transpose WAEMU’s regional financial inclusion strategy at national level and design a comprehensive financial inclusion strategy for Benin (Structural Benchmark for end-March 2023) (MEFP ¶31). - Microfinance institutions (MFIs): - NPLs in the MFI sector declined from 8.5 percent at end-December 2017 to 6.1 percent at end-December 2021. - Recommendation to account for governance, risk management, and formalization of MFIs in the national financial inclusion strategy. - Authorities’ views: - Committed to strengthen financial sector resilience, monitor banking sector fragilities, enhance access to financial services including through La Poste, finalize steps to ensure all banks are adequately capitalized, and address MFI vulnerabilities. ### Program modalities, financing needs, and debt metrics - Program request: - Authorities requested a 42-month blended EFF-ECF arrangement with High Combined Credit Exposure (HCCE). - Benin is a “presumed blender” expected to access Fund support through PRGT and GRA in a 1:2 ratio. - Financing needs and assumptions: - External financing needs after factoring in a Eurobond issuance in 2025 are estimated at an estimated CFAF 755 billion over 2022–25, of which CFAF 359 billion would be financed through budget support from MDBs and donors. - Residual financing needs to be filled by the envisaged Fund-supported program are estimated at CFAF 396 billion over 2022–25. - Needs are heavily frontloaded in 2022–2023 due to near-term BOP pressures from higher global food and oil prices related to the war in Ukraine, and persistent medium-term pressures including reliance on smuggled fuel and slack export growth. - Program assumes robust financing from regional domestic bond market of about CFAF 430 billion per year from 2022 to 2024, part of which could be substituted by external bond issuances if market conditions allow and consistent with debt sustainability and the interest-to-tax revenue operational guide. - Access level and phasing: - Proposed access of SDR 484.058 million or 391 percent of quota: - SDR 161.349 million or 130.33 percent of quota from the ECF (PRGT). - SDR 322.709 million or 260.67 percent of quota from the EFF (GRA). - Considering Benin’s outstanding credit to the Fund of 254.4 percent of quota, proposed access triggers HCCE procedure. - Proposed access equals 3.6 percent of Benin’s 2022 nominal GDP for a 3½-year arrangement. - Two-thirds of program financing comes from GRA; access remains within normal annual and cumulative PRGT access limits of 145/435 percent of quota throughout the program. - Benin repays about 115 percent of quota to the Fund on existing obligations over the life of the program, reducing Fund’s net exposure by program end. - Financing assurances and burden sharing: - Program fully financed over next twelve months with good prospects for remainder; strong technical and financial support from development partners. - For 2022, US$177 million (out of the US$698 million financing package expected from World Bank, EU, and AfDB for the year) will take the form of budget support, including World Bank funding of Benin’s vaccination program in the amount of US$27 million this year. - Fund expected to cover about 52 percent of external and fiscal financing gaps over program period under baseline; program captures an adjustor for an additional US$92 million at end-December 2022. - If adjustor kicks in, Fund’s burden share would fall below 50 percent. - Fund’s burden share averages 61 percent in the first 18 months of the program (56 percent if the adjustor kicks in) and declines to an average of 36 percent in the last two years as Fund support catalyzes MDBs and donor support. - Rationale and HCCE assessment: - Staff assesses that Benin meets the three HCCE criteria (Annex I); a program under normal access limits would leave urgent needs unmet and risk undermining the fragile recovery. - Capacity to repay and debt service outlook: - Total obligations based on existing and prospective credit will peak at 0.47 percent of GDP in 2029 (2.9 percent of total revenues excluding grants and 2.1 percent of exports). - Total Fund credit outstanding as a share of GDP and quota peaks at 4.7 percent of GDP in 2023 and 549.8 percent of quota in 2024, then gradually converge to the sample median. - Overall debt service expected to remain elevated for next decade at around 2 percent of GDP and 14 percent of revenues excluding grants, with peaks in 2026 and 2030. - Debt service projections would be improved by sustained revenue mobilization under the program. - Capacity to repay is conditional on successful reform implementation and absence of major shocks; Benin’s capacity is also affected by other WAEMU members because reserves are pooled at the BCEAO. - Safeguards: - 2018 safeguards assessment found BCEAO maintained a strong control culture; last outstanding recommendation related to strengthening risk management has been implemented. - In line with safeguards policy, an update assessment of the BCEAO is due in the four-year cycle for regional central banks. *IMF staff summary of Box 4 and related program sections from the Benin country report.* ### 2022. Moreover, given the expectation that at least 25 percent of the funds will be directed ### 1benea2022002 - 2022. Moreover, given the expectation that at least 25 percent of the funds will be directed ### Program design, conditionality, and contingency planning - Monitoring and conditionality - The program will be monitored through semi-annual quantitative criteria and structural conditionality (Tables 10, 11a–b). - QPCs on the basic primary balance of the central government and net domestic financing will help monitor convergence towards the WAEMU norm. - An indicative target (IT) on tax revenue will support the authorities’ revenue mobilization effort and preserve the quality of adjustment. - The program includes a PC on the PV of newly contracted external public and publicly guaranteed debt (in line with the IMF’s Debt Limits Policy), calibrated to avoid tipping into a high-risk of external debt distress. - An IT on priority social spending is set to reflect the core program objective of improving socio-economic outcomes. - Continuous PCs on external and domestic arrears are included. - Structural conditionality is aligned to the program’s main objectives and supported by Fund TA (¶49). - Table 10b identifies SBs for program reviews; other important reforms envisaged by the authorities are reflected in the MEFP. - Contingency planning and risks - Program risks include higher than anticipated security outlays, a more protracted COVID-19 pandemic (affecting revenues and spending), and social discontent. - In the event of higher-than-anticipated spending pressures, the authorities will identify additional adjustment efforts or reprioritize spending (including implementing additional tax measures or slowing execution of non-priority domestically financed projects). - In the event of medium-term financing shortfalls, the authorities would seek recourse to regional or commercial financing provided costs are consistent with maintaining debt sustainability; they would adjust otherwise. - Data provision and capacity development (CD) - Data provision is broadly adequate for surveillance and program review but institutional capacity needs bolstering to enhance policy design and data timeliness/depth. - The program will be supported by a comprehensive Capacity Development program focused on improving statistics, governance, transparency (including BO reporting in procurement), enhancing revenue mobilization, wage bill management, and PFM (Annex IX). - Fund TA will be complemented by technical support from other IFIs and donors including the World Bank (social safety nets, human capital) and World Food Program (national school feeding program). ### Staff appraisal: macroeconomic context and policy guidance - Macroeconomic context and near-term priorities - Benin made significant strides in macroeconomic management over the past five years but faces shocks that risk eroding gains: scars from COVID-19, deteriorating security at northern borders, and higher cost of living from food and oil price shocks amid the war in Ukraine (¶49). - These headwinds require urgent policy action to prevent hard-to-revert socio-economic hardship. - Fiscal policy stance and near-term flexibility - Fiscal policy can be calibrated flexibly in the near term to accommodate pressing needs, including postponing the fiscal adjustment planned in the original 2022 budget to provide spending room to mitigate security risks and contain the impact of the war in Ukraine (¶50). - Safeguarding the expected yields (half percentage point of GDP) from the package of tax policy and administrative measures in the 2022 budget is critical to partly absorb unanticipated spending. - Authorities should refine responses to socio-economic implications from the war in Ukraine, including substituting generalized subsidies for better targeted and cost-effective measures, and ensure transparency around needed security-related spending. - Medium-term fiscal consolidation and revenue mobilization - Pivoting to revenue-based fiscal consolidation from next year is essential to unlock Benin’s tax potential and create fiscal space for development needs while preserving debt sustainability (¶51). - Benin is currently assessed as having a moderate risk of debt distress. - The planned Medium-Term Revenue Strategy (MTRS) should aim to expand the tax base, streamline tax expenditures, improve tax system efficiency, and maintain the digitalization drive. - Authorities should quantify ongoing wage bill reform efforts to ensure public compensation remains sustainable amid hiring pressures and pending salary revalorization. - Public financial management, governance, and AML/CFT - Continued improvements in PFM are critical to strengthen transparency and spending efficiency (¶52). - Staff encourage publishing a quantitative analysis of Benin’s fiscal risks and mandating publication of appraisal/selection criteria and feasibility studies for major projects to improve public investment management. - Enhancing governance and transparency and strengthening AML/CFT will support private sector-led inclusive growth (¶53). - Systematic publication of beneficial ownership (BO) information for public procurement contracts is recommended. - Authorities’ planned governance diagnostic, supported by the Fund, should identify measures to reinforce governance and rule of law. - Staff encourage pursuing the reform program to correct AML/CFT deficiencies, including adopting legislation to strengthen risk-based supervision and implementing a targeted financial sanctions regime. - Social inclusion, security-sensitive service delivery, and private sector development - Promoting inclusion requires a holistic, fiscally sustainable approach to development and enhanced social protection (¶54). - Addressing regional disparities and improving access to basic public services in areas vulnerable to security risks aligns with the authorities’ “civilian approach.” - Finalizing the social registry will strengthen social safety nets and targeting. - Sustainable, private sector-led growth requires economic diversification, private investment support, and economic transformation (¶55). - Improvements in competitiveness of the Port of Cotonou, business environment reforms, leveraging digital solutions, improving access to public services and finance, and leveling the playing field in the Special Economic Zone are recommended. - A robust PPP framework could foster private sector participation; monitor SEZ fiscal incentives’ cost-effectiveness and PPP-related risks closely. - Financial sector stability and inclusion - The banking system appears to be weathering shocks but continued supervisory vigilance is needed (¶56). - Authorities should press ahead with reforms, follow WAMU Banking Commission recommendations to bring two small under-capitalized banks back to conformity, implement a national financial inclusion strategy, and consolidate the MFI sector by closing nonviable institutions. - Program endorsement - Staff support the authorities’ request for EFF-ECF supported arrangements under High Credit Combined Exposure to meet urgent financing needs and support implementation of Benin’s National Development Plan (¶57). - The program should catalyze financing from development partners and is bolstered by a comprehensive capacity development program toward far-reaching reforms. ### Key indicators and projections (selected from tables and figures) - Real GDP (annual percent change) - 2019: 6.9 - 2020: 3.8 - 2021: 5.0 - 2022: 7.2 - 2023: 6.0 - 2024: 5.7 - 2025: 6.2 - 2026: 6.0 - 2027: 6.0 - Consumer price index (average and end of period) - CPI (average) 2019: -0.9; 2020: 3.0; 2021: 2.0; 2022: 1.7; 2023: 2.0; 2024: 5.0; 2025: 1.8; 2026: 2.0; 2027: 2.0 - CPI (end of period) 2019: 0.3; 2020: 1.2; 2021: 2.0; 2022: 1.7; 2023: 2.0; 2024: 5.0; 2025: 1.8; 2026: 2.0; 2027: 2.0 - Fiscal aggregates (percent of GDP, Table 3 highlights) - Total revenue 2019: 12.9; 2020: 12.7; 2021: 11.6; 2022: 13.2; 2023: 12.1; 2024: 13.4; 2025: 13.9; 2026: 14.4; 2027: 14.9 - Tax revenue 2019: 10.6; 2020: 10.5; 2021: 9.7; 2022: 11.0; 2023: 10.2; 2024: 11.5; 2025: 12.0; 2026: 12.5; 2027: 13.0 - Total expenditure and net lending 2019: 14.6; 2020: 19.1; 2021: 17.2; 2022: 19.9; 2023: 16.1; 2024: 19.8; 2025: 19.3; 2026: 18.4; 2027: 18.8 - Overall balance (commitment basis, including grants) 2019: -0.5; 2020: -4.7; 2021: -4.5; 2022: -5.7; 2023: -3.0; 2024: -5.5; 2025: -4.3; 2026: -2.9; 2027: -2.9 - Basic primary balance (percent of GDP) 2019: 1.1; 2020: -1.5; 2021: -0.9; 2022: -1.5; 2023: 0.4; 2024: -0.6; 2025: -1.1; 2026: -0.5; 2027: 0.9 - Public debt (end period, percent of GDP) - Total public debt 2019: 41.2; 2020: 46.1; 2021: 45.4; 2022: 49.9; 2023: 44.5; 2024: 51.6; 2025: 52.0; 2026: 50.7; 2027: 49.2 - External public debt 2019: 25.3; 2020: 28.4; 2021: 24.7; 2022: 36.5; 2023: 24.5; 2024: 37.5; 2025: 37.6; 2026: 36.8; 2027: 37.8 - Domestic public debt 2019: 16.0; 2020: 17.7; 2021: 20.7; 2022: 13.5; 2023: 20.0; 2024: 14.1; 2025: 14.4; 2026: 13.9; 2027: 11.3 - Balance of goods and services (percent of GDP) - 2019: -5.0; 2020: -2.8; 2021: -4.5; 2022: -4.7; 2023: -4.6; 2024: -6.9; 2025: -6.4; 2026: -5.4; 2027: -5.7 - Current account balance, including official transfers (percent of GDP) - 2019: -4.0; 2020: -1.7; 2021: -3.9; 2022: -4.4; 2023: -4.1; 2024: -6.2; 2025: -5.7; 2026: -4.6; 2027: -5.0 - Selected fiscal levels (Table 2, in billions of CFA francs, selected items) - Total revenue and grants 2019: 1,185.7; 2020: 1,296.3; 2021: 1,195.2; 2022: 1,387.7; 2023: 1,323.4; 2024: 1,518.4; 2025: 1,550.5; 2026: 1,752.2; 2027: 1,940.0 - Total expenditure and net lending 2019: 1,227.3; 2020: 1,719.9; 2021: 1,617.5; 2022: 1,949.4; 2023: 1,627.3; 2024: 1,999.3; 2025: 2,042.1; 2026: 2,153.7; 2027: 2,254.0 - Capital expenditure 2019: 330.4; 2020: 622.4; 2021: 462.0; 2022: 802.6; 2023: 504.1; 2024: 825.4; 2025: 905.5; 2026: 962.6; 2027: 888.5 ### Policy recommendations (concise) - Safeguard yields from 2022 tax policy/administration measures (half percentage point of GDP). - Target near-term fiscal flexibility to address security and war-related pressures while preserving medium-term consolidation via revenue measures (MTRS). - Quantify and sustain wage bill reforms amid hiring and pending revalorization. - Publish quantitative fiscal risk analysis and improve public investment transparency (appraisal, selection criteria, feasibility studies). - Accelerate governance reforms: publish BO information for procurement, implement governance diagnostic, strengthen AML/CFT legislation and supervision. - Finalize social registry, target social protection, and prioritize cost-effective safety nets over generalized subsidies. - Strengthen banking supervision, address under-capitalized banks per WAMU Commission, implement national financial inclusion strategy, and consolidate MFIs. *Source: Benin — IMF staff report content provided in the supplied PDF excerpt.* ### 1. Gross financing requirements1,2388398247931,1013,557 ### 1benea2022002 - 1. Gross financing requirements1,2388398247931,1013,557 ### Gross financing requirements (projections, CFAF billion unless otherwise indicated) - Total gross financing requirements (row 1): 1,238 839 824 793 1,101 3,557 - Current account balance (excl. grants): 471 717 709 633 714 2,773 - Debt Amortization (excl. regional market securities/IMF): 314 121 113 157 167 558 - IMF Repurchases/repayments: 0 69 45 57 11 6 - Change in NFA (excl. IMF) ("+" = increase): 453 -4 -7 -4 21 64 11 1 - Errors and Omissions: 0 0 0 0 0 0 ### Available financing (projections) - Total available financing (row 2): 1,078 558 612 649 983 2,802 - Foreign direct investment (net): 119 126 134 142 150 552 - Other net flows (includes portfolio investment, private investment, and capital account (excl grants)): 675 828 895 387 652 - of which: Eurobond: 98 4000 284 284 - Project (official external): 284 350 390 413 446 1,599 - Grants: 55 55 82 82 88 306 - Loans: 229 295 308 331 358 1,293 ### Financing Gap and exceptional financing (projections) - Financing Gap (1-2): 160 282 212 144 117 755 - Budget support (Multilateral): 66 88 79 37 53 43 - Grants (within budget support): 37 37 47 50 41 17 5 - Loans (within budget support): 28 51 41 33 34 16 8 - Vaccination Support (WB): 160 00 0 16 - Exceptional Financing (aggregate): 94 178 125 51 43 96 - IMF (SDR): 94 00 00 0 - IMF Prop ECF/EFF: 0 17 81 25 51 43 33 96 ### Key projections and memorandum items from Table 9 (Benin: Capacity to Repay the Fund, 2022–34) - IMF obligations based on existing credit (millions of SDRs), Principal: 4.8 10.6 55.1 69.6 45.7 45.7 37.8 33.0 17.5 0.0 0.0 0.0 0.0 - Charges and interest (millions of SDRs): 0.8 1.6 1.4 0.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - Total obligations based on existing and prospective credit, Principal (Millions of SDRs): 4.8 10.6 55.1 69.6 45.7 72.6 96.7 108.0 100.9 86.1 86.1 43.0 17.7 - Total obligations based on existing and prospective credit, Principal (Billions of CFA francs): 3.9 8.7 44.8 56.5 37.2 59.0 78.6 87.8 82.0 69.9 69.9 35.0 14.4 - Percent of government revenue (obligations): 0.3 0.5 2.5 2.8 1.7 2.4 2.8 2.9 2.4 1.8 1.7 0.7 0.3 - Percent of exports of goods and services (obligations): 0.1 0.3 1.6 1.8 1.1 1.6 2.0 2.1 1.8 1.4 1.3 0.6 0.2 - Percent of GDP (obligations): 0.0 0.1 0.4 0.4 0.3 0.4 0.5 0.5 0.4 0.3 0.3 0.1 0.1 - Percent of quota (obligations): 3.9 8.6 44.5 56.2 36.9 58.7 78.1 87.3 81.5 69.5 69.5 34.8 14.3 - Charges and interest (Millions of SDRs): 1.9 5.3 8.3 8.3 8.0 7.7 6.9 4.8 3.5 2.5 1.5 0.7 0.2 - Outstanding IMF credit (Millions of SDRs): 531.6 673.3 680.7 663.8 618.0 545.4 448.8 340.7 239.9 153.8 67.7 24.7 7.0 - Outstanding IMF credit (Billions of CFA francs): 436.1 550.8 554.3 539.5 502.0 443.3 364.7 276.9 194.9 125.0 55.1 20.1 5.7 - Percent of government revenue (outstanding IMF credit): 29.9 33.9 30.7 26.7 22.4 17.9 13.1 9.0 5.7 3.3 1.3 0.4 0.1 - Percent of exports of goods and services (outstanding IMF credit): 15.9 19.8 19.2 17.5 15.0 12.3 9.4 6.6 4.3 2.5 1.0 0.4 0.1 - Percent of GDP (outstanding IMF credit): 4.0 4.7 4.4 4.0 3.4 2.8 2.1 1.5 1.0 0.6 0.2 0.1 0.0 - Percent of quota (outstanding IMF credit): 429.4 543.9 549.8 536.2 499.2 440.5 362.5 275.2 193.7 124.2 54.7 20.0 5.7 - Net use of IMF credit (millions of SDRs): 211.8 141.8 7.3 -16.9 -45.7 -72.6 -96.7 -108.0 -100.9 -86.1 -86.1 -43.0 -17.7 - Disbursements (including prospective ones): 216.6 152.4 62.4 52.7 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - Repayments and repurchases: 4.8 10.6 55.1 69.6 45.7 72.6 96.7 108.0 100.9 86.1 86.1 43.0 17.7 Memorandum items: - Nominal GDP (billions of CFA francs): 10,873 11,670 12,545 13,561 14,664 15,851 17,131 18,510 19,996 21,597 23,321 25,180 27,182 - Exports of goods and services (billions of CFA francs): 2,750 2,785 2,889 3,087 3,338 3,609 3,900 4,214 4,552 4,917 5,309 5,732 6,188 - Government revenue (billions of CFA francs): 1,459 1,624 1,808 2,023 2,238 2,483 2,776 3,073 3,420 3,802 4,222 4,685 5,193 - CFAF/SDR (period average): 820 818 814 813 812 813 813 813 813 813 813 813 813 - Quota (millions of SDRs): 123.8 (each year listed) ### Quantitative performance criteria, indicative targets, and structural benchmarks (selected) - Basic primary balance (floor) (December 31, 2021): -148.5 -77.3 -154.4 -127.6 -11.6 -32.1 - Net domestic financing (ceiling): -380.8 290 431 377 62 164 (note: includes on-lending from the BCEAO related to the IMF disbursement) - Accumulation of external payments arrears: 0.0 0.0 0.0 0.0 0.0 0.0 - Accumulation of domestic payments arrears: 0.0 0.0 0.0 0.0 0.0 0.0 - Ceiling on the present value of new external debt contracted or guaranteed by the government (annual for 2022): 1,016.0 620 620 620 620 620 Indicative targets: - Tax revenue (floor): 1,082.3 578.9 876.7 1,232.9 325.2 677.1 - Priority social expenditure (floor): 150.0 46.2 92.5 149.1 16.4 50.9 Structural benchmarks (selected, due dates as stated): - Adopt into law a secondary regulation requiring procurement agencies to collect BO information for companies awarded public procurement contracts above CFAF 10 million. End-June 2022 - Publish on a regular basis the BO information for companies awarded public procurement contracts above CFAF 10 million on an easily accessible government website. End-September 2022 - Conduct and publish a governance diagnostic. End-February 2023 - Adoption by the Council of Ministers of specified AML/CFT ministerial decrees. End-June 2022 - Develop a strategy for rationalizing tax expenditures over 2023–25 (detailed report on 2021 tax expenditures to be annexed to draft budget law). End-November 2022 - Develop a medium-term revenue mobilization strategy (MTRS). End-September 2023 Concluded structural benchmarks (selected): - Finalize community validations of vulnerable households in at least 70 of the 77 communes and publish social registry results at the commune level on an easily accessible government website. End-July 2022 - Prepare a statement containing a quantitative analysis of fiscal risks as part of the 2024 draft budget law documentation. End-October 2023 - Publish all criteria for appraisal and selection of major investment projects, along with feasibility studies. End-December 2023 - Transpose the WAEMU regional financial inclusion strategy at the national level and design a comprehensive financial inclusion strategy for Benin. End-March 2023 ### Schedule of reviews under the ECF-EFF Arrangement (Table 12, Amounts in SDR million; percent of quota shown) - Availability and conditionality (availability dates and amounts): - July 8, 2022: 108.30 total (36.10 ECF; 72.20 EFF) — 87.48 percent of quota (29.16 ECF; 58.32 EFF) - November 21, 2022: 108.30 total (36.10 ECF; 72.20 EFF) — 87.48 percent of quota (29.16 ECF; 58.32 EFF) - May 1, 2023: 50.81 total (16.94 ECF; 33.88 EFF) — 41.04 percent of quota (13.68 ECF; 27.36 EFF) - November 1, 2023: 101.59 total (33.86 ECF; 67.72 EFF) — 82.06 percent of quota (27.36 ECF; 54.70 EFF) - May 1, 2024: 31.20 total (10.40 ECF; 20.80 EFF) — 25.20 percent of quota (8.40 ECF; 16.80 EFF) - November 1, 2024: 31.20 total (10.40 ECF; 20.80 EFF) — 25.20 percent of quota (8.40 ECF; 16.80 EFF) - May 1, 2025: 26.20 total (8.70 ECF; 17.50 EFF) — 21.16 percent of quota (7.03 ECF; 14.14 EFF) - October 31, 2025: 26.458 total (8.849 ECF; 17.609 EFF) — 21.37 percent of quota (7.15 ECF; 14.22 EFF) - Total: 484.058 SDR million (161.349 ECF; 322.709 EFF) — 391.00 percent of quota (130.33 ECF; 260.67 EFF) ### Staff assessment highlights (Annex I and Annex II) - Balance of payments pressures and financing risks: - Current account projected to widen in 2022–23 due to higher import bill from sharp increase in global oil and food prices and the need to reduce reliance on smuggled fuel products from Nigeria (SIP-III). - Cotton prices expected to remain elevated over the medium-term but not enough to offset export impacts from plateauing cotton production after nearly tripling in volume between 2015-20. - FDI (although increasing) expected to cover only a fraction of the infrastructure push. - Ongoing tightening in global financial conditions may constrain Benin’s access to international capital markets consistent with program targets. - Debt sustainability: - Benin is projected to remain at moderate risk of debt distress despite limited space to absorb shocks. - Expected higher concessional financing and a catalytic Fund role would further improve Benin’s debt profile. - Program implementation capacity: - Benin has strong institutional capacity and a solid track record of policy implementation, including “very satisfactory” performance under the previous ECF (2017–20). - Strong upfront conditionality in governance, transparency and AML/CFT, and a permanent tax package this year (½ ppt of GDP) set the program on strong footing. - Progress on prior recommendations (Annex II, selected): - Revenue mobilization: domestic taxes increased from 6.3 percent of GDP in 2019 to 7 percent of GDP in 2021; international trade taxes nearly flat (4.2 to 4.1 percent of GDP). - Convergence to WAEMU fiscal deficit criterion: authorities tightened fiscal policy in 2019, recording deficit of 0.5 percent of GDP. - PFM and statistics: work ongoing to improve government finance data and develop quarterly national accounts by expenditure. - Debt management: liability management operations undertaken to lower refinancing risks and borrowing costs; implementation of the 2020-24 Medium-Term Debt Strategy continues. - Financial sector: move towards Basel II/III and IFRS9 standards; operationalized Caisse des Depots et Consignations (CDC) in 2020; average cost of term deposits in banks declined by nearly 100 bps over 2020-22 (preliminary analysis). - Governance reforms: ANLC transformed into High Commission for the Prevention of Corruption (HCPC); enhanced capacity of CENTIF; institutional change at the Court of Auditors aimed to enhance independence. *Source: Beninese authorities; IMF staff estimates and projections* ### Annex III. Risk Assessment Matrix ### Annex III. Risk Assessment Matrix ### External Risks - Unexpected (adverse) shifts in the COVID-19 pandemic and subpar/volatile growth - Relative Likelihood/Time Horizon: Medium High; Short to Medium Term - Expected Impact if Realized: Limited access to, and longer-than-expected deployment of vaccines, combined with dwindling policy space, could trigger capital outflows, impact debt sustainability and lead to reassessment of growth prospects. - Recommended Policy Response: Compensate lower fiscal revenues through spending prioritization; target support to vulnerable households; mobilize donor support and seek highly concessional financing; and press ahead with reforms to boost private investment and growth. - Intensified security risks, including due to regional spillovers - Relative Likelihood/Time Horizon: High High; Short to Medium Term - Expected Impact if Realized: Intensification of security shocks could potentially have large adverse effects on activity and public finances, and complicate policy implementation. - Recommended Policy Response: Enhance State presence in communities at risk through improved access to basic public services; improve public spending efficiency and commit to a credible medium-term fiscal consolidation. - Sharp rise in food and energy prices amid the war in Ukraine - Relative Likelihood/Time Horizon: High High; Short to Medium Term - Expected Impact if Realized: Higher commodity prices and tighter financial conditions could add to purchasing power erosion and delay addressing pre-existing social challenges. - Recommended Policy Response: Rely on cost-effective targeted measures in response to the food and energy price shock and reduce non-priority spending to preserve programmed fiscal targets; bolster investors’ confidence through careful communication on policy actions, and maintain prudent debt policy and management; mobilize more concessional financing. - Adverse developments in Nigeria - Relative Likelihood/Time Horizon: High High; Short to Medium Term - Expected Impact if Realized: Slower recovery and adverse security situation would reduce trade revenues, and growth in Nigeria, Benin’s main trading partner, with adverse impact on Benin’s re-exports, customs revenue, and informal trade. - Recommended Policy Response: Reduce trade dependence vis-à-vis Nigeria by moving away gradually from the transit-centered “entrepot” growth model; improve the business environment to support economic diversification and private sector development. - Higher frequency and severity of natural disasters related to climate change - Relative Likelihood/Time Horizon: Medium High; Medium Term - Expected Impact if Realized: Severe economic damage and acceleration of migration flows; increased commodity price levels leading to higher food insecurity. - Recommended Policy Response: Accelerate reforms to strengthen resilience through irrigation and improved productivity in agriculture; mitigate the immediate impact on the poor including through targeted transfers and emergency assistance. ### Domestic Risks - Policy implementation risks, due to widespread social discontent and political instability - Relative Likelihood/Time Horizon: Medium High; Short Term - Expected Impact if Realized: Social tensions could increase political polarization, undermine economic activity, disrupt the reform agenda, and exert pressure on the budget. - Recommended Policy Response: Strengthen social safety nets to mitigate the impact on the poor; enhance the delivery of basic public services; ensure transparency and accountability in public spending and improve the efficiency of public investment. - Intensification of financial sector vulnerabilities - Relative Likelihood/Time Horizon: Medium Medium; Short to Medium Term - Expected Impact if Realized: A surge in non-performing loans could deteriorate confidence and lower capital, affecting banking sector stability and credit to the private sector. - Recommended Policy Response: Enhance monitoring of financial sector developments; consult with the WAMU banking commission and communicate with banks on measures needed to ensure a prompt resolution of NPLs and adequate capitalization. *Source: Annex III. Risk Assessment Matrix (Benin) — INTERNATIONAL MONETARY FUND* ### Annex VI. Benin’s Access to Capital Markets: Opportunities and Risks ### Annex VI. Benin’s Access to Capital Markets: Opportunities and Risks ### Benin’s Market Access - Benin issued its first Eurobond in March 2019 for an amount of EUR 500 million, carrying a coupon of 5.75 percent with a maturity of 7 years. - At the onset of the pandemic, Benin’s bond spreads soared by 550 bps by end-March 2020; spreads returned gradually to pre-pandemic levels by end-2020. - Benin returned to international capital markets in January 2021 when sovereign bond spreads fell to the lowest levels since 2019Q1. - Benin’s second Eurobond (January 2021) was split into two tranches and secured the longest maturity (31 years) ever received by a WAEMU member on global capital markets; the issuance was oversubscribed by threefold, attracting nearly EUR 3 billion in bids from 125 investors. - Global issuance of non-traditional sovereign bonds grew by 64 percent in 2021 to reach US$992 billion or 11.3 percent of total global bond issuance. - Benin became the first country in SSA to issue an SDG bond in July 2021. - Benin’s third Eurobond realized a “greenium” of nearly 20 basis points versus its estimated secondary trading price. ### Benin’s SDG Bond Framework (Box 1) - The SDG Bond Framework is anchored on Benin’s national development plan (PND; 2018–25) and focuses on 12 green and social eligible categories, including education, health, and water. - The framework describes use of proceeds, expenditure evaluation and selection, management of proceeds, and reporting on allocation and impacts. Because proceeds are channeled through the national budget, investors bear no risk tied to projects. - The framework facilitated issuance of a EUR 500 million SDG Eurobond in July 2021, with a 12.5-year maturity at 4.95 percent coupon. - The framework was deemed aligned with the four core components of Green Bond Principles and Social Bond Principles by Vigeo Eiris in June 2021. - As with other financing sources, borrowing under the framework should remain consistent with debt sustainability (see DSA). ### Benefits of Market Access - Sovereign Eurobonds provide an alternative source of financing and can: - Signal country risk benchmarks, attracting other capital flows to the private sector. - Be transparent instruments with terms and conditions published by exchanges. - Allow rapid mobilization of financing under market-imposed discipline and provide choices on currency denomination, tenor, and repayment schedule. - International capital markets provided preferable terms compared to the WAEMU regional market: - Average yield on a 10-year bond issued on the regional market was 6.72 percent versus 5.34 percent on international markets at end-January 2022 (a difference of nearly 160 bps). - Yields on Benin’s Eurobonds declined in 2021; spreads on BEN 2026 fell from 436 bps on January 4, 2021 to 374 bps on December 31, 2021. - Proceeds from January 2021 Eurobond were used for early repayment of 65 percent of the more expensive 2019 Eurobond (EUR 324 million or 2.1 percent of GDP). - More than three quarters of the July 2021 Eurobond were used to retire shorter maturity and more expensive domestic debt (CFAF 218 billion or 2.1 percent of GDP) in November 2021. - These liability management operations reduced amortization of external debt over 2024-26, lowered reliance on domestic (regional) liquidity and refinancing risks, decreased the average cost of public debt and extended its maturity. ### Risks of Market Access - Sovereign issuances entail significant risks: rapid shifts in investor sentiment, deterioration in economic outlook, or global shocks can increase volatility, foreign currency risk, and borrowing cost. - Local Projections model (IMF, 2019) decomposition results: - Changes in EMBI spreads are explained by combination of external conditions (investors’ risk aversion, oil prices) and macroeconomic fundamentals (level of debt, fiscal stance, institutional quality). - Benin’s spreads were on average 58 basis points higher since the first Eurobond issuance in March 2019 compared to spreads implied by fundamentals. - The decline in spreads in 2021 was mainly driven by improved investor sentiment (proxied by VIX index). - Benin did not participate in the Debt Service Suspension Initiative (DSSI) to limit perception risk from investors. - As of end-April 2022: - Benin’s EMBI spreads had increased by 70 bps since the outset of the war (Ukraine). - About 10 percent of Benin’s outstanding Eurobond issuances (0.5 percent of GDP) is maturing within 4 years. - Around 2 percent of Benin’s current debt stock is subject to variable interest rates. - No obvious exchange rate risk exists since all Eurobond issuances are denominated in euros. - Persistently high risk premia for WAEMU issuers could increase reliance on domestic (regional) financing, potentially crowding out private sector credit and exerting liquidity pressures on regional capital markets, especially if multiple large WAEMU economies borrow regionally simultaneously. ### Safeguarding Market Access Over the Medium Term - Maintaining access will require: - Prudent fiscal policy and continued proactive debt management. - Striking a balance in deficit financing between maintaining market access on non-concessional terms and preserving fiscal space for development needs. - Continued reliance on concessional financing over the medium term, given that Benin’s debt is assessed at moderate risk of debt distress but interest costs are high relative to revenues. - Operational recommendations: - Continue implementation of Benin’s medium-term debt strategy (MTDS), improving consistency with the regional market issuance schedule and the national annual financing plan. - Better integrate cash and debt management practices. - Continue attracting foreign and domestic private investment as concessional borrowing is expected to decrease with gradual income improvement. - Enhance business environment, trade, and regional integration to lower private sector investment risks. - Deepening regional public debt markets to mitigate adverse effects of monetary policy normalization in advanced economies: - Benin issued CFAF 150 billion (about $250 million) in two tranches of 15 years and 20 years in February 2022, marking the first 20-year issuance on the regional market and the longest to date. - Further actions for Benin could include facilitating a greater role for institutional investors (e.g., Caisse Nationale de Sécurité Sociale du Bénin and Caisse des Dépôts et Consignations du Bénin) in the regional public debt market, improving coordination of sovereign issuances among WAEMU members, and contributing to enhanced operations of the regional market’s primary dealers. - Operational practice: - Benin has set up a weekly market monitoring system to identify and seize optimal windows for liability management operations. *Prepared by Goran Amidzic (AFR).* ### 5.3 percent of GDP in Benin during 2018–21, slightly above the average recorded between 2016-18 ### 1benea2022002 - 5.3 percent of GDP in Benin during 2018–21, slightly above the average recorded between 2016-18 ### Social spending and fiscal context - Social spending in Benin was 5.3 percent of GDP during 2018–21, slightly above the Benin 2016-18 average of 4.9 percent of GDP and nearly half the level recorded among LICs (Figure 7.1). - Historical low levels of social expenditure reflect authorities’ preference for improving access to basic public services over large social safety nets. - At the onset of the pandemic, cash transfers amounted to only 0.13 percent of GDP out of the 4.5 percent of GDP overall COVID response plan. - Informal sector employees were particularly affected by the pandemic due to lack of access to social protection (INSAE, 2020). ### National social registry and targeting methodology - Authorities are developing a national social registry to collect socio-economic and demographic profiles for effective targeting. - Number of enrolled households reached 364,673 as of April 2021, on track toward a unified registry goal of 550,000 households by end-2023 (equivalent to 3.3 to 4 million individual beneficiaries, nearly a third of Benin’s total population). - Collected data is linked to the national biometric identification system. - Harmonized targeting methodology (conducted in three stages starting in 2017) combines community level targeting (CMT) with proxy means testing (PMT): - Stage 1: identification by trained Community Identification Committees; - Stage 2: household and proxy means data collection; - Stage 3: validation through local community consultation. - Final CMT expected to be completed by end-2022; process has already identified nearly 1.6 million people living below the poverty line, including 1.2 million categorized as extremely poor and 0.4 million as poor. ### ARCH (Assurance pour le Renforcement du Capital Humain) — flagship social protection program - ARCH launched in July 2017 with four pillars: - (i) enhancing access to health by improving health insurance coverage, specifically targeting the poor; - (ii) continuous occupational training (to about 1.8 million informal workers); - (iii) facilitating access to micro-credit (to nearly 1.8 million informal enterprises); - (iv) extending guaranteed retirement pensions (to approximately 2 million people employed in the informal sector). - Authorities estimate total cost of ARCH at CFAF 183.8 billion (about 1.8 percent of GDP) over 2021-26; about a third (CFAF 88.6 billion or about 1 percent of GDP) has already been secured mainly through external sources. - Financing arrangements noted: - 2019 loan of €127 million (CFAF 83 billion, 0.8 percent of GDP) with Crédit Suisse (3.5 percent interest, maturity 12 years), partially guaranteed (up to 40 percent of principal) by the World Bank. - Additional financing from World Bank, USAID, UNICEF, and small budgetary transfers. ### ARCH implementation status and pilot components - Health insurance component (ARCH-Assurance Maladie, ARCH-AM) is most advanced; health insurance became compulsory for all Beninese residents in January 2022 (Box 1). - Micro-credit component (Microcredit ALAFIA) pilot as of end-December 2021: - Provided CFAF 8.7 billion (US$15 million) to 177,848 beneficiaries (86 percent women). - By end-2022 expected disbursement: CFAF 15.8 billion (US$27.3 million) to 233,000 beneficiaries. - Vocational training pilot launched December 2020 across eight municipalities; expected to have created nearly 2,600 jobs by end-December 2021. - Census of approximately 241,000 artisans expected by end-2022 to improve targeting for vocational training. - Final business model for retirement component completed; pilot phase planned to start in second half of 2022. - Pension coverage in Benin is limited: in 2020 only 1.2% of the working age population contributed to the FNRB, and 9.1% of the population aged 60 and over (60,677 individuals) received a pension. ### Donor-funded pilots and existing safety nets - Several donor-funded projects piloted: cash transfers, health insurance, school feeding (PNASI), early childhood development, nutritional support, temporary humanitarian relief. - National Integrated School Feeding Program (PNASI): - Piloted by WFP in 2017, co-financed by Catholic Relief Services and USAID. - In 2021 benefited nearly 650,000 students, covering 54 percent of all primary schools; expected coverage of all primary schools by end-2023. - World Bank-funded ACCESS project (since 2018): - Provides unconditional cash transfers of CFAF 5,000 per month via mobile money and additional income through labor intensive community works. - In 2021 transfers reached over 19,216 households directly benefitting over 100,000 people. ### Ten-Year Productive Social Safety Net Program (PDFPSP 2022-2031) - Program being finalized leveraging national registry; aims to accelerate poverty reduction by providing regular assistance to extreme poor households and enabling participation in the economic process. - Program activities include conditional cash transfers linked to community-level works to improve community living environment (sanitation, landscaping, maintenance). - Program design includes four differentiated interventions: - i) unconditional cash transfer of CFAF 12,000 per month; - ii) additional CFAF 2,000 per month for participation in vocational training, including in health and financial inclusion; - iii) public works opportunities for 12 days over a 3-month period paying CFAF 13,500 (focus on climate change and deforestation); - iv) revenue-generating activity with training on business plans and a grant of CFAF 25,000 towards business. ### Digital solutions and scaling recommendations - Leveraging digital solutions could enhance access and targeting: - Completion of national social registry would improve coordination, effectiveness, and targeting across safety net programs. - Collecting information on informal worker characteristics could inform training and financial inclusion programs to boost productivity. - Mobile technologies can scale up social protection (example cited: Togo’s NOVISSI mobile cash-transfer program launched April 2020 using voter ID and mobile transfers). ### Universal Health Coverage (Box 1) — findings and fiscal implications - Benin’s government health expenditure was 0.5 percent of GDP in 2019; only 8.4 percent of the total population covered by health insurance in 2019; out-of-pocket payments constituted 47 percent of healthcare expenditure. - ARCH-AM pilot expanded from 7 to 21 communes by end-2021; PMT survey finalization across remaining 56 communes expected by end-2022. - ARCH-AM beneficiaries expected to increase to 5.1 million (40 percent of total population) by end-2023, including 1.3 million extremely poor and 3.8 million non-extremely poor. - Health insurance annual premium estimated at CFAF 6000 (about US$10) under actuarial assumptions (two medical contacts per year multiplied by average consultation cost at primary health care level). - Pre-pandemic estimate to achieve universal health coverage by 2030: about 9.3 percent of GDP on health (US$119 per capita). This compares to 4.2 percent of GDP (US$33 per capita) total spending on health equivalent in 2019 and implies recruiting 8 times more doctors and 4 times more support staff than in 2019. - Challenges: highly fragmented health insurance system, fiscal risks from inefficient funding of ARCH-AM, need for improved institutional capacity, targeting, delivery systems, and secured funding with strong accountability and transparency mechanisms. ### Climate change vulnerability and national strategy - Benin ranked among the most vulnerable countries to climate change; primary sector (nearly 30 percent of the economy in 2021) is particularly exposed. - Natural hazard history: epidemic and floods account for nearly 90 percent of events since 1900; flooding affected 3.2 million people over past 40 years. - Rainfall decreased in April-June during 1960-2006 at an average rate of 3.9 mm per month per decade. - Sea level anomaly increased from less than 15 mm on average in 1993-2000 to above 60 mm on average between 2010-18. - UNDP scenario: maize yields could decline by 16.7 percent by 2030. - Benin ranked as the 12th most vulnerable country to climate shocks in a sample of 192 countries by ND-GAIN (2019); readiness ranked 57th least ready in a sample of 192 countries. - National Policy for the Management of Climatic Changes (PNGCC 2021-2030) focuses on agriculture, energy, land, forestry, and waste management with three strategic pillars: - (i) strengthening institutional, individual, and physical capacities; - (ii) promoting low carbon and climate resilient development; - (iii) governance of climate change. - PNGCC organizes reforms around four programs to be implemented by 2030: (a) capacity building on climate change; (b) adaptation; (c) mitigation; (d) support for climate change management. A National Change Management Committee and a coordination/implementation body are expected. - Benin’s 2015 share of global greenhouse gas emissions was 0.03 percent; Benin committed to reducing emissions by 20 percent over 2021-2030. - Estimated cost of Benin’s climate adaptation and mitigation plans: US$10.5 billion (60 percent of GDP), of which US$4.9 billion are conditional on international support. - Accessing international climate funds has been challenging; further initiatives such as the pending IMF Resilience Sustainability Trust would be helpful. *International Monetary Fund — Benin chapter content as provided in the source PDF.* ### Annex IX. Capacity Building and Technical Assistance Framework ### Annex IX. Capacity Building and Technical Assistance Framework ### Overview - Purpose: Summary of the understanding between IMF staff and the Beninese authorities on the capacity development strategy (CD) in support of the authorities’ reform priorities for 2022-25, supported by the 42-month blended EFF/ECF. - Context: Over the last five years, extensive Fund CD activities informed policy formulation and implementation under the previous 2017–20 ECF arrangement and pivoted to support COVID-19 response while continuing domestic revenue mobilization efforts. ### CD Focus and Objectives (2022–2025) - CD activities will include improving revenue mobilization, enhancing governance and transparency, wage bill management, public financial management (PFM), and government finance statistics and real sector statistics. - The IMF-supported CD program is complemented by technical support from development partners: - World Bank: social protection and human capital development - European Union: governance and PFM - African Development Bank: agriculture and inclusive infrastructure - UN World Food Programme: expanding the flagship school feeding program ### Authorities' Views - Authorities value continued technical support of the Fund and agree with the focus of the envisaged CD program. - Commitment to reinforce TA coordination and continued appropriation of main TA recommendations. ### Technical Assistance Priorities (as listed) - Revenue Mobilization - Develop a medium-term revenue mobilization strategy (MTRS); rationalize tax expenditures - Address international taxation issues and design a modern tax regime for the extractive sector - Reform property taxation - Simplify the tax system, review progressivity of the tax regime - Strengthen tax compliance; enhance cooperation between tax and customs administrations - Improve customs capacities, management, governance and data gathering and analysis - Governance, rule of law and transparency - Conduct governance diagnostic to support ongoing efforts to ensure effective legal and public finance governance in line with international best practices - Improve Beneficial Ownership reporting in public procurement to support regular publication - Wage bill management - Identify structural measures to preserve wage bill sustainability and equity - Public financial management - Strengthen capacity for identifying, disclosing, quantifying, and managing fiscal risks - Accelerate the implementation of the Treasury Single Account and improve cash management - Improve budget execution and control to support program-based budgeting and buttress accountability, following recent FTE recommendations, including by accelerating the process for strengthening budget forecasts and enhancing the information and analysis of programming documents and budget reporting - Introduce accrual accounting in line with the implementation of the budget program and the new Integrated Public Financial Management System (SIGFIP) budget IT system - Improve public investment efficiency by updating Public Investment Management Assessment (PIMA) and conduct a Climate-PIMA - Government Finance Statistics and Real Sector Statistics - Improve data compilation practices; and expand the fiscal data coverage to general government in line with GFSM 2001/2014 - Develop quarterly national accounts data by expenditure - Strengthen compilation of data for turnover index and producer price index ### Program Request and Commitments - Formal request: Assistance from the IMF through 42-month arrangements supported by the EFF and the ECF for an exceptional amount of SDR 484.058 million (equivalent to 391 percent of quota) composed of: - SDR 161.349 million (130.33 percent of quota from the ECF (PRGT)) - SDR 322.709 million (260.67 percent of quota from the EFF (GRA)) - Financing operations: Seek a first purchase/disbursement equivalent to 87.48 percent of quota. - Program objectives: Meet urgent balance of payments needs, consolidate public finances starting next year, support the National Development Program (PND; 2018–25). - Commitments: - Implement policies and measures described in the MEFP - Consult with the Fund on adoption of additional measures or revisions - Provide IMF with information on implementation and program execution as set out in the Technical Memorandum of Understanding (TMU) - Commit to a Fiscal Safeguards Review by the Fund by the first program review - Consent to publication of the letter, attachments, and the Staff Report associated with the request for support ### Recent Economic Developments and Outlook (selected points) - Growth and macro indicators: - Growth reached 6.7 percent in 2019 (from 1.8 percent in 2015) [letter text] - Economic activity expanded by 3.8 percent in 2020 (highest growth rate in the WAEMU region) - After accelerating to an average growth rate of 6.4 percent between 2017 and 2019, the economy decelerated in 2020 to a growth rate of 3.8 percent - The Beninese economy rebounded to 7.2 percent in 2021 - GDP growth reached 6.9 percent in 2019 (Attachment I) - Fiscal and debt developments: - Budget was near-balanced in 2019 with the deficit limited to 0.5 percent of GDP - Public debt stabilized at 43 percent of GDP at end-2019 - Budget deficit increased from 0.5 percent of GDP in 2019 to 4.7 percent in 2020, and to 5.7 percent in 2021 - Policy response and shocks: - COVID-19 response plan included additional public spending; tax revenue did not fall during this period - Recent shocks cited include regional terrorist threats and the war in Ukraine, prompting temporary pause in planned fiscal adjustment and introduction of subsidy measures (including fertilizer subsidies and targeted support measures) - The government intends to adopt a “civilian approach” to security risks and to maintain productive relationships with development partners to support investments in human capital and infrastructure *Source: Annex IX. Capacity Building and Technical Assistance Framework (1benea2022002).* ### 177.96 million), the general allocation of special drawing rights (SDR) in August 2021 ### 1benea2022002 - 177.96 million), the general allocation of special drawing rights (SDR) in August 2021 ### Recent financing and pandemic context - Accessed international capital markets via a €1 billion Eurobond at favorable terms in January 2021 and a €500 million SDG bond in July 2021. - Received the general allocation of special drawing rights (SDR) in August 2021 (approximately US$168 million). - Funding from other development partners complemented these resources. - Budget support declined from CFAF 105.3 billion in 2020 to CFAF 37.4 billion in 2021. ### Socioeconomic impact of COVID-19 and recent shocks - Aggregate resilience: GDP growth of 7.2 percent in 2021, masking sectoral disparities and continuing negative effects on tourism and service exports. - Disproportionate impact on contact-intensive sectors: tourism, crafts, and catering. - Current account deficit widened to 4.4 percent of GDP in 2021 due to a substantial increase in imports driven by higher commodity prices and increased imports of capital goods; exports remain dominated by cotton. - Consumer price effects between September 2021 and March 2022: - Basic food product consumer prices rose to 9.5 percent. - Retail energy prices increased from 19 to 28 percent. - Pre-existing human and physical capital gaps: high malaria prevalence, high maternal mortality rate, share of population facing food insecurity, and shortfalls in access to drinking water, electricity, and sanitation. ### Security and geopolitical developments - Resurgence and intensification of terrorist attacks in northern Benin since 2019; government adopted a “civilian approach” focusing on: - identifying vulnerable zones; - assessing and meeting needs of populations in vulnerable zones; - promoting social cohesion. - War in Ukraine led to commodity price shocks increasing cost of living and posing risks to food security. ### Macroeconomic outlook and risks - Projected growth for 2022: 5.7 percent, approximately one percentage point below pre-war forecasts. - Medium-term growth: expected approximately 6 percent per year driven by public investment, major projects (fiber optics, Niger-Benin pipeline, Port of Cotonou expansion), gradual dissipation of COVID-19 effects, and private sector participation. - Significant risks: - Low vaccination uptake exposes Benin to new COVID-19 variants; vaccination among population aged 12+ rose from 3 percent in November 2021 to more than 46 percent at end-April 2022; government target is 60 percent by end-2022. - Regional resurgence of terrorist attacks could affect business climate and social tensions. - Global deterioration could depress cotton prices and sustain food and energy price increases. - Vulnerability to climate change: floods and droughts. ### A. Prudent fiscal policy and debt strategy - Public investment levels: 8.2 percent of GDP in 2021 (6.9 percent in 2020; 3.9 percent in 2019). - Public debt: rose to 49.9 percent of GDP at end-December 2021, from 46.1 percent at end-December 2020 and 42.5 percent at end-December 2019. - Fiscal consolidation targets: - Deficit target of 5.5 percent of GDP in 2022. - Reduce to 4.3 percent of GDP in 2023. - Reach 2.9 percent of GDP by 2024 (slightly below WAEMU norm of 3 percent). - 2022 fiscal adjustment: expected increase of 1 percentage point of GDP relative to the original budget law (original deficit target 4.5 percent of GDP) to finance urgent measures addressing terrorism risks. - Wage bill management: - Community target: wage bill to tax revenue ratio of 35 percent. - Plan to conduct detailed assessment of compensation policy with technical support from development partners. - Revenue mobilization: - Tax revenue in 2021 approximately 11.0 percent of GDP, nine percentage points below WAEMU regional target of 20 percent. - Develop a medium-term revenue mobilisation strategy (Structural Benchmark for end-September 2023). - Attach a detailed report on tax expenditures for 2021 to the 2023 Draft Budget Law and develop a strategy to rationalize tax expenditure for 2023–25 (Structural Benchmark for end-November 2022). - Financing strategy 2022–2026: prioritize diversification of funding sources and active debt management; continue mobilizing concessional resources from multilateral donors. - BOAD loans: Benin argues they should be treated as domestic debt for program purposes for reasons including BOAD’s regional status, CFAF denomination, and adverse consequences of reclassification on debt sustainability and regional integration. ### Response plan to address effects of the war in Ukraine - Temporary measures: - Basic food products: bans on exports of selected agricultural products; subsidies on rice, flour and vegetable oil introduced on March 23, 2022 (effective until end-June 2022) and a 50 percent rebate on associated freight cost. - Fertilizer: targeted net subsidies for farmers of CFAF 31.5 billion for the 2022/2023 agricultural year. - Energy products: fuel prices at the pump increased by approximately 28 percent from the beginning of the year through end-April. - Wages: guaranteed minimum wage (SMIG) increased from CFAF 40,000 to CFAF 52,000, an increase of 30 percent; effect on government wage bill expected to be limited. - Fuel and electricity pricing reform: - Develop an integrated medium-term strategy to gradually align fuel product and electricity prices with supply costs and request technical support to assess the 2004 pricing system. - Resume adjustment of electricity tariffs suspended during COVID-19. - 2022 Budget Law: - Draft supplementary budget to be submitted to National Assembly by end-October 2022 to reflect additional expenditures including security and measures to cushion food and energy price surges. - Finance supplementary budget primarily with disbursements/purchases under the Extended Fund Facility and Extended Credit Facility with the IMF and new budget support catalyzed by the arrangement. - Pursue 2022 tax measures to generate additional 0.5 percent of GDP of revenues; adopted a new General Tax Code in the 2022 Budget Law; implemented a new tax management information system to replace SIGTAS. - Agreement with IMF: primary deficit target under the EFF/ECF may be relaxed by up to 0.5 percent of GDP provided additional budget support is secured and earmarked (paragraph 7 of the TMU). IMF’s exceptional financial support in 2022 exceeds CFAF 150 billion. ### B. Public Financial Management - Treasury Single Account (TSA) and payments modernization: - Complete interconnection of all accounting centers (postes comptables) and modernize Treasury banking services. - Connect Public Treasury to regional GIM-UEMOA platform for Public Treasury bank cards by end-September 2022. - Roll out National Electronic Payment Platform by end-June 2022. - Extend digitization of revenue payments for diplomatic and consular missions to ensure rapid centralization by end-2023. - Safeguard and digitalize miscellaneous tax and duty payments to minimize cash use. - Public expenditure reforms: - Migration to program-based budgeting for the 2022 budget; further coordinate budget program logical frameworks with SDGs and cross-cutting issues (gender, climate change, security). - Prioritize completion of ongoing projects and feasibility studies for new investment projects for 2021–2026. - Systematic publication by end-December 2023 of criteria for appraisal and selection of major investment projects and feasibility studies (structural benchmark for end-December 2023). - Fiscal transparency and risk management: - Implement mechanisms to identify and evaluate local counterparts for co-financed projects and bring them into the government budget. - Enhance predictability of social sector expenditure and increase civil society participation in budget processes. - Established a ministerial risk management committee and a ministerial internal audit committee. - Adopted a new law modernizing the legal framework for public enterprises; plan regular monitoring of public enterprises and guarantees. - Prepare by end-October 2023 a statement containing a quantitative analysis of fiscal risks for the 2024 draft budget law documentation (structural benchmark for end-October 2023) with IMF TA. ### C. Social mandate and SDG progress - “Highly social” mandate for the 2021–26 government term emphasizing social sectors and SDGs. - Eurobond for SDG financing: €500 million Eurobond issued in July 2021 dedicated to SDG projects. - Social protection and services targets: - Increase ARCH program beneficiaries from current level of 280,000. - Finalize social register database: complete community validations in at least 70 of 77 communes; publish commune-level social registry results by end-July 2022 on an accessible government website. - Increase national school feeding coverage from 53 percent at end-2021 to 75 percent by end-2022; achieve universal access by end-2023. - Health targets: reduce malaria prevalence from 40 percent at present to 20 percent at end-2024; strengthen maternal health and child vaccination programs. - Inclusive infrastructure: continue construction/refurbishment of agricultural schools, expand drinking water programs, and broaden rural road network. - Climate and environment: - Promulgated a law on climate change, national policy on climate change management, policy on sustainable land management, and prepared national adaptation plan targeting eight vulnerability areas. - Commit to reducing greenhouse gas emissions by 20.15 percent (up from 16.17 percent previously). - Accredited the National Fund for Environment and Climate (FNEC) with the Green Climate Fund (FVC) and the Adaptation Fund (FA). - Review Framework Law on the Environment beginning FY 2022 and evaluate overall cost of adaptation and mitigation strategy; explore financing including the new IMF dedicated facility. ### D. Transparency, governance, rule of law, and AML/CFT - Government procurement and beneficial ownership (BO) transparency: - Strengthen procurement regulation and supervision; update PPP legal framework and roll out e-procurement. - Adopt secondary regulation by end-June 2022 (with IMF TA) requiring procurement agencies to collect BO information for contracts above CFAF 10 million (structural benchmark for end-June 2022). - Commence regular publication of BO information on a government website as of September 2022 (structural benchmark for end-September 2022). - Audit Court has conducted and published audit of COVID-related expenditures; continued efforts to ensure full operational implementation of the Audit Court. - Governance diagnostics and AML/CFT reforms: - Conduct and publish a governance diagnostic assessment by end-February 2023 (structural benchmark for end-February 2023) with IMF TA. - Action plan following GIABA May 2021 mutual evaluation guiding AML/CFT reforms; validated by National Technical Committee and approved by Council of Ministers. - Council of Ministers to adopt by end-June 2022 two Ministerial decrees to strengthen AML/CFT risk-based supervision and targeted financial sanctions (structural benchmark for end-June 2022): - Decree establishing the National Committee for the Coordination of Activities (CNCA) in the area of AML/CFT replacing the CTN, expanding mandate and permanent technical secretariat. - Decree establishing framework for targeted financial sanctions to comply with UN Security Council Resolutions (strengthening Advisory Committee on Administrative Freezing). - Decree by end-July 2022 conferring the National Agency for Government Property and Land oversight authority over the real estate sector for AML/CFT, enabling risk-based supervision by end-December 2022 and training of staff. - During FY 2022 or 2023, intended review of laws/regulations to: - Define principles and procedures for collecting accurate beneficial owner information and enable access by law enforcement, AML/CFT supervisors, and reporting entities. - Incorporate provisions into Law 2018-16 (December 28, 2018) criminal code to allow prosecution for financing travel of terrorist combatants, organizations, or individuals “for any purposes.” - Adopt decree creating Beninese Agency for Recovery and Management of Frozen, Seized, or Confiscated Assets. - Adopt decree creating Authority for the Regulation of Gambling, Leisure, and Casinos with AML/CFT oversight powers. ### E. Local governance reform - Major reform of local governance to separate political from technical responsibilities and strengthen municipal accountability. - Reform of the Fund for Support for Municipality Development (FADeC) to become an autonomous investment fund to empower municipalities to finance local development. ### F. Financial sector resilience and inclusion - Banking sector resilience: - Capital adequacy ratio (Basel II/III principles): 13.4 percent at end-June 2021, 14.4 percent at end-December 2020, and 10.4 percent at end-2019. Regulatory standards: 9.5 percent required in 2019 and 2020 and 10.375 percent in 2021. - Two banks failed to meet regulatory capital minimum and are monitored by the WAEMU Banking Commission with recapitalization plans. - Gross rate of impairment of banking sector’s portfolio: 12.5 percent at end-December 2021, 16.7 percent at end-December 2020, and 18.0 percent in 2019. - Reforms in progress: macroprudential surveillance indicators, identification of systemically important banks, consolidated supervision of bank groups, supplementary surveillance of financial conglomerates. - Access to financing for SMEs: - Increased resources for interest subsidy and guarantee mechanisms; contribution estimated at CFAF 6.5 billion in 2020 and 2021. - Plan to evaluate efficiency and risks of these mechanisms and set up monitoring to reduce distortions. - Financial inclusion: - Transpose WAEMU regional financial inclusion strategy nationally (Structural Benchmark for end-March 2023). - Finalize National Financial Inclusion Strategy (SNIF) centered on five (05) pillars: institutional/legal/regulatory framework, financial and digital education, innovative financial products, customized agricultural products/insurance, and strengthening infrastructures. - La Poste authorized to provide banking services to leverage postal network for financial access; ensure proper supervision. - Strengthen microcredit sector in context of ARCH Program and improve soundness. ### G. Private sector development and diversification - Economy remains vulnerable to shocks from Nigeria and insufficiently diversified: - Cotton accounts for 55 percent of exports. - Private sector role: - Foster structured, permanent public-private dialogue to improve policy predictability and business climate (including commercial court system). - Encourage public-private partnerships, joint ventures, and equity acquisitions in government corporations. - Dematerialize procedure for issuance of real estate titles and implement industrial zone. ### H. Statistical system improvements - Parliament approved a new statistics law (text indicates approval in early [text truncated]); emphasis on accurate and timely data for policy-making. *International Monetary Fund — Benin: Excerpts from IMF country documents provided in the source PDF.* ### 2022. This statistics law is in line with international standards and will safeguard the quality of ### 1benea2022002 - 2022. This statistics law is in line with international standards and will safeguard the quality of ### Statistical governance and dissemination - The 2022 statistics law will safeguard the quality of official statistics by: - establishing the obligation to comply with core principles and leading practices in statistical matters; - promoting the systematic and timely performance of major statistical operations; - ensuring financing through the creation and timely support for the National Statistical Development Fund. - Medium-term goal: adopt the Special Data Dissemination Standard (SDDS). - Interim objective: meet the requirements of the Enhanced General Data Dissemination System (E-GDDS), to which Benin has already subscribed. ### Program monitoring framework - Monitoring frequency and instruments: - Six-monthly reviews with prior action, quantitative performance criteria (PCs), indicative targets (ITs), and structural benchmarks. - Quantitative and continuous PCs and ITs are set out in Table 1 and specified in the TMU. - Prior action and proposed structural benchmarks are set out in Table 2 and Table 3 respectively. - Program duration and support: - Program supported by a 42-month EFF/ECF (2022–2025). - Reviews: - First Review assesses end-June 2022 test date; Second Review assesses end-December 2022 test date. ### Quantitative performance criteria and indicative targets (selected figures and definitions) - A. Quantitative performance criteria (cumulative from the beginning of the calendar year): - Basic primary balance (floor) — reported sequence: -148.5-77.3-154.4-127.6-11.6-32.1 - Net domestic financing (ceiling) — reported value: -380.829043137762164 - B. Continuous quantitative performance criteria (ceilings): - Accumulation of external payments arrears: 0.00.00.00.00.00.0 - Accumulation of domestic payments arrears: 0.00.00.00.00.00.0 - Ceiling on the present value of new external debt contracted or guaranteed by the government (annual for 2022): 1,016.0620620620620620 - C. Indicative targets (cumulative from the beginning of the calendar year): - Tax revenue (floor) — reported sequence: 1,082.3578.9876.71,232.9325.2677.1 - Priority social expenditure (floor) — reported sequence: 150.046.292.5149.116.450.9 - Table 2: Expected Net External Budgetary Assistance (Billions of CFA francs) - June 30, 2022: -130.2 - September 30, 2022: -173.9 - December 31, 2022: -134.0 - March 31, 2023: -34.9 - June 30, 2023: -92.1 - September 30, 2023: -131.5 - December 31, 2023: -127.0 ### Key TMU definitions and parameters - Government definition: central government of the Republic of Benin; excludes local governments, the Central Bank, and other autonomous public entities not included in the TOFE. - Debt definition: follows IMF Executive Board Decision No. 6230-(79/140) as amended by Decision No. 15688-(14/107); includes loans, suppliers’ credits, leases (PV of lease payments at inception), Treasury bills and bonds in CFA francs on the WAEMU regional market. Arrears, penalties, and judicially awarded damages arising from contractual payment failures are also debt. - Present value (PV) discount rate: 5 percent. - Program reference rate for variable-rate debt: - Six-month USD SOFR: 2.03 percent (fixed for program duration). - Spread of six-month Euro LIBOR over six-month USD SOFR: -200 basis points. - Spread of six-month GBP SONIA over six-month USD SOFR: -100 basis points. - For other currencies, spread over six-month USD SOFR: -100 basis points. - Domestic vs external debt: - Domestic debt: debt denominated in CFA franc other than debt contracted from BOAD. - External debt: debt denominated in any currency other than the CFA franc; BOAD loans are considered external debt for program purposes. - Adjustors: - Basic primary fiscal balance floor for 2022 will be adjusted downward by additional budget support beyond the programmed 88 CFAF billion, up to CFAF 54 billion at end-December 2022 under defined conditions. - Net domestic financing (NDF) ceiling will be adjusted for deviations in net external budgetary assistance: - If net external budgetary assistance exceeds projections by more than CFAF 5 billion at quarter-end, the NDF ceiling is lowered by the excess minus CFAF 5 billion. - If net external budgetary assistance falls short, the NDF ceiling is raised pro tanto up to a maximum of CFAF 50 billions. ### Specific performance criteria and program rules - A. Floor on the Basic Primary Fiscal Balance (excluding grants) - Definition: total revenue (cash basis) minus basic primary fiscal expenditure (fiscal current plus capital expenditure minus interest payments and capital expenditure financed by external grants and loans). Grants excluded from revenue; net government lending excluded from fiscal expenditure. - Balances at end-June 2022 and end-December 2022 (PCs) and end-September 2022 and end-March 2023 (ITs) must meet amounts in Table 1 of the MEFP. - B. Ceiling on Net Domestic Financing of the Government - Definition: sum of the government’s net position vis-à-vis central bank and commercial banks plus net issuance of securities to nonbank residents or nonresident WAEMU banks. - Net external budgetary assistance defined; net = gross external budgetary assistance minus total external debt service and payments of external arrears. - C. Non-Accumulation of New Domestic Payment Arrears (continuous PC) - Definition: domestic payments due but unpaid after a 90-day grace period (unless contract specifies longer). - Government undertakes not to accumulate any new domestic payment arrears; monitored continuously. - D. Non-Accumulation of External Payment Arrears (continuous PC) - Definition: payments due on external debt not paid as of contract due date (accounting for grace periods). - Government undertakes not to accumulate external public payment arrears, except where arrears are subject to renegotiation or rescheduling. - E. Ceiling on PV of New External Debt Contracted or Guaranteed with Maturity ≥ 1 Year (continuous PC) - Applies to debt and commitments contracted or guaranteed by the government, including government-guaranteed private sector debt and guarantees of local governments and all public enterprises. - For 2022, PV of new external borrowing should not exceed cumulative CFAF 620 billion (Table 3). - Adjustor: upward adjustment for additional budget support beyond 88 CFAF billion, up to CFAF 54 billion at end-December 2022, under conditions in MEFP ¶17. - F. Floor on Tax Revenue (IT) - Definition: cash-basis tax revenue collected by revenue-collection departments; reported in the TOFE monthly. - Revenue targets cumulative from January 1; end-June, end-September, end-December 2022 and end-March 2023 must meet Table 1 amounts. - G. Priority Social Spending (IT) - Definition: State budget expenditure (domestic and external resources), excluding salary expenditure, focused on interventions that directly reduce poverty (education, health and nutrition, social safety nets, access to electricity, water and sanitation, microfinance, security and civil protection). - Monitored on a payment order basis; IT applies to execution not allocation; calculated cumulatively from January 1. - Detailed list of eligible priority social spending sectors and activities provided in Table 4 (Agriculture, Education, Social Affairs, Health, Sanitation and nature protection, Energy, Sport, Security and civil protection, Infrastructure and Transportation, Water and mining, Justice, Employment). ### Structural benchmarks (selected, 2022–23) - Governance and Transparency: - Adopt secondary regulation requiring procurement agencies to collect BO information for companies awarded public procurement contracts above CFAF 10 million — Due: End-June 2022. - Publish BO information for such companies on an easily accessible government website — Due: End-September 2022. - Conduct and publish a governance diagnostic — Due: End-February 2023. - AML/CFT: - Council of Ministers to adopt (i) a Ministerial Decree designating CNCA as AML/CFT supervisor for DNFBPs and (ii) Ministerial decree to implement targeted financial sanctions regime and empower CCGA — Due: End-June 2022. - Revenue Mobilization: - Develop strategy for rationalizing tax expenditures over 2023–25 (with detailed 2021 tax expenditures annexed to draft budget law) — Due: End-November 2022. - Develop a medium-term revenue mobilization strategy (MTRS) — Due: End-September 2023. - Social Safety Nets: - Finalize community validations of vulnerable households from proxy-mean test mass registration in at least 70 of 77 communes; publish social registry results at commune level on an accessible government website — Due: End-July 2022. - Public Financial Management: - Prepare statement with quantitative analysis of fiscal risks across key areas as part of 2024 draft budget law documentation — Due: End-October 2023. - Publish criteria for appraisal and selection of major investment projects and feasibility studies — Due: End-December 2023. - Financial Inclusion: - Transpose WAEMU regional financial inclusion strategy at national level and design comprehensive national financial inclusion strategy for Benin — Due: End-March 2023. ### Data reporting and information for program monitoring - Authorities will provide IMF staff in excel format the following data and timelines: - Monthly (within specified weeks after period end as noted): - Data on any loan (terms and creditors) contracted or guaranteed by the government — within the first week after the end of the month of entry into force. - Monthly consumer price index — within two weeks of the end of the month. - TOFE (including cash-basis revenue), detailed net domestic financing, and basic primary fiscal balance — within six weeks of the end of the month. - Data on balance, accumulation, stock, and repayment of public domestic and external payment arrears — within six weeks of the end of the month. - Monetary survey (produced by the BCEAO) — within eight weeks of the end of the month. - Quarterly: - Price structure of petroleum products. - Employment index and merchandise traffic at the Port of Cotonou — within 25 days of end of month. - Industrial production index and turnover index — within three months of end of quarter. - High priority social spending (Table 4) by functional classification — within eight weeks after end of quarter. - Data on exceptional payment orders or other exceptional measures — within six weeks of end of quarter. - Stock-flow adjustment table. - National account statistics — within three months of end of quarter. - Total new Eurobond issuances — quarterly, within two weeks after end of quarter. - Other information: - Financial soundness indicators (semi-annually by BCEAO) — within eight weeks of end of semester. - Data on public investment program implementation, sources of financing — within eight weeks of end of quarter. - Update of PPP projects catalog and amounts of contracted projects — within eight weeks of end of quarter. - Execution of the investment budget — within eight weeks of end of quarter. - Stock of external debt, external debt service, signing of external loan agreements and disbursements — within twelve weeks of end of quarter. - Data on military and security spending — within eight weeks of end of quarter. - Balance of payments data (produced by the BCEAO) — within ten months of end of year. - Prompt reporting of any information needed for effective monitoring of economic policies. - Exchange rates (end of period, 2021) for currency conversions under the TMU: - CFAF/US$ 580.3 - CFAF/€ 655.96 - CFAF/SDR 811.4 ### Debt sustainability and risk assessment (summary) - Benin remains at moderate risk of external and overall debt distress (unchanged from December 2020 DSA). - Baseline scenario: all projected external debt burden indicators are below their thresholds. - Vulnerabilities: - Limited shock absorption capacity; external debt burden indicators breach high-risk thresholds in selected stress scenarios (notably export shocks) due to transit-dependent economy. - High debt service to revenue ratio increases vulnerability to revenue underperformance or increases in rollover costs. - Baseline PV public debt-to-GDP ratio remains below prudent benchmark but is vulnerable to natural disasters in shock scenarios reflecting Benin’s climate exposure. - Policy implications: - Sustained revenue mobilization under the IMF-supported program. - Continued prudent borrowing and active debt management to mitigate debt distress risk. *Source: IMF staff report and Technical Memorandum of Understanding (TMU) for Benin’s 42-month EFF/ECF program (2022–2025).* ### 1. This Debt Sustainability Analysis (DSA) covers central government and central bank ### 1benea2022002 - 1. This Debt Sustainability Analysis (DSA) covers central government and central bank ### Scope and Coverage - The DSA covers central government and central bank debt, as well as guarantees provided by the central government (Text Table 1). - Central bank debt borrowed on behalf of the government (i.e., debt to the IMF) is included as external debt. - External debt is defined on a currency basis owing to data limitations, except for debt from the regional development bank (BOAD), which is included as external debt for the purpose of the DSA. - The baseline includes on-lending from the central bank related to the 2021 IMF general SDR allocation as part of the domestic debt stock: the BCEAO on-lent Benin its portion of the SDR allocation (1.0 percent of GDP). ### Recent Debt Developments - Public debt rose from 22 percent of GDP in 2014 to 49.9 percent of GDP in 2021. - In 2021 Benin issued a €1 billion Eurobond (6.8 percent of GDP), used for investment and to finance nearly two-thirds of the Eurobond coming due in 2026 to mitigate rollover risk. - Public debt continued to increase in 2021 driven by scale-up in public investment and large COVID-19-driven deficits in 2020-2021. ### Debt Composition and Liability Management - Composition at end-2021: multilateral creditors 37 percent; international bond holders 22 percent; domestic debt around 27 percent (mostly government securities on the regional financial market). - Proactive liability management measures: - Public debt service to revenue ratio expected to average around 34 percent in 2022-26, compared with 64 percent projected in the previous DSA (December 2020). - Reimbursement of around 65 percent of the 2019 Eurobond falling due in 2024–26 helped smooth the amortization profile by a cumulative 2 percent of GDP and reduced 2022-26 interest costs by 0.4 percent of GDP. - Earlier operations included issuance of a US$300 million external commercial loan in 2018 backed by a World Bank partial guarantee to reprofile costly short-term domestic debt. ### Contingent Liabilities and SOE Debt - Non-guaranteed SOE commercial debt estimate for 13 non-guaranteed SOEs stood at 1.4 (percent of GDP) at end-2021; non-guaranteed SOE debt is excluded from the baseline due to data limitations and captured in contingent liability stress test. - Contingent liabilities shock calibrated to 8.8 percent of GDP, comprising: - SOE debt: 1.4 percent of GDP - PPPs: 2.4 percent of GDP (default setting) - Financial market risk: 5.0 percent of GDP (default value) - Authorities committed to publishing annually SOE debt outstanding, including commercial debt, and to include details on on-lending to SOEs in quarterly debt bulletins. ### Macroeconomic Assumptions Underlying Projections - Real GDP growth: - Growth forecasted at 5.7 percent in 2022. - Medium-term growth expected to remain around potential at 6 percent. - Longer-term projection given as 5.7 percent converging to the steady-state. - Inflation projected to reach 5 percent in 2022 and converge to around 2 percent over the medium-term (consistent with the peg to the euro). - Primary fiscal balance (including grants): - Expected primary deficit of -3.7 percent of GDP in 2022 (compared with -1.0 percent during the previous DSA). - Current account deficit expected to widen to about 6 percent of GDP in 2022. - Revenue mobilization measures in 2022 totaling 0.5 ppt of GDP to help raise the tax-to-GDP ratio. - Financing assumptions: - Baseline includes financing from a potential IMF-supported program and World Bank IDA allocations. - Remaining medium-term external needs filled largely on semi-concessional terms, except for a projected US$500 million Eurobond issuance. - Grant element of new borrowing over the projection period would average 26 percent. - Net external official financing flows expected to average 1.6 percent of GDP over the projection period. - Domestic financing assumed to come mostly in the form of one-to-seven-year bonds at rates from 6 to 7 percent. ### Debt Projections and Sustainability Outcomes - Public debt trajectory: - Public debt projected to peak at 52 percent of GDP at end-2023. - Projected to decline to 44 percent of GDP by 2032 as growth converges to potential, on the assumption of implementing a revenue-based fiscal consolidation to converge to WAEMU regional fiscal norms. - External debt burden indicators: - All external debt burden indicators remain below policy-dependent thresholds. - PV of total PPG external debt to GDP expected to average 30 percent of GDP in 2022-26 and 25 percent of GDP in the long-term. - Public debt service dynamics: - Overall public debt service to revenue ratio expected to average around 34 percent in 2022-26 (improvement from prior DSA). ### Macro-Fiscal Realism and Risks - Macro-fiscal projections assessed as realistic: - Three-year primary adjustment consistent with historical cross-country data, falling just below the top quartile for historic adjustments in LICs with IMF-supported programs. - Growth path consistent with typical fiscal multipliers for LICs; public and private investment rates similar to previous DSA. - Major downside risks: - Further COVID outbreaks due to low vaccination rate. - Contagion of security risks affecting the budget. - Increases in food and oil prices amid the war in Ukraine, affecting current account and purchasing power. - Shift in global risk appetite complicating medium-term rollover risks. - Small size of the economy increasing vulnerability to shocks. ### Country Classification and Stress Testing - Debt carrying capacity classified as medium with a CI Score of 3.00 based on factors including the 2020 WB CPIA and October 2021 WEO indicators. - Stress tests applied: - Standardized settings plus tailored tests for contingent liabilities, natural disasters, commodity prices (cotton), and market financing (Eurobond rollover risk). - Standard natural disaster shock applied because of high vulnerability to flooding and coastal erosion. - Contingent liability stress test captures non-baseline SOE debt and other contingent risks (calibrated to 8.8 percent of GDP). *INTERNATIONAL MONETARY FUND* ### 15. Stress tests highlight Benin’s vulnerability to shocks, particularly those related to ### 15. Stress tests highlight Benin’s vulnerability to shocks, particularly those related to ### Stress-test outcomes and key vulnerabilities - Three out of the four debt-burden indicators breach their thresholds under certain stress tests: - PV of debt-to-exports and debt service-to-exports ratio breach thresholds where the export related shock is the most extreme shock. - Debt service-to-revenue ratio breaches its threshold where a one-time nominal currency depreciation against the USD is the most extreme shock, and a shock to exports would also cause several breaches. - These three debt burden indicators would also be breached under a commodity price shock scenario. - The PV of debt-to-GDP ratio does not breach thresholds under any stress tests, but a shock to exports would be the most extreme shock for this indicator. - The shocks illustrate risks from limited economic diversification, with the Beninese economy centered on transit trade and highly dependent on economic developments in Nigeria. - Historical scenario is relatively more severe than the baseline because the calibration period of 2012–2021 captures severe periods including the impact of COVID-19, the Nigeria border-closure, and the 2015 downturn. - Compared with the historical period, continued efforts to mobilize revenues and active debt management are expected to help stabilize debt levels. ### Stress-test calibrations (as specified in the source) - Export stress test: "Based on the standard stress test settings, this export stress test applies a nominal export shock applies a 14 percent reduction in nominal export growth of 14 percent in 2023–24. Interactions with real GDP growth are also included." - Currency depreciation stress test: "Based on standard stress test settings, this test applies a 30 percent nominal depreciation of the FCFA (which is pegged to the euro) against the USD against the USD in 2023. Interactions with inflation are also included." - Commodity price stress test: "Based on the standard stress settings, this commodity price stress test applies a commodity price gap of 21 percent price shock in 2023, which closes over 6 years. Interactions for real GDP, revenue-to-GDP, and the GDP deflator are also included." - Natural disaster scenario: simulates "a one-off real GDP shock of around 2 percent in 2023." ### Granularity assessment and fiscal space - The granularity assessment indicates Benin has limited space to absorb shocks: - Under the module that allows qualifying the moderate risk of debt-distress, Benin is assessed as having limited space because the baseline debt-service-to-revenue indicator is close enough to its respective threshold that a median observed shock would result in a downgrade to high-risk. ### Market-financing module findings - Market risks are assessed as moderate. - Although EMBI spreads are above the benchmark and increasing (reflecting recent volatility amid the war in Ukraine), gross financing needs remain well below the respective benchmark and potential for heightened liquidity needs is moderate. - The debt-service to revenue ratios would exceed their thresholds in a market financing shock scenario in 2026 and 2030, given the repayment profile discussed (which by design excludes possible liability management operations that would help manage these risks). ### Total public debt sustainability and stress-test projections - Total public PPG remains below its respective benchmark in the baseline. - The present value of public debt averages 40 percent of GDP over the projection period, well below the 55 percent benchmark. - Stress tests indicate public debt is most vulnerable to commodity price shocks and natural disasters: - For the PV of debt-to-GDP ratio, a commodity price shock would be the most extreme shock, resulting in a breach of the benchmark in 2029–2032. - Under the natural disaster scenario (one-off real GDP shock of around 2 percent in 2023), the PV of debt-to-GDP would breach the benchmark in 2023, with large increases in debt-to-revenue and debt service-to-revenue ratios (the latter exceeding 60 percent in 2027). ### Risk rating and vulnerabilities - The DSA finds Benin remains at moderate risk of external and overall debt distress, unchanged from the previous DSA. - All external debt indicators remain below their high-risk thresholds and benchmarks. - Vulnerabilities noted: - Exposure to shocks related to exports, currency depreciation, and natural disasters. - High debt service to revenues ratio reflecting large amortization payments and a low revenue base, posing liquidity risks. - Lower than expected revenues, including due to policy implementation lags, or a shift in market sentiment increasing borrowing and rollover costs could heighten debt risks. ### Policy recommendations and risk-mitigation measures - Sustained revenue mobilization efforts. - Prudent borrowing and debt management strategy, including: - Continued proactive liability management to facilitate the rollover of large Eurobond bullet repayments. - Maximizing concessional borrowing. - Measures to bring tax revenues closer to Benin’s potential (SIP–II on domestic revenue mobilization). - Fiscal policy guidance: - Fiscal policy guided by an interest to revenue ratio of 19 percent as envisaged under the IMF-supported program. - Convergence to the WAEMU fiscal deficit norm of 3 percent of GDP by 2024. *Source: IMF staff report excerpt on Benin stress tests and debt sustainability.* ### 22. The authorities broadly concurred with the moderate risk of external debt distress ### 22. The authorities broadly concurred with the moderate risk of external debt distress ### Authorities' assessment and policy stance - The authorities broadly concurred with the "moderate risk of external debt distress" rating. - The authorities consider debt from BOAD should be classified as domestic debt, citing the institution’s governance structure and the regional arrangement that makes the CFA currency union a consolidated unit. - They noted that classifying BOAD debt as domestic would further improve the external debt profile. - The authorities believe some financing assumptions, particularly the terms of market access, are conservative. - The authorities remain committed to: - preserving debt sustainability, - mitigating refinancing risks, - containing borrowing costs through a combination of revenue mobilization, active debt management, and prudent borrowing. ### Baseline external debt indicators (selected) - External debt (nominal), percent of GDP: - 2019: 25.3 - 2020: 28.4 - 2021: 36.5 - 2022: 37.5 - 2023: 37.6 - 2024: 36.8 - 2025: 37.8 - 2026: 36.2 - 2027: 34.7 - 2032: 25.1 - 2042: 13.6 - Identified net debt-creating flows (percent of GDP) selected years: - 2019: 5.1 - 2020: 0.7 - 2021: 2.4 - 2022: 5.4 - 2023: 4.7 - 2024: 3.7 - Non-interest current account deficit (percent of GDP), selected: - 2019: 3.6 - 2020: 1.3 - 2021: 3.7 - 2022: 5.4 - 2023: 4.8 - 2024: 3.8 - Endogenous debt dynamics: - Contribution from nominal interest rate (selected): 2019: 0.4; 2022: 0.8; 2025: 0.8 - Contribution from real GDP growth (selected): 2019: -1.3; 2022: -2.0; 2025: -2.1 - Sustainability indicators (selected): - PV of PPG external debt-to-GDP ratio (selected): 2022: 28.4; 2023: 30.7; 2024: 30.8; 2025: 30.0; 2026: 31.2; 2027: 29.8; 2032: 20.4; 2042: 10.9 - PV of PPG external debt-to-exports ratio (selected): 2022: 118.6; 2023: 121.3; 2024: 129.2; 2025: 130.4; 2026: 136.9; 2027: 131.9; 2032: 90.8; 2042: 48.6 - PPG debt service-to-exports ratio (selected): 2019: 4.9; 2020: 5.5; 2021: 8.5; 2022: 7.0; 2023: 8.0; 2024: 10.8 - PPG debt service-to-revenue ratio (selected): 2019: 9.4; 2020: 9.7; 2021: 15.5; 2022: 13.2; 2023: 13.7; 2024: 17.2 - Gross external financing need (Billion of U.S. dollars), selected: - 2019: 0.9 - 2020: 0.5 - 2021: 1.2 - 2022: 1.5 - 2023: 1.6 - 2024: 1.6 - 2025–2027: 1.8 (2025), 1.8 (2026), 1.8 (2027) - 2032: 2.9 - 2042: 5.2 ### Key macroeconomic assumptions (selected) - Real GDP growth (percent): - 2019: 6.9 - 2020: 3.8 - 2021: 7.2 - 2022: 5.7 - 2023: 6.2 - 2024–2027: 6.0 (each year) - 2032: 5.9 - 2042: 5.4 - Average projection (noted): 6.0 - GDP deflator in US dollar terms (change in percent), selected: - 2019: -5.5 - 2020: 4.9 - 2021: 5.4 - 2022: -1.3 - 2023: 2.5 - Effective interest rate (percent) 4/: - 2019: 2.3 - 2020: 2.1 - 2021: 3.0 - 2022: 2.3 - 2023: 2.5 - Projection average: 2.6 ### Public sector debt (selected) - Public sector debt (percent of GDP): - 2019: 41.2 - 2020: 46.1 - 2021: 49.9 - 2022: 51.6 - 2023: 52.0 - 2024: 50.7 - 2025: 49.2 - 2026: 47.9 - 2027: 46.9 - 2032: 43.6 - 2042: 44.1 - Of which: external debt (percent of GDP) mirrors external DSA values (see External debt indicators). - Change in public sector debt (percent of GDP), selected: - 2019: 0.1 - 2020: 4.9 - 2021: 3.8 - 2022: 1.6 - Identified debt-creating flows (percent of GDP), selected: - 2019: -1.4 - 2020: 1.4 - 2021: 3.9 - 2022: 0.9 - Primary deficit (percent of GDP), selected: - 2019: -1.1 - 2020: 2.7 - 2021: 3.5 - 2022: 3.7 - 2023: 2.8 - 2024: 1.3 - Revenue and grants (percent of GDP), selected: - 2019: 14.1 - 2020: 14.4 - 2021: 14.1 - 2022: 14.3 - 2023: 15.0 - 2024: 15.5 - 2025–2027: 15.9 (2025), 16.2 (2026), 16.6 (2027) - PV of public debt-to-GDP ratio (selected): 2022: 43.2; 2023: 44.1; 2024: 44.5; 2025: 43.3; 2026: 42.0; 2027: 41.1; 2032: 40.4; noted PV-to-revenue-and-grants ratios are high (e.g., 305.7 in 2022). ### Stress tests, scenarios and realism tools (high-level) - Stress tests and alternative scenarios analyzed include: - Historical scenario - Key variables at historical averages - Bound tests: Real GDP growth, Primary balance, Exports, Other flows, Depreciation, Combination of B1–B5 - Tailored tests: Combined contingent liabilities, Natural disaster, Commodity price, Market Financing - Results summary (selected signals and breaches): - Figure 6 indicates a "Breach of benchmark: Yes" for market-financing risk with EMBI spread as of May 3, 2022 noted (EMBI spread: 570). - Gross financing needs (GFN) benchmarks and values are presented and used to assess potential heightened liquidity needs. - Realism tools presented include: - 3-year adjustment in primary balance (Percentage Point of GDP) - Fiscal adjustment and possible growth path - Public and Private Investment Rates (Percent of GDP) - Contribution to Real GDP Growth (Percent 5-year Average) ### Key messages from scenarios and sensitivity analysis - Baseline projections show external and public debt ratios easing over the long run (e.g., external debt nominal percent of GDP declines to 13.6 by 2042; PV of PPG external debt-to-GDP ratio to 10.9 by 2042). - Short- to medium-term indicators show elevated debt-service pressures (e.g., PPG debt service-to-revenue ratio reaching 17.2 in 2024). - Stress tests show vulnerabilities under commodity price shocks, natural disasters, combined contingent liabilities, and market-financing shocks, with some scenarios producing breaches of thresholds for debt indicators. - Sensitivity analyses for public and PPG external debt indicate that shocks to exports, depreciation, and combined adverse shocks materially raise PV and debt-service ratios in 2022–2032 scenarios. *Source: BENIN — Staff Report informational annex (June 28, 2022), prepared by the African Department (as of April 30, 2022).* ### 1. Membership Status: Joined: July 10, 1963; Article VIII ### 1benea2022002 - 1. Membership Status: Joined: July 10, 1963; Article VIII ### Membership and Exchange Arrangement - Membership: Joined: July 10, 1963; Article VIII. - Exchange arrangement: - WAEMU conventional peg; Benin is a WAEMU member country and has no separate legal tender. - CFA franc pegged to the Euro at CFAF 655.957 = EUR 1. - Since June 1, 1996, Benin accepted the obligations of Articles VIII, section 2, 3, and 4 and maintains an exchange system free of restrictions on payments and transfers for current international transactions and multiple currency practices. - Monetary Cooperation Agreement pillars: (1) a common issuing institution, (2) fixed parity with the euro, and (3) a guarantee of unlimited convertibility. ### IMF Financial Positions and Resources - General Resources Account (SDR Million %Quota): - Quota 123.80 100.00 - IMF's Holdings of Currency (Holdings Rate) 188.12 151.96 - Reserve Tranche Position 18.31 14.79 - SDR Department (SDR Million %Allocation): - Net cumulative allocation 177.82 100.00 - Holdings 404.26 227.34 - Outstanding Purchases and Loans (SDR Million %Quota): - RCF Loans 41.26 33.33 - Emergency Assistance 82.54 66.67 - ECF Arrangements 198.04 159.97 ### Latest Financial Commitments and Use of Funds - Arrangements (Type, Arrangement Date, Date of Expiration, Amount Approved (SDR Million), Amount Drawn (SDR Million)): - ECF, Apr 07, 2017, May 19, 2020, 187.43, 187.43 - ECF, Jun 14, 2010, Jun 03, 2014, 74.28, 74.28 - ECF, Aug 05, 2005, Jun 30, 2009, 24.77, 24.77 - Outright Loans (Type, Date of Commitment, Date Drawn/Expired, Amount Approved (SDR Million), Amount Drawn (SDR Million)): - RFI, Dec 21, 2020, Dec 23, 2020, 82.54, 82.54 - RCF, Dec 21, 2020, Dec 23, 2020, 41.26, 41.26 ### Overdue Obligations and Projected Payments to Fund (SDR Million; based on existing use of resources and present holdings of SDRs) - Forthcoming principal and charges/interest by year: - Principal: - 2022: 6.90 - 2023: 10.61 - 2024: 55.06 - 2025: 69.56 - 2026: 45.74 - Charges/Interest: - 2022: 0.88 - 2023: 1.24 - 2024: 1.07 - 2025: 0.47 - 2026: 0.02 - Total: - 2022: 7.77 - 2023: 11.85 - 2024: 56.13 - 2025: 70.04 - 2026: 45.76 ### HIPC Initiative Implementation (Enhanced Framework) - Decision point date: Jul 2000 - Assistance committed by all creditors (US$ Million): 265.00 - Of which: IMF assistance (US$ million): 24.30 - (SDR equivalent in millions): 18.40 - Completion point date: Mar 2003 - Disbursement of IMF assistance (SDR Million): - Assistance disbursed to the member: 18.40 - Interim assistance: 11.04 - Completion point balance: 7.36 - Additional disbursement of interest income: 1.66 - Total disbursements: 20.06 ### MDRI Implementation - I. MDRI-eligible debt (SDR Million): 36.06 - Financed by: MDRI Trust 34.11 - Remaining HIPC resources: 1.95 - II. Debt Relief by Facility (SDR Million): - Delivery Date January 2006: GR N/A, APR 36.06, RGT 36.06, Total 36.06 ### Catastrophe Containment and Relief (CCR) - Board decision dates and amounts (SDR million): - Apr 13, 2020: Amount Committed 7.43; Amount Disbursed 7.43 - Oct 02, 2020: Amount Committed 6.37; Amount Disbursed 6.37 - Apr 01, 2021: Amount Committed 5.31; Amount Disbursed 5.31 - Oct 06, 2021: Amount Committed 2.12; Amount Disbursed 2.12 - Dec 15, 2021: Amount Committed 2.12; Amount Disbursed 2.12 ### Surveillance, Consultations, and ROSC - Article IV Consultations: Last completed Article IV consultation was completed on June 21, 2019, based on staff discussions with the authorities in Cotonou from April 25-May 8. - ROSC Assessment: - Fiscal Affairs Department mission conducted the fiscal module of a ROSC in May 2001; ROSC fiscal transparency module for Benin circulated to the Board on June 6, 2002 (Country Report No. 02/217). - World Bank Accounting and Auditing ROSC published on April 18, 2009. ### Technical Assistance (2020-21) - IMF Headquarters (FAD, MCM, STA) and Afritac West provided multiple TA missions covering: - Budget Execution and Control; Customs Administration; Macro-fiscal management; Public Financial Management; Revenue Administration; Tax Administration; Tax and Customs Administration; Tax Policy; Assets and Liability Management; Medium-term Debt Strategy; Government Finance Statistics; National Accounts Statistics and Prices. - Timing entries include months in 2020 and 2021 (e.g., June 2020; July 2020; November 2020; March 2021; April 2021; May 2021; June 2021; July 2021; August 2021; September 2021; October 2021; November 2021; December 2021; January 2021; February 2021). ### Resident Representation - Resident Representative: Mr. Younes Zouhar assumed his position in Cotonou as Resident Representative in 2020. ### Statistical Issues — Data Adequacy and Quality (As of April 30, 2022) - General: Data provision has some shortcomings but is broadly adequate for surveillance. Weaknesses in national accounts, public finance, financial sector prudential indicators, and balance of payments. Authorities are addressing weaknesses with Fund and development partner TA. - National Accounts: - INStaD adopted the 2008 SNA and updated the base year to 2015. - Annual national accounts for 2015-16 available; preliminary national accounts for 2017-19 produced. - Detailed back casting to be completed by the end of 2022. - Quarterly national accounts (QNA) released first time in 2020; demand approach to compiling QNA to be implemented by end 2023. - AFRITAC-West supporting finalization of annual and quarterly national accounts and adoption of SDDS data standards over the medium term. - Price Statistics: - CPI uses WAEMU harmonized methodology with 2014 as weight reference year; covers whole country divided into five major production regions. - WAEMU CPI methodology revised with AFRISTAT assistance; CPI compilation methods and weights being updated. - Government Finance Statistics: - Quality broadly adequate but shortcomings in coverage and accessibility. - Institutional coverage of the Table of Government Financial Operations (TOFE) is currently limited to the budgetary central government. - Authorities have not reported GFS data for publication in the Government Finance Statistics Yearbook since the 2013 reference year and do not report quarterly data for publication in the International Financial Statistics. - Monetary and Financial Statistics: - Monetary data prepared by BCEAO national agency and reported monthly to STA with timeliness of about two months. - Benin reports some Financial Access Survey indicators, including commercial bank branches per 100,000 adults and ATMs per 100,000 adults. - Financial Sector Surveillance: - BCEAO compiled a set of FSIs for deposit takers with quarterly frequency with IMF STA TA, but has not yet approved publication on IMF’s FSI website. - External Sector Statistics: - Benin reports BOP and IIP using BPM6; timeliness of about one year after reference period. - BCEAO determines methodology and calculates international reserves for WAEMU countries. - A four-year Japan Administered Account-funded project with French-speaking West and Central African countries has supported external sector statistics; last mission on external sector statistics was August 2019 focused on compilation of quarterly BOP and IIP data. - Ongoing effort to publish quarterly BOP and IIP data. - Data Standards and Quality: - Benin participated in GDDS in May 2000; posted National Summary Data Page (NSDP) in December 2017, participating in enhanced GDDS. - As of June 18, access to Central Bank Survey and Deposit Corporation Survey needs BCEAO authorization. - No data ROSC is available. ### Table of Common Indicators Required for Surveillance (selected entries; dates and frequencies preserved) - Exchange Rates: Date of latest observation: Current; Date received: Current; Frequency of Data/Reporting/Publication: D D D. - International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Date of latest observation: 03/2022; Date received: 05/2022; Frequency: M M M. - Reserve/Base Money: 03/2022; 05/2022; M M M. - Broad Money: 03/2022; 05/2022; M M M. - Central Bank Balance Sheet: 03/2022; 05/2022; M M M. - Consolidated Balance Sheet of the Banking System: 03/2022; 05/2022; M M M. - Interest Rates: Date of latest observation: 01/2022; Date received: 03/2022; Frequency: M M M. - Consumer Price Index: 03/2022; 04/2022; M M M. - Revenue, Expenditure, Balance and Composition of Financing – Central Government: 03/2022; 04/2022; Q Q Q. - Stocks of Central Government and Central Government-Guaranteed Debt: 12/2021; 01/2022; Q Q Q. - External Current Account Balance: 2020; 1/2021; A A A. - Exports and Imports of Goods and Services: 2020; 1/2021; A A A. - GDP/GNP: 2020; 11/2019; A A A. - Gross External Debt: 2020Q1; 2021Q1; Q Q Q. - International Investment Position: 2020; 1/2021; A A A. ### Statement by the IMF Staff Representative (July 8, 2022) — Key Updates and Findings - Economic activity, inflation, vaccination, and security: - Aggregate inflation subdued: 0.5 percent in May, y/y. - Sustained price increases in key consumption items (e.g., vegetable oils, wheat flour, corn, sugar) continue to exert pressure on food security. - High-frequency data for 2022:Q1: Port activity down -5 percent, y/y; offset by momentum in ICT, agriculture, and agroindustry. - Vaccination: 800 thousand additional persons vaccinated in May and June, total vaccinated 4.1 million persons (about 33 percent of the population) at end-June 2022. - Benin’s Bond spreads widened by more than 200 bps (to about 900 bps) since end-April, partly reflecting monetary policy tightening in advanced economies. - Two additional terrorist attacks at northern border on May 30 and June 26 with police casualties. - Fiscal outturns at end-April 2022: - Preliminary data indicate a modest basic primary balance surplus of CFAF 21.8 billion at end-April 2022. - Performance supported by buoyant taxes (up by about 10 percent, y/y), partly reflecting new tax measures in the 2022 budget, with near-flat expenditure. - Governance and AML/CFT: - Benin ranked second in Africa on budget transparency in the recent Open Budget Survey. - Parliament adopted in May 2022 two new laws to strengthen the supreme audit institution: the “organic law of the Audit Court” and the “Statute of the magistrates of the Audit Court.” - Council of Ministers adopted in June an action plan to strengthen the AML/CFT framework and correct deficiencies identified by the mutual evaluation. ### Statement by Mr. Andrianarivelo, Executive Director for Benin (July 8, 2022) — Authorities’ Position and Program Request - Authorities’ appreciation of IMF engagement and capacity development. - Pre-pandemic performance: average real GDP around 6.4 percent between 2017 and 2019; upgraded by World Bank to lower-middle income in 2020. - Ongoing challenges: human and capital gaps, climate change, inequalities, lingering pandemic effects, terrorist attacks, security threats from the Sahel, and the conflict in Ukraine. - Authorities seek Fund support: 42-month arrangements under EFF and ECF amounting to 391 percent of Benin’s quota, with frontloaded disbursements to meet immediate financing needs and catalyze external support. - Program elements: - Ambitious fiscal consolidation starting in 2023. - Debt management measures to preserve debt sustainability while avoiding accumulation of external and domestic arrears through continuous PCs. - Additional fiscal adjustment measures envisaged if spending pressures rise. - Comprehensive capacity development program covering governance, transparency, revenue mobilization, public financial management, and statistics. - Commitment to a fiscal safeguards review (FSR) by the First review under the program. - Authorities affirm they will continue to make payments to the Fund during the program, reducing the Fund's net exposure by end of program. *Source: IMF staff report content for Benin (1benea2022002).* ### 1.7 percent in 2020. The current account deficit increased to 4.4 percent of GDP in 2021 due ### POLICIES AND REFORMS FOR 2022 AND THE MEDIUM-TERM ### Economic context and recent indicators - Current account deficit increased to 4.4 percent of GDP in 2021 due to the worsening in terms of trade resulting from higher commodity prices. - Overall fiscal deficit increased to 5.7 percent of GDP in 2021 against 4.7 percent in 2020. - Public sector debt rose to 49.9 percent at the end-2021 compared to 46.1 percent in 2020. - Tax-to-GDP ratio stood at 11 percent in 2021. - Two small banks are exceptions to an otherwise well-capitalized banking system. ### Outlook and risks - Forecasted growth of 5.7 percent in 2022, based on a pick-up in public investment and a much-contained health crisis. - Authorities project real GDP growth of 6 percent in the medium term with continued investments in major public projects and private sector involvement. - Key risks cited: challenging external environment, regional security in the Sahel, duration of the impact of the Covid-19 pandemic, and the war in Ukraine. - Authorities focused on the rollout of Covid-19 vaccines to support economic recovery. ### Fiscal policy, 2022 measures, and consolidation path - A 2022 supplementary budget law will be submitted with a budget deficit of 5.5 percent of GDP compared with the initial target of 4.5 percent of GDP. - Authorities plan to render additional revenue of 0.5 percent of the GDP through planned tax policy and administrative measures. - Authorities intend to reduce the deficit to 4.3 percent of GDP in 2023 to pave the way for resumption of WAEMU's fiscal deficit target of 3 percent of GDP by 2024. - Recent supportive actions to absorb shocks include direct subsidies, temporary tax and customs measures on some basic products, and fertilizer subsidies for farmers. - Price monitoring and gradual adjustment of subsidized product prices are planned, with support from development partners where conditions permit. - Authorities view support measures as temporary and agree on the need for more targeted measures to benefit the most in need. ### Revenue mobilization and public financial management (PFM) reforms - Greater use of digitization, recent amendments to the Tax Code, and publication of the Tax Procedures Book aim to simplify tax payments and increase tax revenue. - Authorities expressed commitment to consider a strategy for rationalizing tax and adopting a comprehensive medium-term revenue mobilization strategy (MTRS). - IMF technical assistance is anticipated to assist in broadening the tax base and improving tax and customs administration efficiency. - Introduction of program-based budgeting in the 2022 budget to improve accountability and attain spending efficiency gains. - Plans to enhance transparency of government spending, follow up on Fiscal Transparency Evaluation recommendations, and improve public investment management through better cost-benefit analyses. - Authorities intend to publish criteria for evaluating and selecting significant investment projects and their feasibility studies. - A comprehensive assessment of the public sector compensation policy is planned, and authorities will seek additional budget support. ### Debt strategy and sustainability - Despite shocks, Benin’s debt remains at moderate risk of debt distress. - Authorities disagree conceptually with Fund staff’s reclassification of BOAD loans from domestic to external financing but believe their fiscal consolidation agenda starting in 2023 will help contain the debt ratio. - Ongoing efforts to restructure revenue administration and planned tax policy reforms aim to bring additional revenue over the medium term. - Authorities will continue to strengthen debt management and seek concessional financing to preserve debt sustainability and the moderate risk of debt distress. ### Strengthening governance, transparency, and AML/CFT - Audit Court published the audit of pandemic-related spending. - Efforts to establish and strengthen the High Commission for the Prevention of Corruption and the National Financial Information Processing Unit (CENTIF). - Institutional change concluded at the Court of Auditors. - Authorities will continue publishing beneficial ownership and critical information on all pandemic-related contracts. - Plans to follow through with an envisaged governance diagnostic and address vulnerabilities of the AML/CFT framework. ### Financial sector measures - BCEAO's accommodative stance supported banking system liquidity, resilience to solvency and liquidity shocks, and capitalization (except for two small banks). - Authorities determined to ensure all banks comply with the regulatory capital minimum, with support from the WAEMU Banking Commission. - Plans to promote financial inclusion by transposing the WAEMU regional inclusion strategy into national law. - Support for private sector development through improved access to financing, especially for SMEs. - Continued collaboration with regional authorities to strengthen bank supervision and stability. ### Economic diversification, private-sector led growth, and inclusion - Efforts to diversify away from the Nigeria transit-centered model and cotton production, focusing on agriculture, fisheries, port competitiveness, private sector development, and digital activities. - Plans to scale up infrastructure investments, increase health and education spending, enhance social protection, and advance climate change adaptation and mitigation measures as laid out in the national development plan to achieve the SDGs and inclusive economic development. - Authorities plan to conclude a social registry to enhance the social safety net. - Special Economic Zone (SEZ) of Glo-Djigbé, the Conseil Agricole, and efforts to consolidate Benin’s position as Africa’s lead cotton producer while developing the non-cotton sector are highlighted as growth supports. ### Data, technical assistance, and standards - Authorities value TA from partners, especially the IMF, and have endeavored to improve data quality and timeliness, notably with the approval of the new statistics law. - Intention to adopt the Special Data Dissemination Standard (SDDS) over the medium-term. ### Conclusion and financing request - Authorities are implementing measures to overcome rising food and energy prices and the war in Ukraine while pursuing fiscal prudence and advancing reforms. - Considering their track record, authorities request Executive Directors’ support for blended EFF/ECF arrangements with High Combined Credit Exposure to meet significant and urgent financing needs. - Authorities continue to value Fund advice and technical assistance toward achieving macroeconomic and development objectives. *Source: 1benea2022002 (excerpts).* --- _Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1benea2022002.pdf_