## 1benea2024001 ## Source details **Canonical URL:** [1benea2024001](https://www.imf.org/-/media/files/publications/cr/2024/english/1benea2024001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2024/english/1benea2024001.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2024/english/1benea2024001.pdf.json) --- ### Executive summary and program context - IMF Executive Board approved in July 2022 a 42-month Extended Fund Facility (EFF) and Extended Credit Facility (ECF) arrangements: 391 percent of quota; about US$650 million. - Program implementation remains strong; additional concessional budget support and new SDG financing front‑loaded Fund support beyond expectations. - Recent headwinds: Niger border closure and post‑electoral policy shifts in Nigeria; climate‑related vulnerabilities and regional security risks. - Authorities requested Fund support under the Resilience and Sustainability Facility (RSF) to support an ambitious climate agenda, complementing the EFF/ECF. ### Program performance and recent macro developments - All quantitative performance criteria (QPCs) and indicative targets (ITs) for end‑March and end‑June 2023 were met. - Structural reform progress highlights: - Developed a Medium‑Term Revenue Strategy (MTRS). - Operationalized the commercial court of appeal. - Prepared and annexed to the 2024 budget law a statement containing a quantitative fiscal risk analysis. - Selected outcomes (as of September 30, 2023): - Tax revenue outperformed the IT by about 7 percent. - Priority social spending met targets. - No accumulation of domestic or external arrears. - External borrowing remained within the present value limit. - Recent macro indicators: - Real GDP growth 2023:H1 = 6.3 percent (y/y). - Average inflation first 3 quarters 2023 = 3.8 percent (y/y); transport inflation June–September = 17 percent (y/y); smuggled gasoline price increase ≈ 60 percent (y/y). - Current account deficit 2022 = 6.2 percent of GDP; projected 2023 = 5.8 percent of GDP. - Credit to private sector = 38 percent (y/y) at end‑September 2023. - EMBI spreads: ~1,000 bps mid‑2022; 740 bps end‑October 2023. - S&P Global Ratings affirmed 'B+/B' and revised outlook from stable to positive. ### RSF design and objectives - Authorities requested a 24‑month RSF arrangement with access of 120 percent of quota (SDR 148.56 million referenced in program tables). - RSF Reform Measures (RMs) organized around four pillars: - Pillar 1 — Mainstream climate agenda into policymaking and PFM/PIM processes (RM1–RM4). - Pillar 2 — Enhance adaptation and population resilience (water, local government transfers, climate‑proof social registry, agricultural insurance, building code) (RM5–RM10). - Pillar 3 — Support mitigation including a comprehensive fuel subsidy reform, electricity tariff reform, renewables facilitation, and compensatory mechanism for vulnerable populations (RM11–RM14). - Pillar 4 — Mobilize private climate finance through a climate financial information architecture and taxonomy, and data collection/dissemination mechanism (RM15). - Expected impact: support adaptation and mitigation, reduce long‑term BOP stability risks linked to extreme weather and loss of commodity exports; catalyze donor and private climate finance. ### Risks to program and mitigation - Principal risks: - Higher security spending needs than expected. - Prolonged Niger border closure and post‑electoral policy shifts in Nigeria disrupting informal trade. - Social discontent from disruption in illicit fuel traffic as smuggled fuel prices rise (see Box 3). - Mitigating factors: authorities’ commitment to fiscal responsibility, protection of vulnerable groups, and contingency planning. ### Fiscal policy, 2023–24 budget and MTRS - Program guidance: converge to an overall deficit of 3 percent of GDP by 2025 (WAEMU stance). - 2023 fiscal stance: - Revised baseline fiscal deficit of 4.5 percent of GDP for 2023 (from 5.5 in 2022) due to higher confirmed concessional budget support (~0.2 ppt of GDP). - Authorities may mobilize further budget support to utilize the full adjustor room of 0.4 ppt allowing up to 4.7 percent of GDP in 2023. - Staff recommendation: additional spending only after confirmation of disbursement; channel any extra room to social sectors and socially‑oriented capital expenditure. - Contingent revenue loss from Niger border closure: 8.4 billion CFAF (0.1 ppt of GDP) for 2023 (August data). - Draft 2024 budget law: - Target fiscal deficit = 3.7 percent of GDP. - Required adjustment 2024 = between 0.8–1.0 ppt of GDP (larger than previously estimated 0.6 ppt). - Consolidation composition: additional tax measures 0.5 ppt; unwinding of one‑off grants ≈ 0.2 ppt; moderation of capital expenditure 0.4 ppt (up to 0.6 ppt if extra 2023 budget support allows). - Medium‑Term Revenue Strategy (MTRS): - Aim: widen tax base over 2024–28; sets goal to raise additional 0.5 percent of GDP in revenues per year. - Measures include rationalizing tax expenditures (e.g., removing payroll tax exemptions), expanding standardized invoices, applying transactional values at customs, and strengthening customs capacity. ### Identified fiscal measures and contingency - Identified net additional yields relative to prior year (A+B+C) = 0.5 (percent of GDP). - A. Domestic taxation = 0.6 (breakdown: payroll tax exemption removal 0.1; standardized invoices expansion 0.1; clearance of domestic tax arrears 0.4). - B. International taxation measures = 0.4 (transaction values application 0.1; improved customs valuation control 0.1; clearance of customs duties arrears 0.2). - C. Revenue‑reducing effects, incl. nominal GDP² = -0.5. - Memo: Total impact of permanent tax measures 0.5; Identified contingency measures 0.4. ### Public investment and borrowing strategy - Prioritize phased public investment, account for climate adaptation needs; reduce capital expenditure from 2023–24 while preserving priority social spending (electrification, clean drinking water, sanitation, education). - Borrowing strategy guidance: - Maintain prudent borrowing, contain costs, mitigate refinancing risks, maximize concessional external borrowing. - Authorities anticipate most external borrowing from multilateral and commercial creditors; some commercial bank drawings at longer maturities and rates below 6 percent expected. - Additional international market borrowing possible within annual debt limit under program, ensuring financing mix consistent with moderate risk of debt distress. ### Fuel subsidy reform and Box 3 findings (Nigeria phase‑out implications) - Context: - Historically 90 percent of Benin’s gasoline consumption relied on smuggled gasoline. - Pump price hikes in Nigeria increased formal demand share in Benin from 11 to 27 percent. - Projected 2023–24 fuel subsidy bill ≈ 0.4 ppt of GDP under current oil price forecasts (assuming partial shift to formal consumption persists). - Market dynamics: - Informal distribution network ≈ 54,000 kpayo sales points. - Formal gas station coverage gap: 37 out of 77 communes lack a formal gas station. - Formal supply response: 4,500 m3/month prior to June → 18,000 m3/month in June–July → 13,000 m3/month in September. - Informal market size ≈ 54,000 m3/month prior to shock. - Distributional and livelihood impacts: - Illicit gasoline market provides employment/income to >150,000 persons. - 1.5 percent of households involved in retail fuel sale (2018/19 survey). - Moto‑taxi employment >120,000 persons supported by cheap kpayo. - Government response in Benin: - Official gasoline price increased by 40 CFAF (4.6 percent) to FCFA 680 in August to align with kpayo. - Pilot of 2,000 mini‑stations to foster formalization and safety. - Risks and medium‑term outlook: - Fuel smuggling acted as a shock absorber; higher kpayo prices raise transport/production costs and near‑term hardship. - Medium‑term potential: expansion of formal distribution, higher tax revenues (current tax CFAF 143 per liter on official gasoline), improved safety, and formalization contingent on sustainability of Nigeria’s reform. ### Climate risks, CPIMA findings and RSF rationale - Benin highly vulnerable to climate change despite low GHG emissions; projected severe temperature exposure and large sectoral impacts. - CPIMA and CCDR findings: - Public investment management (PIM) needs climate integration; PIM decree (2021) and appraisal methodology require amendment. - GDP losses from climate change could be 6–8 percent in the 2030s and 10–17 percent in the 2050s under pessimistic no‑policy scenarios (CCDR). - Estimated investment needs (NDC/NAP/CCDR): - NDC: US$1.8 billion adaptation; US$8.6 billion mitigation needs (unconditional government contribution US$0.6 billion adaptation, US$5.1 billion mitigation). - NAP adaptation cost ≈ US$4,240 million over 10 years. - World Bank CCDR: total investment around US$1.1 billion over 10 years for National Electrification Strategy (5 percent of 2022 GDP) to reach universal access by 2030. - RSF RMs align with CPIMA/CCDR recommendations to mainstream climate in PFM/PIM, scale adaptation, support mitigation (including fuel subsidy reform), and mobilize private climate finance via taxonomy and climate data. ### Simulation evidence (DIGNAD) and policy implications - DIGNAD scenarios compare: - S1 Baseline - S2 Adaptation Only - S3 Adaptation & PIE (20 percent improvement in public investment efficiency) - Financing strategies (percent of GDP, cumulative 2024‑25): - S1: Grants 0.0; Concessional Debt 0.0; Public external commercial debt 0.0; Public domestic debt 0.0. - S2: Grants 0.3; Concessional Debt 1.0; Public external commercial debt 1.5; Public domestic debt 1.2. - S3: Grants 0.3; Concessional Debt 1.0; Public external commercial debt 1.5; Public domestic debt 1.2. - Key simulation outcomes: - Frontloading adaptation raises public debt near‑term but improves resilience, lowers post‑disaster reconstruction costs, and reduces medium‑term public debt buildup. - Improved public investment efficiency (PIE) lessens growth‑debt tradeoff and improves outcomes. - Policy recommendations: - Secure private and more concessional financing to mitigate initial debt increases. - Advance PIM reforms to mainstream climate, publish appraisal/selection criteria and feasibility studies (structural benchmark end‑December 2023), adopt phased public investment execution, and reform fuel subsidies with IMF TA. ### Debt sustainability assessment (DSA) — key findings and vulnerabilities - Benin assessed at moderate risk of external and overall debt distress (unchanged from previous DSA). - Public debt and projections: - Public debt (percent of GDP): 2023 Est. 54.2; 2024 Prog. 53.8; 2025 Prog. 53.1; 2026 Prog. 52.0; 2027 Prog. 51.1; 2028 Prog. 50.3. - PV of total PPG external debt to GDP expected to average about 30 percent in 2023–27 with a peak at 31 percent in 2027. - Capacity to repay / IMF exposure: - Total outstanding credit from the Fund including proposed RSF: 543.6 percent of quota in 2023; increases to 656.2 percent of quota in 2025. - Total obligations based on existing and prospective credit peak at 0.5 percent of GDP (2.8 percent of total revenues excluding grants and 2.1 percent of exports) in 2029. - Stress tests and vulnerabilities: - Stress tests show breaches under commodity price, export, and natural disaster shocks. - Debt service‑to‑revenue ratio has a one‑off breach in 2030 when large Eurobond payments fall due. - Tailored natural disaster stress tests (e.g., 4 percent GDP shock) materially worsen debt indicators; no‑adaptation scenarios lead to unsustainable debt trajectories. - Policy implications from DSA: - Emphasize concessional financing, prudent borrowing, active liability management, continued revenue mobilization, and mainstreaming climate adaptation to preserve debt sustainability. ### Program financing, access, monitoring and conditionality - EFF/ECF total access: 484.058 SDR million (161.349 ECF; 322.709 EFF) with scheduled tranches (examples: July 8, 2022: 108.30 SDR million; November 21, 2022: 108.30 SDR million; May 1, 2023: 50.82 SDR million; November 1, 2023: 101.58 SDR million). - Proposed RSF total: 148.561 SDR million (120 percent of quota) with fifteen disbursements of 9.9048 SDR million linked to RM completion. - Program monitored through semi‑annual joint EFF/ECF and RSF reviews; performance criteria, indicative targets, structural benchmarks, and RMs/specific deliverables tracked via the Technical Memorandum of Understanding (TMU). - Data and reporting requirements: monthly TOFE, CPI, monetary survey, monthly loan data, quarterly sectoral and high‑priority social spending, and other items as specified in TMU. ### Governance, safeguards, capacity development and partner support - BCEAO safeguards: 2023 update assessment finds robust control environment; all 2018 recommendations implemented. - Capacity development and partner inputs: World Bank, Swiss Cooperation, AfDB, GCA and IMF TA across FAD, MCM, C‑PIMA, CCDR and sectoral support. - Staff appraisal recommends continued operationalization of MTRS, scaling social registry (RSU) and PNASI, sustaining AML/CFT reforms (including beneficial ownership for land transfers), and strengthening public consultation on governance plans. ### Key program projections and statistics (selected, as presented) - EFF/ECF arrangements: 42‑month duration; 391 percent of quota; about US$650 million. - RSF request: 24‑month arrangement; access of 120 percent of quota. - Real GDP growth (percent change): 2023 Est. 5.6; 2024 Prog. 6.0; 2025 Prog. 5.9; 2026 Prog. 6.0; 2027 Prog. 5.9; 2028 Prog. 6.0. - CPI inflation, average (percent): 2023 Est. 3.7; 2024 Prog. 3.0; 2025 Prog. 2.0; 2026 Prog. 2.0; 2027 Prog. 2.0; 2028 Prog. 2.0. - Overall balance (commitment basis, incl grants, percent of GDP): 2023 Est. -5.5; 2024 Prog. -4.5; 2025 Prog. -3.7; 2026 Prog. -2.9; 2027 Prog. -2.9; 2028 Prog. -2.9. - Tax revenue (percent of GDP): 2023 Est. 12.2; 2024 Prog. 12.7; 2025 Prog. 13.2; 2026 Prog. 13.7; 2027 Prog. 14.1; 2028 Prog. 14.5. - Current account balance (percent of GDP): 2023 Est. -5.8; 2024 Prog. -5.4; 2025 Prog. -4.9; 2026 Prog. -4.8; 2027 Prog. -4.3; 2028 Prog. -4.1. - Public debt (percent of GDP): 2023 Est. 54.2; 2024 Prog. 53.8; 2025 Prog. 53.1; 2026 Prog. 52.0; 2027 Prog. 51.1; 2028 Prog. 50.3. - SDG bond: €350 million (2 percent of GDP), 12‑year maturity, interest rate 2.9 percent above Euribor, 4‑year grace period. - Domestic issuance: CFAF 116 billion in September 2023 at average rate 7 percent; maturity 4 years (2022: rate 5.2 percent; maturity 6 years). - Fiscal outturn (cumulative to August 2023): Total revenue and grants: 1,112.8 FCFA bn; Tax revenue: 968.5 FCFA bn; Total expenditure and net lending: 1,579.0 FCFA bn; Overall balance (commitment basis, incl. grants): -466.1 FCFA bn; -3.9 percent of GDP. *Source: EXECUTIVE SUMMARY and supporting chapters, 1benea2024001 - Benin IMF staff report (November 30, 2023).* ### EXECUTIVE SUMMARY ### 1benea2024001 - EXECUTIVE SUMMARY ### Backdrop - IMF Executive Board approved in July 2022, 42-month Extended Fund Facility (EFF) and Extended Credit Facility (ECF) arrangements (391 percent of quota; about US$650 million) to help Benin meet pressing financing needs and support the country’s National Development Plan centered on achieving the Sustainable Development Goals (SDGs). - Program implementation remains strong, with additional (concessional) budget support from donors and new SDG financing complementing front-loaded Fund support beyond expectations. - Recent headwinds: Niger border closure amidst regional sanctions following a coup in Niger and post-electoral policy shifts in Nigeria, compounding preexisting challenges including climate-related vulnerabilities and regional security risks. - The authorities have requested Fund support under the Resilience and Sustainability Facility (RSF) to support their ambitious climate agenda, complementing the EFF/ECF in improving socio-economic resilience. ### Policy discussions (Third EFF/ECF Review) - Focus areas: - Socio-economic and financial implications of Niger border closure and post-electoral policy shifts in Nigeria. - Entrenching revenue-based fiscal consolidation underway, including new tax measures under the 2024 budget, while protecting the vulnerable. - Next steps in the governance and AML/CFT agenda. - Contingency planning should the Niger border closure be prolonged or other unforeseen events materialize. ### Program performance - Performance under the program remains strong: All quantitative performance criteria (QPCs) and indicative targets (ITs) for end-March and end-June 2023 were met. - Structural reform progress: - Developed a Medium-Term Revenue Strategy (MTRS). - Operationalized the commercial court of appeal. - Prepared and annexed to the 2024 budget law a statement containing a quantitative fiscal risk analysis. - Specific outcomes (as of September 30, 2023): - Tax revenue outperformed the IT by about 7 percent. - Priority social spending was in line with the target. - No accumulation of domestic or external arrears. - External borrowing remained within the present value limit. ### RSF design - Authorities requested a 24-month arrangement under the Resilience and Sustainability Facility with access of 120 percent of quota to support Benin’s climate agenda. - RSF Reform Measures (RMs) centered on four main pillars: - Mainstreaming climate considerations in policymaking. - Enhancing adaptation to climate change, including resilience building at the community level and climate-proof social safety nets. - Mitigating transition risks through a comprehensive fuel subsidy reform. - Mobilizing private climate finance via development of a climate financial information architecture, building on Benin’s existing SDG bond framework. - Expected impact: Support adaptation and mitigation efforts, alleviating long-term balance of payments (BOP) stability risks linked to the loss of commodity exports from extreme weather events. ### Risks to the program - Risks are elevated but considered manageable. - Principal risks identified: - Higher need for security spending than expected. - Prolonged socio-economic and financial impact of Niger border closure. - Social discontent due to disruption in illicit fuel traffic—higher prices of smuggled fuel from Nigeria caused loss of income (see Box 3). - Mitigating factors: Authorities’ continued commitment to fiscal responsibility and renewed focus on social issues. ### Context and recent economic developments - Growth and activity: - Real GDP growth in 2023:H1 estimated at 6.3 percent (y/y), mainly driven by trade, transport activities and agroindustry. - Strong performance of air travel and transport linked to extraction of sand and gravel partially offset sharp drop in port activity. - Inflation: - Average inflation (y/y) during the first 3 quarters of 2023 reached 3.8 percent. - Transport costs soared June–September (17 percent, y/y) as price of smuggled gasoline rose by about 60 percent (y/y) following pump price hikes in Nigeria; this contributed about 2 ppts to inflation. - External sector and credit: - Current account deficit in 2022 estimated at 6.2 percent of GDP; projected to narrow to 5.8 percent of GDP in 2023. - Credit to private sector expanded rapidly, reaching 38 percent (y/y) at end-September 2023. - EMBI spreads declined to 740 bps as of end-October 2023 from around 1,000 bps in mid-2022. - S&P Global Ratings revised outlook on Benin from stable to positive, affirming 'B+/B' credit rating. - Fiscal performance through end-August 2023: - Tax revenues rose by 15 percent (y/y) in August 2023. - Security spending was at 35 percent of the annual budget at end-September 2023, with around 70 percent going to development-oriented spending. - Market financing and SDG financing: - Benin issued CFAF 116 billion in September 2023 at an average rate of 7 percent (up from 5.2 percent in 2022) with average maturity of 4 years (down from 6 years in 2022). - €350 million (2 percent of GDP) in SDG financing issued as a 12-year bond at an interest rate of 2.9 percent above Euribor with a 4-year grace-period; supported by an AfDB partial credit guarantee (first from the African Development Fund (AFD)). ### Outlook and risks - Near-term effects: Spillovers from regional developments expected to weigh on growth and inflation. - Key projections and shifts: - Headline inflation expected to reach 3.7 percent in 2023 (against 3.5 percent at Second Review) before receding to 3 percent in 2024. - Growth forecast for 2023 marked down by 0.4 ppt to 5.6 percent. Given 6.3 percent in 2023:H1, the implied growth rate for 2023:H2 is 4.9 percent. - Medium-term: Growth at potential estimated at 6 percent, inflation stabilizing at 2 percent, current account deficit around 4–5 percent of GDP. - Public debt and vulnerability: Benin assessed at moderate risk of external debt distress, with limited space to absorb shocks. - Balance of risks tilted to the downside: - Transit trade could fall further if Niger border closure is prolonged. - Policy shifts in Nigeria could disrupt informal trade and pose transitional challenges. - Higher international oil prices and extreme climate events could strain accounts. - Upside scenarios: - Sustained expansion of the Port of Cotonou and orderly development of the Special Economic Zone (SEZ) could boost FDI and strengthen the external position. - Reformed Nigeria could repurpose illicit activities into higher value-added formal trade. ### Key statistics and program indicators (as presented) - EFF/ECF arrangements: 42-month duration; 391 percent of quota; about US$650 million. - RSF request: 24-month arrangement; access of 120 percent of quota. - Real GDP growth: 2023:H1 = 6.3 percent (y/y). - Inflation: average first 3 quarters 2023 = 3.8 percent (y/y); transport inflation June–September = 17 percent (y/y); smuggled gasoline price increase ≈ 60 percent (y/y). - Current account deficit: 2022 = 6.2 percent of GDP; projected 2023 = 5.8 percent of GDP. - Credit to private sector: 38 percent (y/y) at end-September 2023. - EMBI spreads: peaked ~1,000 bps mid-2022; 740 bps as of end-October 2023. - SDG bond: €350 million (2 percent of GDP), 12-year maturity, interest rate 2.9 percent above Euribor, 4-year grace period. - Domestic issuance: CFAF 116 billion in September 2023 at average rate 7 percent; maturity 4 years (2022: rate 5.2 percent; maturity 6 years). - Fiscal outturn (cumulative to August 2023, Text Table 1 highlights): - Total revenue and grants: 1,112.8 FCFA bn; distance to end-Dec 2023 projection: 9.2 percent; projection value shown as 676.8 (table format retained as in source). - Tax revenue: 968.5 FCFA bn. - Total expenditure and net lending: 1,579.0 FCFA bn. - Overall balance (commitment basis, incl. grants): -466.1 FCFA bn; -3.9 percent of GDP; distance to end-Dec 2023 projection: -303.6 (table format retained as in source). - Program quantitative performance examples (September 30, 2023 table excerpts): - Basic primary balance (floor): various program/actual statuses recorded (e.g., Prog. March 31, 2023; Actual 115.7; Status Met). - Net domestic financing (ceiling): examples show Prog. 130; Actual 118.3; Status Met, and other cumulative values as in source tables. - Macro projections (Text Table 2 excerpt): - Real GDP (percent change): 2023 Est. 5.6; 2024 Prog. 6.0; 2025 Prog. 5.9; 2026 Prog. 6.0; 2027 Prog. 5.9; 2028 Prog. 6.0. - CPI inflation, average (percent): 2023 Est. 3.7; 2024 Prog. 3.0; 2025 Prog. 2.0; 2026 Prog. 2.0; 2027 Prog. 2.0; 2028 Prog. 2.0. - Overall balance (commitment basis, incl grants): 2023 Est. -5.5; 2024 Prog. -4.5; 2025 Prog. -3.7; 2026 Prog. -2.9; 2027 Prog. -2.9; 2028 Prog. -2.9. - Tax revenue (percent of GDP): 2023 Est. 12.2; 2024 Prog. 12.7; 2025 Prog. 13.2; 2026 Prog. 13.7; 2027 Prog. 14.1; 2028 Prog. 14.5. - Current account balance (percent of GDP): 2023 Est. -5.8; 2024 Prog. -5.4; 2025 Prog. -4.9; 2026 Prog. -4.8; 2027 Prog. -4.3; 2028 Prog. -4.1. - Public debt (percent of GDP): 2023 Est. 54.2; 2024 Prog. 53.8; 2025 Prog. 53.1; 2026 Prog. 52.0; 2027 Prog. 51.1; 2028 Prog. 50.3. *Source: EXECUTIVE SUMMARY, 1benea2024001 - Benin IMF staff report (November 30, 2023).* ### 11. Fiscal policy will continue to be squarely focused on entrenching revenue-based fiscal ### 11. Fiscal policy will continue to be squarely focused on entrenching revenue-based fiscal ### Fiscal consolidation: objectives and anchors - Program guidance: convergence to an overall deficit of 3 percent of GDP by 2025, in line with the WAEMU stance and consistent with maintaining Benin’s risk of debt distress at least at moderate level. ### The 2023 Budget, adjustor, and fiscal stance - Already confirmed concessional budget support is higher by about 0.2 ppt of GDP than programmed, unlocking additional spending room as per program design, yielding a revised baseline fiscal deficit of 4.5 percent of GDP for 2023 (from 5.5 in 2022). - Authorities expect to mobilize further budget support to utilize the full room of 0.4 ppt provided by the adjustor (allowing for a deficit of 4.7 percent of GDP in 2023). - Staff recommendation: extra spending should be activated only when disbursement of expected budget support is confirmed for 2023; any additional spending room should be channeled towards social sectors, including socially-oriented capital expenditure. - Contingent revenue risk from Niger border closure: projected loss of 8.4 billion CFAF (0.1 ppt of GDP) for 2023 based on August data, with largest losses on taxes on exports and re-exports, and corridor security charges. - Mitigating actions being stepped up: control of payment of customs duties, structural measures (decongestion of the port and re-routing of transit), and collection of tax arrears. ### Draft 2024 Budget Law: consolidation measures and composition - Target fiscal deficit: 3.7 percent of GDP (unchanged from the Second Review). - Due to eased adjustment in 2023, 2024 requires a slightly larger adjustment of between 0.8- 1.0 ppt of GDP (compared with 0.6 ppt earlier) to achieve the 3.7 percent of GDP deficit target. - Consolidation composition: - Additional tax measures: 0.5 ppt of GDP. - Unwinding of crisis support measures: decline in one-off grants related to the war in Ukraine of about 0.2 ppt of GDP. - Moderation of capital expenditure: 0.4 ppt of GDP (with potential to go up to 0.6 ppt of GDP if additional budget support allows for a deficit above 4.5 percent in 2023). - Current expenditure: would remain flat (noted as low compared with peers). - Medium-Term Revenue Strategy (MTRS) is cited as underpinning medium-term consolidation and development financing. ### Identified tax and contingency measures for 2024 (Text Table 6 summary) - Net Additional Yields Relative to the Previous Year (A+B+C): 0.5 (percent of GDP). - A. Domestic taxation (0.6): Removing payroll tax exemptions for public agencies 0.1; Expansion of standardized invoices to retail businesses 0.1; Clearance of domestic tax arrears 0.4. - B. International taxation measures (0.4): Application of transaction values to new goods 0.1; Improved control of customs valuation 0.1; Clearance of custom duties arrears 0.2. - C. Revenue-reducing effects, incl. nominal GDP²: -0.5. - Memo items: Total impact of permanent tax measures 0.5; Identified contingency measures 0.4. - Authorities have identified contingent revenue measures to offset risks (including further application of transactional values and efforts to control payment of customs duties). ### Medium-Term Revenue Strategy (MTRS) - MTRS purpose: widen the tax base over 2024–28 and support meeting development needs under the National Development Plan. - Strategic pillars: i) enhancing tax compliance and identifying new niches; ii) consolidating systems to combat fraud and promote equity; iii) strengthening tax administrations’ capacity. - The MTRS sets an ambitious goal to raise additional 0.5 percent of GDP in revenues per year. - Menu of measures includes rationalization of tax expenditures (e.g., removing payroll tax exemptions), expansion of standardized invoices to retail businesses, and expanded application of transaction values at customs. - Operationalization steps: specify measures in annual roadmaps, designate responsible departments, and request technical assistance (notably to strengthen customs administration capacity and non-tax revenue collection). - The draft 2024 budget law’s new tax measures drew on the MTRS. ### Public investment, spending prioritization, and borrowing strategy - Spending prioritization emphasized given development, security, and climate-related needs; public investment program should be carefully phased and account for climate adaptation needs. - Expected reduction in capital expenditure from 2023–24 largely from winddown of some infrastructure and security-related investment while preserving priority social spending in electrification, clean drinking water, sanitation, and education. - Borrowing strategy guidance: - Maintain a prudent borrowing strategy, contain borrowing costs, mitigate refinancing risks, maximize concessional external borrowing when feasible. - Authorities anticipate most external borrowing from multilateral and commercial creditors, with some drawings from commercial banks at longer maturities and rates below 6 percent. - Additional international market borrowing (including further utilizing the AfDB partial credit guarantee) could be sought if regional conditions remain unfavorable, within the annual debt limit under the program. - Staff emphasized ensuring an external and domestic financing mix consistent with maintaining a moderate risk of debt distress and mitigating rollover risk. ### Contingency planning and response to shocks - Contingency planning is essential to preserve the fiscal adjustment path in the event of unanticipated pressures (including Niger border closure revenue losses and potential support costs). - Authorities should implement additional (less distortionary) revenue measures and/or delay non-priority investment projects while preserving priority social spending if pressures materialize. ### Structural issues: social protection and food security - Gbessoke social safety net program: - Aim: targeted income support to 150,000 households through cash transfers and income-generating activities. - Rollout: first cohort of 75,000 households to be integrated in December (identified using the social registry). - Program budget: CFAF 97.7 billion for the 2023–2026 period, corresponding to about 0.2 percent of GDP per year. - Council of ministers adopted a decree to establish the social registry (RSU), intended as prime infrastructure for targeting support. - Food insecurity and climate risks: - Crop yields could decline by up to a third absent decisive investments in resilient agriculture. - Among low-income households in Benin, the share of own production in food consumption is about 50 percent. - Benin scored 38.9 points in Sustainability and Adaptation in the 2022 Global Food Security Index (below the SSA median of 46.7). - Food insecurity rose from 10 percent of the population in 2017 to almost 26 percent in 2022, affecting over 3.1 million people. - In 2022, 28 percent of all households were affected by drought and 14 percent by floods; for food-insecure households these proportions were 41 and 24 percent, respectively. - Policy responses: scale up the school feeding program (PNASI) to cover all public primary and secondary schools by school year 2025–2026 (75 percent currently covered); develop a national agency for food and nutrition; strengthen competitiveness of small-scale producers through cooperatives and clusters. ### Implications of Nigeria’s fuel subsidy phase-out for Benin - Context and immediate effects: - Benin’s gasoline consumption relied on 90 percent smuggled gasoline historically. - Recent pump price hikes in Nigeria have eliminated the price differential between formal and smuggled gasoline in Benin, increasing formal demand share from 11 to 27 percent. - The 2023–24 fuel subsidy bill is now projected to around 0.4 ppt of GDP under current oil price forecasts (assuming the partial shift to formal gasoline consumption is not reverted). - Opportunities and risks: - Higher cost of smuggled gasoline presents an opportunity to develop the local fuel distribution network, generate revenues, and reduce household vulnerability. - If international oil prices remain elevated, authorities are committed to adjust pump prices further in the near-term as needed to contain the budgetary cost of fuel subsidies. - Recent price and inflation impacts: - The price of gasoline in Nigeria rose by 152 percent between May and July, leading to a sharp increase in the price of smuggled gasoline (kpayo) in Benin by 65 percent to more than FCFA 700 per liter in June (above the official price FCFA 650), before stabilizing around FCFA 650. - The price index of transport jumped by 9 percent in June 2023. - This added some 2 ppts to inflation as of August, with second round effects anticipated. *Source: IMF staff report (Benin), chapter on fiscal policy and structural issues.* ### Box 3. Implications for Benin of the Phase out of Fuel Subsidy in Nigeria ### Box 3. Implications for Benin of the Phase out of Fuel Subsidy in Nigeria ### Short-term market dynamics and supply effects - Fuel smuggling is likely to continue for some time, given the current structure of the fuel market and sophisticated, deeply rooted smuggling networks. - The pervasive informal distribution network: close to 54,000 kpayo sales points (recent survey). - Formal gas station coverage gap: 37 out of the 77 communes of Benin currently do not have a single (formal) gas station. - Formal supply response after subsidy removal in Nigeria: - Formal supply of gasoline initially increased from 4,500 m3 per month prior to June to 18,000 m3 in June and July. - Formal supply then gradually receded to 13,000 m3 per month in September. - Informal gasoline market size was estimated at roughly 54,000 m3 per month prior to the shock. - Low elasticity of substitution of supply due to underdeveloped fuel storage capacity and entrenched informal distribution. ### Employment, livelihoods, and distributional impacts - The illicit gasoline market is estimated to be a direct source of employment and income for more than 150,000 persons (near the size of the entire public sector). - 1.5 percent of Beninese households are involved in the retail sale of fuel (2018/19 household survey). - The availability of cheap kpayo has supported moto-taxi transport activity, providing jobs to more than 120,000 persons (INSAE, 2019). - Higher kpayo prices would translate into higher transport and production costs, taking a toll on economic activity and causing hardship in the near term. - Historical estimate (2010 survey): fuel smuggling activities generated 40,000 to 50,000 jobs (1.2 percent of the labor force) and CFAF 105 billion (around US$172 million) annually. ### Medium-term reallocation, revenues, and formalization - If energy subsidy reform in Nigeria is sustained, expected medium-term outcomes include: - Decline in informal sales of gasoline. - Expansion of the formal fuel distribution network. - Higher formal gasoline sales generating higher tax revenues (current tax: CFAF 143 per liter collected on official gasoline prices). - The formalization process could improve safety (kpayo often unsafely stored) and enable tax collection. ### Government response in Benin - Official gasoline prices were increased in August by 40 CFAF (4.6 percent), to FCFA 680, bringing official prices in line with kpayo price levels. - A pilot of 2000 mini-stations spearheaded by the government is being implemented to foster formalization of kpayo, address safety concerns, and enable taxation. ### Risks and broader macroeconomic implications - Fuel smuggling has historically acted as a shock absorber in Benin. - Simulations cited: a 40 percent increase in oil prices would reduce growth by about 7 percentage points for oil importing, low-income sub-Saharan countries (IMF, 2011); in Benin effects may be compounded by immediate and full pass-through to the informal market. - Medium-term benefits (resource reallocation, higher revenues) depend on the sustainability of Nigeria’s reform momentum. *Source: Box 3. Implications for Benin of the Phase out of Fuel Subsidy in Nigeria (Prepared by Younes Zouhar).* ### 29. Reform Measures (RMs) evolve around the following four main pillars: (Table 13). ### Reform Measures (RMs) evolve around the following four main pillars: (Table 13). ### Pillar 1 — Mainstreaming the climate agenda in policymaking and PFM/PIM processes - Objective: Enhance transparency around climate costs and risks and integrate climate considerations into public financial management (PFM) and public investment management (PIM). - Key reform measures: - Produce by FY25 a climate budget brief to enhance information for budget allocation choices, building on the existing climate brief first published in the 2023 budget documentation; define an institutional framework (first at the level of secondary legislation) for production of this brief and ensure collaboration mechanisms between Ministry of Finance, Ministry of Environment and line ministries (RM4). - Complete SOE framework legislation with an implementing decree to integrate climate considerations in SOE ownership policy and pave the way to a SOE report appended to the FY26 budget incorporating climate considerations (RM3). - Integrate climate aspects into the legal framework for project identification, appraisal, selection and ex-post evaluation to improve PIM (RM1). - Develop and implement climate-informed maintenance policies for public infrastructure (RM2). ### Pillar 2 — Enhancing adaptation to climate change and strengthening population resilience - Objective: Improve capacity to withstand climate shocks across sectors and local governments. - Adaptation areas and associated RMs: - Water management: - Strengthen governance among public entities involved in water resource management by strengthening the mandate of the National Water Council and supporting its operationalization, especially for management of groundwater resources (RM5). - Reform water tariffs in urban areas to promote conservation and improve allocation of scarce resources (RM6). - Local and community government: - Incorporate climate-related criteria into allocation of State investment grants to communes to enhance local resilience (RM7). - Social protection: - Enhance shock-responsiveness of Benin’s SSN by supporting development of a climate-proof social registry (RSU+), gathering/updating data on populations prone to natural disasters to channel support when a natural disaster occurs (RM8). - Agriculture: - Establish an agricultural insurance mechanism to enhance climate resiliency benefiting a minimum of 100,000 producers by the end of the RSF program, leveraging existing programs (FNDA) and a feasibility study by the Swiss Development Corporation (RM9). - Building code: - Adopt a building code and requisite secondary legislation incorporating technical standards favoring adaptation to future climate conditions, strengthening buildings’ resilience against floods, heavy rains and increased heatwaves, and enhancing energy efficiency (RM10). - Note: This complements World Bank-supported urban planning work to improve localization choices; the building code focuses on resilience of new constructions. ### Pillar 3 — Supporting mitigation efforts - Objective: Advance mitigation even though Benin’s global GHG contribution is limited; align fiscal policy with low-carbon transition and protect competitiveness. - Key measures and features: - Comprehensive fuel subsidy reform informed by upcoming FAD CD (RM11); complements ongoing pump price hikes under the EFF/ECF. - Design compensatory mechanism for vulnerable populations using the Social Registry (RSU) to mitigate poverty impacts; adopt implementation framework for the social registry (RSU) defining governance of the Management Information System (MIS) and operational guidance (RM12). - Implement comprehensive electricity tariff reform to remove subsidies that indirectly support fossil fuel emissions (RM13). - Remove obstacles to renewable energy development, building on Millennium Challenge Corporation work (RM14). - Investment requirement: Total investment of around US$1.1 billion over the ten-year period (or 5 percent of 2022 GDP; World Bank CCDR, 2023) to achieve objectives of the National Electrification Strategy (SNE) to reach universal access to electricity by 2030; note potential BOP implications through higher imports and current account deficits. ### Pillar 4 — Mobilizing climate finance from the private sector - Objective: Close Benin’s climate financing gaps by scaling private climate finance and improving climate financial information. - Key actions (RM15 and related): - Build on Benin’s SDG bond framework and sustainable issuance experience to enhance the climate financial information architecture. - Adopt by arrêté two complementary frameworks: - A climate-related taxonomy framework encompassing Benin’s adaptation and transition investment targets and private financing instruments. - A climate mitigation and adaptation data collection and dissemination mechanism connected to the taxonomy, mandating the National Institute for Statistics and Demography to collect climate-related data from companies (including large SMEs and SOEs) under the 2022 legal framework governing the Institute’s missions. - Expected positive spillovers: provide private sector a comprehensive reference framework for climate investment aligned with Benin’s targets and build on robust climate data. - Catalytic instruments and partners: - The AfDB-supported green financing facility project at the CDCB may create a mixed financing instrument; the RSF can catalyze blended finance structures to improve risk–return profiles and broaden private investor base. - The RSF’s climate information architecture is seen by stakeholders as foundational to scale up private climate finance; Benin could pioneer this in the sub-region. ### Program modalities, financing, and RSF specifics - EFF/ECF financing assurances: - Recent SDG loan does not change program financing needs; loan boosts Benin’s contribution to BCEAO (pooled) reserves. - Disbursements will take the form of budget support. - Program fully financed with firm commitments for the upcoming 12-month period and good financing prospects until end of program. - Burden sharing (2023 and 2024 highlights): - For 2023: World Bank budget support US$150 million; EU about US$16 million; AfDB US$33 million and AFD US$19 million mobilized (0.2 ppt of GDP budget support from AfDB and AFD); World Bank Catastrophe Deferred Drawdown Option (CAT-DDO) of US$80 million under the DPO. - For 2024: Expected budget support from World Bank US$150 million; EU US$38 million; AfDB US$33 million; scope for additional US$30 million from EU for electrification and energy efficiency. - RSF eligibility, access, and phasing: - Benin meets RSF eligibility based on per capita GNI; classified as Group B for interest charges. - Staff support authorities’ request for 120 percent of quota (SDR 148.56 million) based on commitment to an ambitious reform package addressing adaptation and mitigation as well as adequate capacity to repay. - Duration and phasing: RSF would last for two years, starting in December 2023 with phasing depending on completion of RMs. - Catalytic role: RSF intended to leverage IMF support to secure donor funding and SDG financing and to catalyze additional climate financing (including private sources). ### Program monitoring, capacity to repay, and risks - Monitoring: - Program performance (EFF/ECF and RSF) monitored through semi-annual program reviews based on quantitative performance criteria, indicative targets, structural benchmarks, and reform measures. - Structural conditionality augmented to include new SBs supporting AML/CFT, transparency, and business climate strengthening. - Capacity to repay: - Total amount of outstanding credit from the Fund including the proposed new RSF arrangement: - 543.6 percent of quota in 2023. - Increases to 656.2 percent of quota in 2025. - Total obligations based on existing and prospective credit (including RSF) will peak at 0.5 percent of GDP (2.8 percent of total revenues excluding grants and 2.1 percent of exports) in 2029. - Total amount of outstanding credit from the Fund without the new RSF arrangement will peak at 549.8 percent of quota in 2024. - Risks and contingencies: - High uncertainties and risks remain: regional uncertainty, sharp terms-of-trade (ToT) deterioration, prolonged regional security impacts, tightening financing conditions, and climate-related shocks. - Authorities’ commitment to fiscal responsibility and focus on social and climate issues under the RSF are mitigating factors. - Authorities should be ready to adopt additional revenue measures if budgeted yields fall short. - RSF disbursements depend on timely delivery of capacity development activities; delays could delay disbursements. - Enterprise risks are limited: Benin’s small credit share relative to peers with GRA/PRGT access, adequate capacity to repay, and moderate debt distress risk mitigate enterprise financial risks. - Operational and reputational considerations: security risks currently circumscribed to the North; strong engagement with civil society recommended to mitigate stigma around difficult policy tradeoffs. *Source: INTERNATIONAL MONETARY FUND.* ### 37. Safeguards assessment. The 2023 update assessment of the BCEAO found that the ### Safeguards assessment ### Safeguards and audit findings - The 2023 update assessment of the BCEAO found that the institution continues to have a robust control environment with strong governance arrangements. - All recommendations from the 2018 safeguards assessment have been implemented. - Financial reporting and external audit arrangements remain in line with international practices. ### Capacity development and collaboration with partners - Fund staff coordinated closely with the World Bank to align the CCDR baseline model assumptions with the EFF/ECF macroeconomic framework. - The World Bank prepared an assessment letter on the authorities’ climate policies. - The mission tapped expertise from the Global Center on Adaptation (GCA) in selected areas. - As part of the MTRS, authorities identified areas for further support, particularly to develop customs’ administration capacity. - Upcoming IMF technical assistance will support: - fuel subsidy reform and climate-informed maintenance methodologies (RM2); - development of the climate information architecture, design of a taxonomy framework, and a climate data collection and dissemination mechanism (RM15). - Other donors (World Bank, Swiss Cooperation on agricultural insurance) stand ready to support the reform agenda under the RSF. ### Staff appraisal — overview of recent shocks and risks - Recent shocks: - Niger border closure amidst regional sanctions following a coup is disrupting transit trade. - Phase-out of fuel subsidies in Nigeria is increasing transport costs and causing income losses for segments of the Beninese population involved in smuggling cheap gasoline from Nigeria. - These shocks compound pre-existing challenges related to climate change and regional security threats. - Authorities should remain vigilant vis-à-vis the socio-economic and financial fallout from those shocks. ### Fiscal consolidation, debt sustainability, and priority spending - Maintaining momentum in tax collection and spending reprioritization is critical to support fiscal consolidation toward the authorities’ objective to converge to the WAEMU regional fiscal norm of 3 percent of GDP by 2025. - This fiscal path is consistent with preserving debt sustainability; Benin is currently at a moderate risk of external debt distress. - The external position is assessed as moderately weaker than the level implied by medium term fundamentals and desirable policies. - Policy priorities: - Ensure a high-quality composition of fiscal adjustment that preserves priority social spending. - Maintain a prudent borrowing strategy and a well-balanced financing mix between external and domestic financing to support fiscal sustainability and mitigate rollover risks. ### Contingency planning and public investment - Careful contingency planning is critical due to heightened uncertainty, including uncertainty over the duration of the Niger border closure. - Authorities should adopt a phased approach to their public investment program to maintain budget execution flexibility. - Authorities should be prepared to implement new (less distortionary) taxes should program targets come under pressure. ### Medium-Term Revenue Strategy (MTRS) - Authorities should move swiftly with operationalization of the recently developed MTRS to: - improve the efficiency of the tax system; - expand the tax base; and - help meet Benin’s large development needs over time. - The strategy lays out broad contours of tax policy and revenue administration reforms; operationalization should account for synergy between tax and customs and secure technical support where needed. ### Social protection and shock-responsiveness - Accelerating operationalization of the social registry will facilitate targeting as social programs scale up and will help compensate vulnerable households during fiscal adjustment, including as fuel subsidies are phased out. - Enhancing shock-responsiveness of social safety nets by developing a climate-proof social registry would help channel support to the vulnerable when a natural disaster hits. - Effectively establishing PNASI as a fully government-managed school feeding program requires timely parliamentary approval of the law adopted by the council of ministers in April. ### Governance, rule of law, and AML/CFT - Sustaining reforms to enhance the rule of law and the anticorruption framework will solidify institutional foundations for inclusive private sector-led growth. - Public consultation on the draft action plan for implementing recommendations from the IMF governance diagnostic would foster buy-in and accountability. - Ongoing efforts to address deficiencies in the AML/CFT framework should continue, with particular focus on mitigating money laundering risks in the real estate sector, including through development of a legal framework for the collection, verification, and publication of transferees’ beneficial ownership (BO) information for land transfers. - Enhancing transparency and the business climate will solidify institutional foundations for private sector-led growth that benefits all Benineses. ### Financial sector vigilance and inclusion - Authorities should remain vigilant vis-à-vis the impact of the Niger border closure on the banking system. - Efforts to bring under-capitalized banks into conformity with prudential norms should be maintained. - Promoting financial inclusion will support sustainable growth. ### Climate change agenda and coordination - Steadfast implementation of the authorities’ climate change agenda is important to mitigate long-term risks to balance of payment stability and enhance population resilience to climate shocks in the near term. - Priority structural challenges to address include resilient infrastructure and agriculture, supported by initiatives to mobilize private climate finance. - Authorities should support mitigation by implementing a comprehensive fuel subsidy reform—while protecting the most vulnerable—and removing obstacles to renewable energy, including by getting electricity tariffs right. - Coordination among ministries and agencies involved in the climate agenda is essential for mainstreaming climate change in policymaking as envisaged by the government. *Source: 1benea2024001 - Safeguards assessment.* ### 48. Given the continued strong program performance and commitment to reforms, staff ### 1benea2024001 - 48. Given the continued strong program performance and commitment to reforms, staff ### Program decision and recommendation - Staff recommends completion of the Third Review under the EFF and ECF arrangements. - Staff supports the request for a new 24-month RSF to support the authorities’ ambitious climate agenda and mitigate BOP stability risks. ### Recent macroeconomic developments and outlook - Growth and demand: - Real GDP annual growth series (selected): 6.9; 3.8; 7.2; 6.3; 6.3; 6.0; 5.6; 6.0; 5.9; 6.0; 5.9; 6.0 (Table 1 Real GDP). - Real GDP per capita (annual percent change) series (selected): 3.8; 1.0; 4.2; 3.3; 3.3; 3.1; 2.7; 3.1; 3.0; 3.1; 3.1; 3.1 (Table 1). - Inflation and terms of trade: - Consumer price index (average) series (selected): -0.9; 3.0; 1.7; 1.4; 1.4; 3.5; 3.7; 3.0; 2.0; 2.0; 2.0; 2.0 (Table 1). - Terms of trade (minus = deterioration) series (selected): 5.1; 1.5; 1.1; -7.6; -8.4; -2.2; -1.5; 0.1; 0.1; 0.1; 0.1; 0.1 (Table 1). - External position: - Current account balance (including official transfers) as percent of GDP: -4.0; -1.7; -4.2; -6.3; -6.2; -5.9; -5.8; -5.4; -4.9; -4.8; -4.3; -4.1 (Table 1). - Trade balance, goods and services (percent of GDP): -5.0; -2.8; -4.4; -6.4; -6.3; -6.2; -6.0; -5.8; -5.3; -5.2; -4.8; -4.7 (Table 1 / Table 4). ### Fiscal performance, composition, and debt dynamics - Revenue and expenditure (percent of GDP, selected series from Table 1 and Table 3): - Total revenue: 12.9; 12.7; 13.2; 13.8; 13.8; 14.0; 14.0; 14.5; 15.0; 15.4; 15.9; 16.3. - Tax revenue (percent of GDP) series (selected): 10.6; 10.5; 11.0; 12.2; 12.2; 12.7; 12.7; 13.2; 13.7; 14.1; 14.5; 14.9. - Total expenditure and net lending: 14.6; 19.1; 19.9; 19.8; 19.8; 19.0; 19.3; 18.9; 18.6; 18.9; 19.4; 19.8 (percent of GDP). - Capital expenditure (percent of GDP): 3.9; 6.9; 8.2; 8.8; 8.8; 7.7; 8.0; 7.5; 7.6; 7.3; 7.5; 8.3. - Balances and financing: - Overall balance (commitment basis, including grants) as percent of GDP: -0.5; -4.7; -5.7; -5.5; -5.5; -4.3; -4.5; -3.7; -2.9; -2.9; -2.9; -2.9. - Overall balance (cash basis, including grants) as percent of GDP: -0.6; -4.2; -5.6; -4.7; -4.7; -5.0; -5.1; -3.7; -2.9; -2.9; -2.9; -2.9. - Domestic financing, net (percent of GDP, selected): -3.6; 1.7; -3.9; 2.0; 2.0; 2.9; 0.9; 1.1; -0.6; 0.6; -1.0; 0.3. - External financing, net (percent of GDP, selected): 4.2; 2.4; 9.5; 2.7; 2.7; 2.1; 4.2; 2.6; 3.5; 2.3; 3.9; 2.6. - Public debt levels (end period, percent of GDP, Table 1): - Total public debt: 41.2; 46.1; 50.3; 54.2; 54.2; 53.8; 53.8; 53.1; 52.0; 51.1; 50.3; 49.5. - External public debt: 25.3; 28.4; 36.8; 37.6; 37.6; 38.1; 40.3; 40.8; 42.2; 41.3; 41.8; 41.2. - Domestic public debt: 16.0; 17.7; 13.5; 16.6; 16.6; 15.7; 13.5; 12.2; 9.8; 9.8; 8.5; 8.3. - Debt-service and fiscal risk indicators: - Interest-to-tax revenue ratio (memo): 15; 19; 20; 14; 14; 13; 13; 12; 11; 10; 10; 9 (percent; Table 3 memo). - Wage bill to tax ratio (memo): 41; 44; 43; 38; 35; 35; 37; 37; 36; 36; 35; 32 (percent; Table 3 memo). ### External sector, balance of payments, and financing needs - Balance of payments and external flows (selected from Table 4): - Current account balance (CFAF billions): -337.3; -157.3; -407.4; -680.6; -668.7; -697.2; -684.9; -697.9; -690.6; -722.6; -696.9; -719.7 (2019– projections). - Exports, f.o.b. (CFAF billions, selected): 1,790.9; 1,720.5; 2,019.9; 2,389.5; 2,226.0; 2,399.3; 2,218.9; 2,422.8; 2,588.3; 2,789.1; 3,014.2; 3,263.7. - Imports, f.o.b. (CFAF billions, selected): -2,051.4; -1,810.2; -2,215.4; -2,831.7; -2,667.2; -2,853.1; -2,665.2; -2,877.3; -3,014.2; -3,229.4; -3,420.6; -3,693.3. - Of which: cotton export receipts (CFAF billions, Table 4): 325.5; 319.3; 404.7; 498.9; 421.6; 361.4; 298.7; 307.9; 304.2; 316.0; 329.2; 343.1. - External financing requirements and sources (Table 6): - Gross financing requirements (CFAF billion): 980; 1,137; 902; 1,094; cumulative 2022-25: 4,114. - Available financing (CFAF billion): 686; 885; 719; 977; cumulative 2022-25: 3,267. - Financing gap (1-2) (CFAF billion): 295; 252; 183; 117; cumulative 2022-25: 847. - IMF RSF Disbursement (CFAF billion, Table 6): 0; 0; 47; 87; cumulative indicated RSF disbursement entries of 47 and 87 (Table 6 lines). ### Financial sector and banking system developments - Capital and asset quality (Table 4 figures and Table 8): - Capital adequacy (Regulatory capital to RWA, selected): 9.3; 11.9; 8.2; 9.6; 10.4; 10.0; 14.4; 13.4; 14.2; 14.6; 16.2 (Table 8). - Gross NPLs to total loans (percent, selected): 21.8; 19.4; 21.6; 20.2; 17.7; 16.4; 16.8; 14.9; 12.6; 14.9; 7.2 (Table 8 series). - Provisioning rate (percent, selected): 64.0; 66.4; 66.5; 59.0; 55.9; 64.6; 65.5; 70.9; 77.6; 73.3. - Credit and liquidity: - Credit to the private sector (annual percent change): 11.9; -5.7; 9.2; 21.4; 21.4; 9.0; 9.0; 11.0; ... (Table 5). - Broad money (M2) annual percent change and levels: 6.0; 17.3; 16.7; 13.0; 13.0; 9.6; 9.2; 9.0 (Table 5). - Liquid assets to total assets (percent): 16.2; 14.5; 12.5; 11.7; 12.8; 11.5; 12.1; 9.0; 9.7 (Table 8). ### Capacity to repay and IMF exposure indicators - Table 5/9 highlights (Indicators of capacity to repay the IMF, Table 9): - Total obligations based on existing and prospective credit (billions of CFA francs) series (selected): 2.1; 44.3; 56.0; 36.9; 59.0; 79.0; 88.4; 82.5; 70.4; 70.4; 35.2; 15.3; 12.6; 12.2; 12.2... - Outstanding IMF credit (billions of CFA francs) selected series: 543.6; 594.9; 654.3; 618.9; 563.4; 488.5; 400.2; 317.7; 247.3; 176.9; 141.7; 126.4; 113.8... - Outstanding IMF credit as percent of government revenue: 32.7; 31.7; 31.2; 26.7; 21.8; 17.0; 12.6; 9.0; 6.3; 4.1; 2.9; 2.4; 2.0... - Net use of IMF credit (millions of SDRs): 149.8; 66.8; 72.2; -45.7; -72.6; -96.7; -108.0; -100.9; -86.1; -86.1; -43.0; -18.7; -15.5... ### Program financing, access, and phasing - EFF/ECF access and phasing (Table 10): - Total EFF/ECF access (SDR million): 484.058 (Total); 161.349 (ECF); 322.709 (EFF). - Key availability dates and amounts (examples): - July 8, 2022: 108.30 SDR million (36.10 ECF; 72.20 EFF). - November 21, 2022: 108.30 SDR million. - May 1, 2023: 50.82 SDR million. - November 1, 2023: 101.58 SDR million. - May 1, 2024: 31.20 SDR million. - May 1, 2025 and October 31, 2025: later tranches (see Table 10). - Proposed RSF disbursement schedule (Table 11): - Total proposed RSF amount: 148.561 SDR million (120.0 percent of quota equivalent lines present). - Individual disbursements listed as 9.9048 SDR million each tied to specific reform-measure implementation (15 entries of 9.9048 SDR million sum to 148.561 SDR million) with timing across EFF/ECF reviews (May 1, 2024; November 1, 2024; May 1, 2025; October 31, 2025 entries referenced). ### RSF reform agenda and structural benchmarks (key elements) - RSF Reform Matrix pillars and selected reform measures (Table 13 and Figure 6): - Pillar 1 — Mainstreaming the climate agenda into PFM/PIM: - RM1: Amend PIM Decree and Appraisal Methodology; due End-March 2024; expected outcome: better alignment of public investment program with climate agenda. - RM2: Adopt maintenance methodology to integrate climate vulnerabilities; due End-October 2025; pilot in three sectoral ministries. - RM3: Adopt implementing decree of Law 2020-20 on SOEs and publish first annual SOE report; due End-October 2025. - RM4: Adopt implementing order to institutionalize an annual climate budget brief starting FY25; due End-October 2024. - Pillar 2 — Enhancing adaptation and resilience: - RM5: Revise decree for National Water Council and conduct strategic groundwater assessment; due End-April 2025. - RM6: Institutionalize urban water tariff mechanism (tariff study, transparent structure, financial equilibrium); due End-September 2024. - RM7: Amend 2024 budget law to incorporate community-identified climate priorities in transfers to local authorities and simulate for 2024 FADeC; due End-March 2024. - RM8: Integrate climate risks into Social Registry (RSU) for high-flood-risk municipalities; due End-October 2025. - RM9: Adopt decree to establish agricultural insurance scheme leveraging existing programs and cover minimum objectives (two main products; minimum 100,000 producers) by End-September 2025. - RM10: Adopt draft building code incorporating climate-resilient technical standards; due End-March 2025. - Pillar 3 — Supporting mitigation efforts: - RM11: Comprehensive fossil fuel subsidy reform including simple tax structure design and pricing mechanism reform; due End-October 2024. - RM12: Establish compensatory mechanism using the Social Registry (RSU) and adopt RSU implementation framework; due End-October 2024. - RM13: Design and adopt electricity tariff reform to remove subsidies and reach cost recovery, with first phase in 2025; due End-January 2025. - RM14: Remove obstacles to renewable energy development via connection cost policy and grid flexibility assessments; due End-January 2025. - Pillar 4 — Mobilizing private sector financing: - RM15: Adopt decree to establish climate-related taxonomy and a climate mitigation/adaptation data collection mechanism coordinated by National Statistics and Demography Institute; due End-May 2025. - Remaining structural benchmarks under EFF/ECF (Table 12, 2023–24 selected status): - Develop MTRS: End-September 2023 — Met. - Publish quantitative fiscal risks statement as part of 2024 draft budget law documentation: End-October 2023 — Met. - Publish appraisal/selection criteria and feasibility studies for major investment projects: End-December 2023 — On track. - Operationalize Commercial Court of Appeal: End-November 2023 — Met. - Operationalize HCPC and strengthen legal framework: End-June 2024 — On track. - Update and close list of public organization bank accounts and repatriate balances: End-June 2024 — On track. - Establish beneficial ownership collection/verification for land transfers and publication: End-April 2024 — Newly proposed. - Establish audit court committee to monitor audit recommendations: End-February 2024 — Newly proposed. - Extend e-cadaster to cover Cotonou and update land transactions: End-April 2025 — Newly proposed. ### Key implementation support and development partner roles - IMF inputs and CD/TA: FAD, MCM, FAD TA, C-PIMA, CCDR and sector-specific CD inputs across RM1–RM15 (Table 13). - Development partners referenced for specific reforms: - World Bank (WB): water sector governance, social registry/RSU support, renewable energy inputs, social safety net PforR. - Swiss Development Cooperation: FNDA/agricultural insurance feasibility follow-up. - KfW, EU, Belgium: local government and decentralization support. - MCC: renewable energy support historically (winding down). - AfDB: referenced in RM15 diagnostic alignment recommendations. - Possible FAD MCM/Mission TA inputs on climate taxonomy and alignment. *Sources: Beninese authorities; BCEAO; IMF staff estimates, calculations, and program documents contained in the supplied content.* ### Annex I. External Sector Assessment ### Annex I. External Sector Assessment ### Overall assessment - The external position of Benin in 2022 was moderately weaker than the level implied by medium term fundamentals and desirable policies. - The 2022 current account deficit widened to the highest deficit observed in the past 5 years and was slightly below the level observed during the global oil price shock in 2014 (6.7 percent of GDP). - Drivers of the 2022 deterioration: - Global factors: surge in international oil and food prices amid the war in Ukraine; depreciation of the FCFA vis-à-vis the US dollar. - Domestic factors: sharp drop in cotton production amid floods; launch of infrastructure projects under the second generation Government’s Action Program (PAG II; 2021–26); increased public spending to address urgent development needs and mitigate spillovers from protracted war in Ukraine and regional security risks. - Outlook and risks: - Expected improvement in the current account in 2023–24 supported by normalization of oil and food prices, expected fiscal consolidation, and government projects to enhance port competitiveness and facilitate exports. - Elevated risks from increased volatility of commodity prices, Niger border closure, limited cotton export volumes despite elevated cotton prices, and reduced reliance on cheaper smuggled fuel from Nigeria increasing the import bill. ### Potential policy responses - Implement planned growth-friendly fiscal consolidation starting from 2023 toward a gradual convergence to an overall fiscal deficit of 3 percent of GDP in line with the WAEMU stance. - Develop a medium-term plan to reform fuel subsidies and phase out food subsidies to re-anchor fiscal balances. - Bolster institutional foundations for private sector-led inclusive growth and orderly development of the Special Economic Zone (SEZ) to enhance diversification and attract foreign private investment into export-oriented manufacturing. ### Foreign assets and liabilities: position and trajectory - Data basis: latest available data (2021). - Financial assets: 36 percent of GDP, comprising portfolio investments (16 percent of GDP), other investments (7 percent of GDP), and reserves (9 percent of GDP). - Concessional loans to the government: 45 percent of GDP, representing more than one half of financial liabilities (85 percent of GDP). - NIIP movements: - Benin’s NIIP deteriorated to -43 percent of GDP at end-December 2021, from -33 percent of GDP at end-December 2020; a substantial increase from -23 percent of GDP five years prior (2017). - Deterioration driven by a higher increase in gross liabilities compared to gross assets due to a significant increase in portfolio investments (Benin issued US$1 billion Eurobond and US$500 million SDG bond) and direct investments (which doubled from 2020 to reach 1.7 percent of GDP) to finance the current account deficit. - Valuation effects on gross assets and liabilities are estimated at around 0.2 and 0.7 percent of GDP respectively. - Assessment and medium-term outlook: - Projected improvements in the current account should contribute to stabilizing the NIIP to GDP ratio. - Risks to external sustainability: unanticipated spending needs, further terms-of-trade deterioration, slowdown in real GDP growth. - Mitigating factors: authorities’ commitment to reform and continued concessional financing from donors. - NIIP is assessed as sustainable under the baseline over the medium term. - External debt is also assessed as part of the 2023 DSA for Benin. - Data for 2021 (percent of GDP): - NIIP: -43.4 - Gross Assets: 34.9 - Debt Assets: 20.8 - Gross Liab.: 85.3 - Debt Liab.: 77.7 ### Current account (CA) - 2022 CA deficit: estimated to have widened to 6.2 percent of GDP. - Comparison: significant increase versus the average of the last five years (3.7 percent of GDP). - Main causes: terms-of-trade deterioration (soaring oil and food prices), drop in cotton production, rebound in imports from USD appreciation against the CFA franc and scaling up of public investment. - Baseline projection: CA deficit projected in the range of 4–5 percent of GDP over the medium term due to fiscal consolidation and reforms to boost competitiveness, including completion of PAG-II projects (expansion of Port of Cotonou), exploring new trade opportunities with Nigeria, and SEZ acceleration. - Risks: volatile commodity prices, persistent regional insecurity, vulnerability to climate change, and uncertainty. - Model assessment: - CA gap (cyclically-adjusted CA minus CA norm) is estimated at 1.7 percent of GDP. - The EBA CA model suggests Benin’s external position in 2022 was moderately weaker than implied by fundamentals and desirable policies (between -2 and -1 percent of GDP). ### Real exchange rate (REER) - Background: - CFA franc (CFAF) is pegged to the euro within WAEMU. - Nominal effective depreciation: about 2 percent annually on average over 2017-21. - REER dynamics: REER was stable over 2017-21 thanks to lower inflation in Benin; REER depreciated by 8.7 percent in 2022 (and 8 percent compared to the average REER during the five preceding years). - Drivers in 2022: depreciation of the euro against the US dollar amid spillovers from the war in Ukraine and relatively low inflation in Benin (1.4 percent); a strong harvest season and subsidy measures partially offset import price pressure. - Assessment: - EBA-lite CA model suggests REER over-valuation of 8.8 at end-2022, consistent with the CA gap (-1.7 percent of GDP), assuming elasticity of the real exchange rate to the CA deficit of -0.2. - EBA-Lite Index Real Effective Exchange Rate (IREER) model suggests an exchange rate under-valuation of -21 percent and an underlying CA gap around 3.9 percent of GDP. - Staff view: REER model results tend to be outliers and require caution; when models contradict, reliance is often placed on the CA deficit model. ### Capital and financial accounts: flows and policy measures - 2022 flows: - Net capital inflows estimated to have decreased to 5.1 percent of GDP in 2022, from 8.7 percent of GDP in 2021. - Drivers: drop in net portfolio flows after a sharp temporary increase in 2021 (5.0 percent of GDP) more than offset higher external project loans and steady increase in FDI toward the construction sector (including Niger-Benin pipeline project and SEZ construction). - Medium-term projection (2023–28): - Financial account projected to gradually stabilize around -4 percent of GDP, compared to -5.4 percent of GDP on average over 2018–21, as fiscal consolidation reduces external borrowing needs. - FDI expected to stabilize around 1.6 percent of GDP (slightly above historical levels of 1.3 percent of GDP during 2018–21). - Portfolio investments expected to remain below the 2021 peak given conservative assumptions on new Eurobond issuances. - Assessment and risks: - A shift in market sentiment causing higher spreads and rollover costs could heighten debt risks and narrow access to international markets. - Upside potential: increased budget support over the medium term and orderly SEZ development attracting private capital. - Fiscal consolidation from 2023 toward overall fiscal deficit of 3 percent of GDP will help reduce external borrowing needs. ### FX intervention and reserves level - WAEMU pooled reserves: - Declined to about 4.5 months of prospective imports by end-2022 (stood at 3.2 months of imports in August), down from 5.6 months in 2021. - Drivers: challenging external financing environment, soaring food and energy prices, and still elevated fiscal deficits. - Projection: reserve import coverage ratio would stabilize at around 4.6 months in subsequent years as current account ratios decline and net capital inflows reduce. - Assessment: - Based on the ARA metric for credit constrained (CC) economies, the end-2022 level of reserves (4.5 months of imports) is assessed as being somewhat adequate. - Policy implications: growth-friendly fiscal consolidation and structural reforms to diversify the region’s export base would help rebuild reserves and consolidate the external position at the WAEMU level. - ARA CC model note: - The ARA CC model based on 2021 data estimates an adequate range for reserves of 4.5 to 6.4 months of prospective import coverage for the WAEMU, with the lower end calibrated on fragile states and the higher end calibrated on non-resource rich countries. *Source: 1benea2024001 - Annex I. External Sector Assessment* ### 5. Climate risks and security-related challenges are intertwined in the northern region. ### 5. Climate risks and security-related challenges are intertwined in the northern region. ### Climate-security links and spatial heterogeneity - Conflicts between farmers and nomadic pastoralists have many underlying causes—demographic growth, urbanization, and industrialization—but one of its cores is increased scarcity of resources: water and land. - The disruption of water cycle by climate change and the increased land under cultivation will likely exacerbate the conflicts. - Figure indicators reported in the source: - A. Number of Floods, 1990-2022 (EM-DAT, CRED / UCLouvain) - B. Maximum Number of Consecutive Dry Days, 1995-2014 (annual average) (World Bank Climate Change Knowledge Portal) - C. Poverty Rate, 2018/19 (percent of population) (World Bank based on EHCVM 2018/19) - Note: Dry day is defined as a day with less than 5 mm precipitation. ### Deforestation and ecosystem services - Benin lost about 25 percent of its forest cover in the last 20 years, mainly driven by expansion of subsistence agriculture and the dependence on firewood for cooking and heating. - The current deforestation rate is about 2 percent a year, which will decrease groundwater recharge. - Emissions from deforestation and land-use change are about 40 percent of total emissions (largest contributors to greenhouse gas emissions). - Expected amplifications: droughts and wildfires becoming more pervasive, leading to further tree cover loss and disruption of essential ecosystem services. ### Health, labor, and capital impacts - Extreme heat directly reduces physical and mental capacity of the labor force and indirectly contributes to faster spread of diseases. - Larger macroeconomic costs driven by loss of labor productivity: up to 12 percent of GDP by 2050 (as per the CCDR). - Floods: the most recent 2021 and 2022 floods caused dozens of deaths and affected about 110 thousand people; closures of many primary schools and dozen colleges likely impact human capital accumulation. - Historical flood damage: the 1995 flood caused US$6 million damage (2022 dollars; or about 0.14 percent of the GDP in 1995). - Future projections: extreme floods are projected to cause 2 percent of GDP loss in the 2030s, though this figure could be as high as 6 percent. ### Coastal erosion, sea-level rise, and economic exposure - More than a fifth of the Beninese population lives in the southern coastal zones; projected to increase to 60 percent by 2050 (according to a study cited by the IPCC). - This projection would make Benin’s population the most exposed to sea-level rise in sub-Saharan Africa (see Figure 7 for IPCC projections). - Sea-level rise impacts: - Water security and agriculture through salinization — 20 percent increase of saltwater intrusion area between 2015 and 2020 (academic study). - Degrading water quality will decrease agricultural productivity and impact health. - Vulnerable populations in informal settlements are especially hard hit by coastal floods and storm surges. - Coastal erosion deters tourism and affects transport infrastructure, including via the port of Cotonou. - The current annual cost of coastal erosion is estimated to be 1.3 percent of GDP, likely to rise over time. ### Distributional impacts: gender, children, poor and rural dwellers - Benin ranks 152 out of 170 countries in 2021 in UNDP’s Gender Inequality Index. - Women’s vulnerabilities and adaptive capacity: - Women have about 24 percentage point lower literacy rate than men. - Only 4 percent of women own agricultural land compared to 26 percent of men. - Women are projected to suffer heavier employment losses. - Children: Benin’s children are the 15th most exposed and vulnerable to climate risks in the world. - Rural and poor households: - Over 77 percent of rural households belong to the lowest wealth quintile. - 80 percent of agricultural production is used for own consumption. - Rural households are almost twice as likely to be affected by climate shocks compared with urban counterparts. - Only 23 percent of rural population has access to all weather roads. ### Private sector exposure and adaptation - 73 percent of surveyed firms indicate exposure to at least one environmental risk; 97 percent for agricultural firms. - About half of Beninese firms have already invested in adaptation (temperature control, soil management practices, resilient transportation). - Around 78 percent of agricultural firms invested in adaptation measures, with power generation systems being the most widespread investment. - 42 percent of agricultural firms surveyed installed air pollution controls. ### Emissions profile and mitigation co-benefits - Per capita CO2 emissions doubled over the past 20 years, currently at 0.6 tCO2e. - Just under 60 percent of greenhouse gas emissions come from three sectors: land-use change and forestry, transport, and agriculture. - Per capita emissions from transportation increased sixfold during 2000–21. - Electricity generation recently was the fastest growing sector in terms of per capita emissions, likely due to increased access to electricity. - Mitigation co-benefits include reduced local air pollution and improved human and plant health. - Air pollution is the second most serious health risk factor in Benin after malnutrition (2019 Global Burden of Disease). - IMF-WB CPAT model estimates air pollution currently causes more than 12 thousand deaths in Benin per year. - 42 percent of agricultural firms surveyed installed air pollution controls. - Benin’s NDC acknowledges co-benefits of mitigation. ### Current policies, institutional framework and priorities - Legal and institutional milestones: - Protection of environment entrenched in Benin’s constitution since 1990. - Benin Environmental Agency established in 1995. - Benin was the first country in Francophone Africa to issue a climate change budget report starting in 2023. - Environment ministry merged with Infrastructure and Transport ministry, now fourth in governmental hierarchy. - Benin has a National Adaptation Plan (NAP) and recently updated Nationally Determined Contribution (NDC). - NDC and NAP eight priority sectors: (i) water resources, (ii) agriculture, (iii) health, (iv) energy, (v) forest ecosystems, (vi) coastal zones, (vii) infrastructure and urban management, and (viii) tourism. NAP adds cross-cutting sector: “gender, indigenous knowledge, and migration”. - Law on Climate Change adopted in 2018: combats climate change, increases resilience, mandates integration of climate change measures in national development programs and projects. - Public financial management and instruments: - National budget contains ‘unallocated resources’ just under 10 percent of the budget, usable for disaster response in cases of ‘immediate need and national interest’. - Dedicated disaster risk fund “FONCAT”: CAF 5 billion for 2023 or 0.04 percent of GDP (not yet operationalized). - National Fund for Environment and Climate (FNEC) accredited by the Green Climate Fund (GCF) in 2020. - Budget circular for the 2024-2026 budget explicitly stated integrating climate change into budget as a priority. - Water and agriculture resilience measures: - Access to drinking water increased from 45 percent to 65 percent in the last five years. - Ministry of environment tasked with integrated water management. - Separate adaptation plan for agriculture to strengthen disaster risk reduction, promote integrated management of agricultural, forest and pastoral resources, and enhance resilience of production systems. - Recent decrees (summer 2023) related to climate change adaptation, mainly coastal protection and management: - Clarify ministerial responsibilities for coastal management; regulations on coastal fishing; creation of the National Unit on Coastal Protection and Management (CNPGL). - Decree 2023-334 deals with reducing and managing risks from natural disasters (floods and droughts), monitoring-evaluation and coordination across arms of government. - Gender emphasis: updated NDC and NAP include separate sections on mainstreaming gender; government enacted gender-sensitive budget tagging, expected to support integration of climate change into the budget. ### Remaining challenges and recommended focal areas - Implementation gaps: well-articulated plans but lagging implementation; institutional responsibility spread across multiple institutions elevating the need for coordination. - Climate change is not sufficiently mainstreamed: Government Action Program (PAG II) 2021–26 does not include climate change as a transversal element. - Budgetary allocations and monitoring frameworks are often missing for sectoral climate integration. - Fragmentation: several climate policy areas, such as water management or climate mitigation, remain fragmented with complex institutional arrangements requiring coordination and harmonization. - Public investment management: scope to better incorporate climate considerations as highlighted in the recent C-PIMA. - CCDR preliminary findings (World Bank draft CCDR): - GDP losses from climate change estimated at 6-8 percent in the 2030s to 10-17 percent in the 2050s in the most pessimistic scenario of no additional policy. - Losses primarily driven by labor productivity losses due to heat stress, particularly in agriculture; poor households and women worst affected. - Readiness of public and private sectors to address climate challenges is mixed; only half of firms report investing in adaptation measures. - Financial sector highly exposed; no mandate to systematically integrate climate-risk analysis into key financial oversight agencies at the national level; BCEAO not yet exploring greening central bank operations. - Recommendations include resilient agriculture (climate-smart agriculture), improved water management, reversing deforestation, strengthened urban and building codes, investment around coastal erosion, resilient infrastructure networks, and building an “adaptive social protection system”. - Mitigation recommendations: improve incentives for renewable energy, reduce deforestation through policies on firewood use. - Mobilizing private sector and innovative solutions; leverage Benin’s SDG bond framework; de-risking investments and PPPs. *Source: 1benea2024001 - 5. Climate risks and security-related challenges are intertwined in the northern region.* ### Box 2. Summary of Key CPIMA Findings ### Box 2. Summary of Key CPIMA Findings ### C-PIMA diagnostic and PIM integration - A C-PIMA diagnostic (March 2023) highlighted challenges in integrating climate considerations into public investment management (PIM). - Findings: - Only some aspects of the Benin PIM system adequately reflect climate change considerations (integration of climate change commitments into national and sectoral investment strategies; embryo of coordination mechanism at State level on climate-related investment; increased attention to disaster risk management). - The institutional framework for PIM does not yet consider climate change, especially in the project evaluation and selection phases. - The 2021 decree on PIM needs to be amended, and an appraisal methodology conducive to climate-smart investment projects designed and adopted to support both adaptation and mitigation efforts. - Coordination with other public actors (local governments and State-owned enterprises—SOEs) on climate-related investment could be enhanced. - Asset management policy should deliberately account for climate resilience; climate-sensitive maintenance policies are required to ensure public assets can be used effectively along their expected lifecycle. ### Local governments and SOEs - Findings and recommendations: - Communes are increasingly integrating climate change in planning tools but could be incentivized to invest in climate-related initiatives through a reform of the allocation formula for State transfers. - The key role of SOEs in accounting for climate change in their business model should be acknowledged and highlighted in the State ownership policy and associated budget documentation. - Rationale: SOEs’ high turnover (7 percent of GDP) and their presence in climate-sensitive sectors such as transport and energy. ### Climate mitigation prioritization and quantified needs - Findings: - Despite relatively low emissions, the government has explicitly identified mitigation as a priority. - The updated NDC sets out a 10 percent decrease in greenhouse gas emissions by 2030 compared to a business-as-usual scenario. - NDC quantified financing needs (2022): - US$1.8 billion to cover adaptation needs (government priority). - US$8.6 billion for mitigation. - Unconditional, national contribution: US$0.6 billion for adaptation and US$5.1 billion for mitigation. - Additional financing sought: US$4.7 billion (this number doesn’t include the cost of social protection and the possible savings from a fossil fuel subsidy reform). - Alternate estimate: - AfDB estimates Benin’s cumulative needs, over the period 2020-2030, between US$13.2 and US$14.3 billion. ### Climate finance flows: public and private - Public flows: - Total climate-related development finance over period discussed: US$433 million; about 70 percent had climate adaptation as a goal. - During 2017-2021 most finance flows in adaptation were directed towards water management, multisectoral goals, and agriculture. - In mitigation, more than 40 percent of the flows were directed to the energy sector. - Gender: almost half of all flows in the past 10 years also target gender inequality. - Private climate finance: - Private-sector financing for climate action in Benin remains very low: about 2.7 percent of total financing in 2020. - Available figures demonstrate private sector investment of US$11.5 million in 2019-2020, mainly from large institutional investors and dedicated to adaptation measures (agriculture, infrastructure, energy, water, and sanitation). - Lack of data on domestic private sector participation is a major challenge. ### Innovative sovereign financing and donor support - Sovereign instruments and outcomes: - Benin issued a €500 million 12-year Sustainable Development Goals (SDG) bond in 2021; reportedly three times oversubscribed and attracted a “greenium” of 20 basis points. - Benin received a Partial Credit Guarantee from the AfDB to mobilize in 2023 €350 million in SDB bond on international capital markets on favorable terms. - AfDB technical assistance: US$800,000 for the design of one of the first green financing facilities in Africa at the Caisse de dépôts et consignations du Benin (CDCB). - World Bank: US$80 million Catastrophe Deferred Drawdown Option (Cat DDO) provided to Benin. - WAEMU and regional market context: - As of mid-2023, no corporate green (or sustainable) bond has been issued in Benin; overall uptake in WAEMU remains negligible. - WAEMU adopted in 2020 a guidance for the issuance of green, social, and sustainable bonds on the regional financial market. - Structural constraints: under-developed capital markets, limited access to banking sector, high exposure of major Beninese banks to SOEs, lack of adequate collateral. - WAEMU published a Green Bond scoping report early 2023. ### Prospects for scaling private climate finance - Opportunities and constraints: - Main challenges: banking sector’s capacity to develop innovative financial products tailored to climate needs, especially for SMEs; need for clarity on transition and adaptation planning and financing needs; need for technical assistance to develop, monitor, report, and assess impact of financing measures. - Niche instruments (green and blue loans, social bonds) remain little exploited but are of major interest to country authorities. - The sovereign SDG framework is described as granular and robust for investor needs; governance from the 2021 issuance (SDG Steering Committee and inter-ministerial coordination) demonstrates capability and accountability. - Investors call for improved statistical capability, strengthened public policy evaluation, and improved climate information architecture. ### Role of risk-sharing mechanisms - World Bank CCDR recommendations: - Risk-sharing mechanisms can crowd in private sector investment. - Options include credit-enhanced sustainable or green loans, sustainability-linked bonds, and other instruments to provide liquidity backstops or incentivize private investments (for instance in the energy sector). ### Development partner engagement and programs - Multilateral and bilateral engagement: - World Bank, EU institutions, and other countries have been major sources of concessional financing and capacity development. - World Bank Development Policy Operation (DPO) includes climate-related triggers: strengthening social safety nets, urban planning code, comprehensive coastal risk policy, strengthening disaster risk management. - World Bank programs active in Benin: - Stormwater Management and Urban Resilience Project. - Building Resilient and Inclusive Cities Program. - Gazetted Forests Management Project. - Agricultural Competitiveness and Export Diversification Project. - Grand Nokoué Sustainable Urban Mobility Project (planned). - EU and Millennium Challenge Account activities focused on energy access and grid modernization; European Investment Bank deploying off-grid solar systems. - Netherlands, EU, and Japan active in water and sanitation; Netherlands focuses on resource awareness, data availability, and operation and maintenance capacity to support universal access to drinking water by 2030. - African Development Bank involved in modernizing and increasing resilience of the port of Cotonou to climate risks. ### DIGNAD simulations: calibration and assumptions - Model calibration and shock: - IMF-DIGNAD model calibrated to Beninese economy with initial values set according to data available at end-June 2023 and steady state values reflecting historical average (excluding COVID period 2020-2021). - Simulated hypothetical disaster lowering GDP by 4 percent in 2026-27 (a year after completion of the ongoing EFF/ECF arrangements). - Shock scale calibrated on World Bank CCDR findings where the cost of inaction was assumed around 4-4.6 percent of GDP over 2026-27, under a plausible but pessimistic scenario. - Historical context: During 2008-11 repeated natural disasters; GDP was around 2 percent in 2009, 4 ppt lower than level recorded in 2008. Overall GDP during 2008-11 was on average 3 ppts lower than medium term growth estimated around 6 percent. - Recent flood costing: impact evaluated at 190 billion CFA francs (almost 2 percent of GDP), affecting 40 out of 77 communes (200 000 people) and causing 60 deaths; 10 meters of sea level rising in the Niger River basin; around 61 000 hectares flooded of which more than 28 000 ha destroyed. ### DIGNAD scenarios and parameter values - Model setup: - Distinguishes between standard infrastructure and adaptation/resilient infrastructure (resilient infrastructure is 20 percent more costly). - Growth–debt relationship assessed under different financing strategies and accounting for inefficiencies in public investment. - Baseline scenario: - Standard capital infrastructure investment calibrated around 5 percent of GDP (historical average 2017-19). - Initial public debt calibrated based on 2022 levels: total debt 54 percent of GDP. - Public domestic debt calibrated around 16 percent of GDP. - Public concessional debt calibrated around 38 percent of GDP. - Public external commercial debt and grants kept around 0 percent of GDP (initially). - Public investment efficiency (PIE) calibrated around 0.58 (increase from 0.50 in 2020 PIMA). - Baseline assumes no policy changes following the natural disaster shock in 2026. - Adaptation scenario: - Increase in overall investment infrastructure to reach 7 percent of GDP per year relative to baseline over 2024-25. - Of that, 2 percent of GDP allocated toward physical infrastructure designed to withstand the climate shock. - Financing: concessional public borrowing of about 1 percent of GDP corresponding to the RSF request amount (4 disbursements until 2025). - External commercial debt expected to increase by 1.5 percent of GDP in 2025. - Grants increase by 0.3 percent of GDP over 2024-25. - Public domestic debt covers the remaining fiscal gap (0.5 percent of GDP). - PIE scenario: - Same additional adaptation investment of 2 percent of GDP over 2024-25 with the same financing strategy as Adaptation scenario (1.5 external, 1 concessional, 0.3 grants and 0.5 domestic). - Combined with an improvement of public investment efficiency (PIE) of 20 percent, reflecting reforms (including climate PIMA and green PFM) that allow initial capital to transform into additional tangible climate resilient infrastructure. *Source: Box 2. Summary of Key CPIMA Findings (Prepared by Claude Wendling (FAD); IMF Country Report No. 23/367).* ### 3. Simulation results suggest that frontloading investment in adaptation infrastructure ### 3. Simulation results suggest that frontloading investment in adaptation infrastructure could support Benin’s economic green recovery and mitigate the negative impact of natural disasters ### Simulation results and scenarios - Investing in more robust adaptation infrastructure initially raises public debt (Adaptation and PIE scenarios) but: - Improves the resilience of the economy; - Lowers post-disaster reconstruction costs; - Reduces public debt buildup in the medium term. - Enhanced reforms to improve the efficiency of public investment: - Raise the resilience of the economy to shocks; - Lower implementation costs; - Lessen the growth-debt tradeoff for adaptation investment. - DIGNAD model simulations compare three scenarios: - S1 (Baseline) - S2 (Adaptation Only) - S3 (Adaptation & PIE) - Figure outputs (qualitative summary of model outcomes): - Domestic Public Debt (% of GDP): simulations show higher near-term domestic public debt under S2 and S3 relative to S1, with medium-term debt reduction benefits. - Total Public Debt (% of GDP): higher initially under S2 and S3, with later convergence and lower rebuild costs post-disaster. - Real GDP (% Deviation from SS), Private Investment Growth (% Deviation from SS), Public Investment Growth (% deviation from SS), Private Consumption Growth (% deviation from SS): S2 and S3 show improved medium- and long-run outcomes relative to S1 after accounting for increased resilience. ### Financing strategies (percent of GDP, cumulative 2024-25) - Table 1. Benin: Financing Strategies Under Alternative Scenarios (percent of GDP, cumulative 2024-25) - S1 (Baseline) - Grants 0.0 - Concessional Debt 0.0 - Public external commercial debt 0.0 - Public domestic debt 0.0 - S2 (Adaptation Only) - Grants 0.3 - Concessional Debt 1.0 - Public external commercial debt 1.5 - Public domestic debt 1.2 - S3 (Adaptation & PIE) - Grants 0.3 - Concessional Debt 1.0 - Public external commercial debt 1.5 - Public domestic debt 1.2 - Sources: IMF staff calculations. ### Policy recommendations and implementation measures - Mitigate initial public debt increase by: - Securing private financing; - Securing more concessional financing. - Advance Public Investment Management (PIM) reforms, notably: - Mainstream climate change into the overall PIM legal framework to ensure efficient selection, execution, and maintenance of investment projects. - Specific public-spending and PIM measures highlighted: - Mainstream climate change in public investment selection and execution. - Publish all criteria for assessment and selection of major public investment projects and the related feasibility study reports from end-December 2023 (structural benchmark). - Adopt a phased approach to execution of public investment program and reprioritize spending as part of contingency planning. - Reform of oil product subsidies with IMF technical assistance scheduled for January 2024 to inform modalities for eliminating energy subsidies and improving the fuel pricing system (RSF reform measure 11 for end-October 2024). ### Fiscal context, recent developments, and quantitative targets - Recent growth and inflation developments: - Growth in first half of 2023: 6.3 percent. - Program expected growth in 2023: 5.6 percent (versus initial forecast 6.0 percent and 6.3 percent in 2022). - Inflation expected in 2023: 3.7 percent (against an initial forecast of 3.5 percent). - Recent shocks and risks: - Sharp increase in fuel prices in Nigeria and major adjustment of exchange rate policy by Nigeria. - Closure of the border with Niger following ECOWAS sanctions. - Continued vulnerability to climate change (recurring floods and droughts). - Budget execution and fiscal figures (as of end-June 2023): - Public expenditure increased by +14.4 percent (June 2022 to June 2023). - Fiscal deficit at end-June 2023: CFAF 349.3 billion. - Basic primary balance reached CFAF 52.1 billion. - Issuance of an SDG loan with partial AfDB guarantee raised €350 million. - Fiscal deficit path and flexibility: - Technical Memorandum of Understanding (TMU) fiscal adjustment: bring fiscal deficit from 4.3 percent of GDP to 4.5 percent of GDP, with potential to reach 4.7 percent of GDP if other budget support is mobilized. - 2024 draft budget law targets: - Fiscal deficit 3.7 percent for 2024. - Fiscal deficit 2.9 percent in 2025 (slightly below the current WAEMU norm of 3 percent of GDP). - Revenue mobilization and MTRS: - Medium-Term Revenue Strategy (MTRS) pillars: (i) promotion of taxpayer compliance and expansion of the tax base; (ii) consolidation of confidence in the tax/customs system and its administration; (iii) enhanced governance of revenue agencies. - Planned studies in 2024 to assess socioeconomic impact of exemptions (including exemption on new vehicles). - Social protection and crisis mitigation: - Acceleration of the rollout of the social registry to extend use to all social assistance programs, including Insurance for Human Capital Development (ARCH). - Government intends to use program flexibility to increase social spending. ### Financing from IMF facilities and government requests - Government requests under the Resilience and Sustainability Facility (RSF): - Access requested: SDR 148.56 million (120 percent of our quota) to be disbursed as budget support. - Third Review requests under EFF/ECF: - Disbursement requested: SDR 101.58 million (equivalent to 82 percent of Benin’s quota), of which: - SDR 67.72 million for EFF - SDR 33.86 million for ECF - RSF objectives: - Support implementation of reforms to incorporate climate issues into public policies and strengthen climate information architecture to promote private climate finance. - Mobilization of resources in the form of grants to strengthen capacity to respond to successive crises. *Source: IMF staff calculations; Beninese authorities; excerpts from the provided chapter.* ### 12. The medium-term global financing strategy for 2023-2026 will continue to emphasize ### 12. The medium-term global financing strategy for 2023-2026 will continue to emphasize ### Medium-term financing strategy and debt management - Emphasize prudent management of borrowing and proactive debt management to ensure a moderate risk of debt distress. - Priority to concessional external financing to control borrowing costs and refinancing risks. - Aim to extend the maturity of financing raised on the regional market. - Diversify sources of financing using innovative options emphasizing environmental, social and governance (ESG) criteria. - Continue strong mobilization of additional budgetary assistance from development partners with emphasis on debt management transparency. ### Public financial management reforms and cash flow management - Build on recommendations from the 2021 Fiscal Transparency Evaluation, the Fiscal Safeguards Review, the Public Investment Management Assessment (PIMA), and Climate Public Investment Management Assessment (C-PIMA). - With IMF technical assistance, prepared a statement with a quantitative analysis of fiscal risks included in documentation for the draft 2024 budget law (structural benchmark for end-October 2023). - Commit to systematically publish final validated financial statements of public enterprises. - Cash flow management (Treasury Single Account, TSA): - Currently 1,511 bank accounts held by public agencies, of which 1,402 do not have a waiver authorization from the Ministry of Economy and Finance. - Commitment to close at least half of these accounts and repatriate the balances to the Public Treasury by end-June 2024 at the latest (structural benchmark for end-June 2024). ### Strengthening social protection mechanisms - Operationalize the Single Social Registry (RSU) (RSF reform measure 12 for end-October 2024). - Integrated National School Feeding Program (PNASI): - Draft law on school feeding under review by the National Assembly; establishes governance, management, financing, accountability, infrastructure standards. - Aim to extend PNASI coverage from 75 percent to 100 percent by school year 2025-2026 while improving robustness and food quality. ### Governance, transparency, rule of law, and AML/CFT framework - Draft interministerial action plan to implement IMF governance assessment recommendations; public and civil society consultations planned. - Implemented reform measures already: entry into operation of the Commercial Court of Appeal (structural benchmark for end-November 2023) and the land Court. - Consultations ongoing to bring the High Commission for the Prevention of Corruption (HCPC) into operation by end-June 2024 through strengthening its legal framework (structural benchmark for end-June 2024). - Public procurement and auditing: - Implement e-Procurement actions after completion of preliminary studies in December 2022, by end-December 2024 at the latest. - Create an internal committee within the Audit Court to monitor implementation of audit recommendations and provide resources (proposed new structural benchmark for end-February 2024). - AML/CFT measures and progress: - CENTIF has conducted training and awareness activities with regulated institutions, local authorities, customs receivers and police officers in border police stations. - CENTIF prepared three risk assessments: (i) risks related to the financing of terrorism; (ii) terrorism financing risks involving misuse of nonprofit organizations (NPOs); and (iii) ML/TF risk assessment for the real estate sector in Benin. - ML/TF risk assessments on the abuse of legal entities and of virtual assets and virtual asset service providers are being conducted and should be completed by end-June 2024 at the latest. - Adopted the draft law on the combating of money laundering, terrorist financing and the financing of the proliferation of weapons of mass destruction on October 31, 2023. - Designated the National Assets and Lands Agency as the AML/CFT supervisory authority for the real estate sector and amended its regulations during the Council of Ministers held on October 31, 2023. - Establish by end-June 2024 a legal framework to collect and verify information of landholders at transfer of property and to publish information on beneficial ownership on a government website (proposed new structural benchmark for end-April 2024). - Adopt an action plan by end-September 2024 to implement this legal instrument, including deadlines for notaries to start collection/verification of beneficial ownership information and regular publication. ### Financial sector resilience and private sector promotion - Strengthen financial system stability in light of recent regional shocks. - Process to bring two banks into compliance with core capital regulation is on track. - One bank completed recapitalization since December 2022, bringing core capital into compliance with prudential regulations. - WAMU Banking Commission in its 134th session held on July 18, 2023 issued favorable opinion on prior authorization for amendment of shareholdership of the second undercapitalized bank; operation expected to bring the institution into compliance by end-December 2023. - Expected supplementary capital increase of CFAF 10 billion between 2024 and 2025 to bolster core capital. - Banking supervision to be stepped up, with particular attention to the bank accounting for less than 4.65% of total banking sector’s assets at the end of June 2023 which recently failed to meet the regulatory norm. - Monitor potential risks from financial sanctions against Niger, particularly for banks with high exposure to transit activities and sovereign risk in Niger. - Promote private sector-led growth: - Establish a one-stop shop for investors including improved business creation platform and digitized licensing under the investment code, licensing in economic zones, export assistance, and PACOFIDE assistance. - Modernize administration of public property and lands: digitize land titles requests, full coverage of Cotonou by property registry, establish mechanism to update property transactions (proposed new structural benchmark for end-April 2025). - Implement 2023-2027 National Financial Inclusion Strategy adopted in March 2023 by creating a permanent secretariat to develop monitoring tools for financial inclusion actions and indicators. ### Modernizing statistics system - Improve compliance with the e-GDDS and accelerate adherence to the SDDS: - Clarify institutional framework for administering the National Summary Data Page (NSDP). - Increase technical, human and financial resources for National Statistics System (NSS) members. - With IMF assistance: (i) deepen SSN participants’ knowledge of the SDDS; (ii) complete a review of the SSN to identify gaps with SDDS requirements; (iii) establish a monitoring unit for regular publication of indicators; (iv) increase financing for regular publication of indicators required under the standard; and (v) regularly update data dissemination platforms, including Open Data and NADA, and modernize SDMX technology for publication of data and metadata. - INStaD actions: - Step up production of statistics in environmental/climate statistics and labor market indicators. - Support ministry responsible for standard of living to overhaul its statistics system and organize a basic survey to monitor labor market indicators. - With World Bank financing for PHASAOC, aim to establish effective national statistics production and coordination system for accelerated adherence to the SDDS. ### Other reforms to improve resilience to climate change - Use IMF and World Bank evaluations (including C-PIMA and CCDR) to identify reforms for climate adaptation and mitigation; requested IMF assistance under the Resilience and Sustainability Fund (RSF). - Integrate climate concerns in public investment management and budgeting: - Amend Decree 2021-586 to include climate issues in public investment management phases and update public investment manual adopted in September 2019 (RSF reform measure 1 for end-March 2024). - By end-2024 adopt a methodology to include climate vulnerabilities in maintenance policy for key infrastructure and test in three major sectoral ministries; ensure allocations in draft 2026 budget law (October 2025) and SIRAT/fiscal year 2026 budget align with this policy (RSF reform measure 2 for end-October 2025). - Issue implementing decree for Law 2020-20 on public enterprises and publish first annual report under Article 65 including analysis of contributions to climate adaptation/mitigation and climate risks affecting public enterprises (RSF reform measure 3 for end-October 2025). - Issue implementing regulation for Decree 2020-495 to institutionalize production of budget briefing note on climate change and operationalize reform during preparation of the 2025 budget law with Ministry of the Environment involvement (RSF reform measure 4 for end-October 2024). - Measures to enhance climate change adaptation and resilience: - Water management: - Adopt revised decree on the National Water Board with mandate to monitor underground and surface water and provide sufficient resources; conduct strategic evaluation of underground water resources supervised/validated by the National Water Board (RSF reform measure 5 for end-April 2025). - Water pricing in urban areas: - Institutionalize water pricing mechanism based on (i) a pricing study; (ii) a transparent pricing structure aligned with international best practices; and (iii) a financial equilibrium model (RSF reform measure 6 for end-September 2024). - Local government: - Propose amendment to the 2024 draft budget law to consider climate priorities identified by communities in allocation criteria for transfers to local governments (FADeC or replacement FIC) and simulate implementation for 2024 FADeC (RSF reform measure 7 for end-March 2024). - Social protection: - Include climate risk information in the social registry, particularly for municipalities at high risk of flooding (RSF reform measure 8 for end-October 2025). - Target individuals exposed to climate risks in the Single Social Registry (RSU) for channeling targeted aid. - Agriculture: - Adopt decree establishing an agricultural insurance regime leveraging existing programs (FNDA), with strategies to mitigate climate risks; target by September 2025 to cover two key products identified in the May 2023 feasibility study and benefit at least 100,000 farmers (RSF reform measure 9 for end-September 2025). - Construction code: - Council of Ministers to adopt draft law establishing Construction and Housing Framework Law incorporating technical standards promoting adaptation to future climate conditions and low carbon/resilient options; issue necessary secondary legislation (RSF reform measure 10 for end-March 2025). - Energy and subsidy reforms to mitigate climate change: - Comprehensive fossil fuel subsidy reform: - Build on IMF technical assistance planned for January 2024 to design a tax structure for Benin’s local fuel market and reform the pricing mechanism in line with IMF technical assistance conclusions (RSF reform measure 11 for end-October 2024). - Electricity tariff reform: - Design and adopt comprehensive electricity tariff reform to remove electricity subsidies gradually and fully and reflect cost-recovery levels, with the first phase to be implemented in 2025 (RSF reform measure 13 for end-January 2025). - Mitigation for vulnerable populations: - Establish compensatory mechanism using the RSU to limit effect of fuel subsidy reform on vulnerable groups. - Adopt implementation framework for the RSU defining the Management Information System (MSI) governance structure and detailed operational guidance, ensuring adequate resources to the unit (RST reform measure 12 for end-October 2024). - Renewable energy support: - Establish a connection cost policy that supports connections for production of renewable energies. - Commit to conducting regular evaluations on grid flexibility and issues related to incorporation of renewable energies (RST reform measure 14 for end-May 2025). - Private climate finance and climate-related information architecture: - Eliminate obstacles to renewable energy development and improve climate-related financial information architecture to facilitate private sector climate financing, including potential blended finance instrument cooperation with CDC Benin, IMF teams, and multilateral/regional development institutions. - Adopt by arrêté from the Ministry of Economy and Finance and implement two frameworks: - A climate-related taxonomy covering mitigation and adaptation across key sectors defining financing and climate-related targets and private financing instruments. - A climate mitigation and adaptation data collection and dissemination mechanism connected to the taxonomy for private companies and key economic infrastructures, coordinated and implemented by the National Statistics and Demography Institute via an arrêté under the 2022 legal framework (RSF reform measure 15 for end-May 2025). *Source: IMF country documentation excerpt.* ### 28. We will allocate responsibilities for each reform measure across ministries to ensure ### 28. We will allocate responsibilities for each reform measure across ministries to ensure effective and timely implementation. ### Allocation of responsibilities - MEF: public finance and public investment management, mobilizing private climate finance, fuel subsidy reform - MCVT: mobilizing private climate finance, building code - MEEM/SONEB: water management and water pricing - MIC: fuel subsidy reform - MASM/ANPS: social protection - MAEP: agriculture - MDGL: local government - MEEM/SEE: measures related to electricity tariffs and renewable energy ### Implementation emphasis - Responsibilities are assigned across ministries to ensure effective and timely implementation of reform measures. ### 29. Program Monitoring ### Monitoring framework - The program monitoring will be based on: - performance criteria (Table 1) - structural benchmarks (Tables 2) - reform measures (Table 3) ### Reporting and data requirements - The indicators and reporting requirements are defined in the attached Technical Memorandum of Understanding (TMU). - The authorities will submit data and statistics to the IMF as set out in the TMU. - The authorities will submit any other information that they consider useful or is requested by the IMF for program monitoring purposes. *BENIN — INTERNATIONAL MONETARY FUND 89* ### 30. The Fund-supported EFF/ECF and RSF programs will be monitored through joint semi- ### 30. The Fund-supported EFF/ECF and RSF programs will be monitored through joint semi-annual reviews by the IMF Executive Board ### Program monitoring and review modalities - Semi-annual reviews under the EFF/ECF based on performance criteria at end-June and end-December, and on indicative targets at end-March and end-September. - New quantitative performance criteria and indicative targets are being proposed for end-June and end-March 2024, respectively. - RSF reviews will be based on the evaluation of implementation of the reform measures set out in Table 3. ### Key quantitative performance criteria and indicative targets (Table 1) - The performance criteria and indicative targets are cumulative from the beginning of the calendar year. - Indicative target (IT) / Performance Criteria (PC) dates shown: March 31, 2023; June 30, 2023; March 31, 2024; June 30, 2024; December 31, 2023; September 30, 2024. - Selected line items and reported values (as presented in the table): - Basic primary balance (floor): 3.8115.7Met-1.652.1 Met -97.6-13.1 15.722.2-25.687.4 - Net domestic financing (ceiling): 130118.3Met205204-18 Met 372348204 258.2347.7152.3 - Accumulation of external payments arrears: 0.00.0Met0.00.0 Met 0.00.0 0.00.00.00.0 - Accumulation of domestic payments arrears: 0.00.0Met0.00.0Met0.00.00.00.00.00.0 - Ceiling on the present value of new external debt contracted or guaranteed by the government (annual limit; contracted debt as of Aug. 30. 2023): 620103 Met 620555 Met 620620620620620620 - Tax revenue (floor): 321.5361.0Met694.5745.2 Met 1,071.91,480.0392.1816.61,205.91,665.3 - Priority social expenditure (floor) (includes specified poverty-reducing expenditures; excludes salary expenditures): 16.422.1Met50.955.7 Met 105.9170.124.155.5115.5185.4 - Sources cited in table: Beninese authorities; IMF staff estimates and projections. - Notes: - The terms in this table are defined in the Technical Memorandum of Understanding (TMU). - Includes on-lending from the BCEAO related to the IMF disbursement. - If disbursed external budgetary assistance net of external debt service obligations falls short of or exceeds the program forecast, adjustments to the ceiling on net domestic financing will be made pro‑rata, subject to limits in the TMU. ### Remaining structural benchmarks under the current EFF/ECF arrangement (Table 2) - Revenue Mobilization - Develop a medium-term revenue strategy (MTRS). Due: End-September 2023. Status: Met. - Public Financial Management - Prepare a statement containing a quantitative analysis of fiscal risks as part of the 2024 draft budget law documentation. Due: End-October 2023. Status: Met. - Publish all the criteria for the appraisal and selection of major investment projects, along with feasibility studies. Due: End-December 2023. Status: On track. - Update the list of bank accounts of public organizations before end-August 2023 and close at least half of those subject to the obligation to deposit funds in the Treasury, repatriating balances no later than end-June 2024. Due: End-June 2024. Status: On track. - Rule of law - Operationalize the Commercial Court of Appeal with staffing, funding, and equipment. Due: End-November 2023. Status: Met. - Anti-corruption - Operationalize the HCPC (Haut Commissariat à la Prévention de la Corruption) and strengthen its legal framework, in consultation with IMF staff. Due: End-June 2024. Status: On track. - AML-CFT - Establish a legal framework requiring collection and verification of beneficial ownership information of landholders at time of transfer and publish this information on a government website. Due: End-April 2024. Status: Newly proposed. - Transparency - Establish and operationalize a committee within the audit court to monitor implementation of its audit recommendations. Due: End-February 2024. Status: Newly proposed. - Business climate - Extend the online land registry (e-cadaster) to completely cover the city of Cotonou and systematically update land transactions in the e-cadaster. Due: End-April 2025. Status: Newly proposed. ### RSF Reform Matrix — Selected reform measures, tentative dates, and expected outcomes (Table 3) - Mainstreaming the climate agenda into PFM/PIM processes - RM1. PIM Decree and Appraisal Methodology. Amend Decree 2021-586 to include climate concerns in PIM stages and update the September 2019 P manual. Tentative date: End-March 2024. Diagnostic reference: C-PIMA. Expected outcome: Better alignment of public investment program with climate agenda; increase in resilient, low-carbon and climate-resilient public investments. - RM2. Maintenance. Adopt by end 2024 a methodology to integrate climate vulnerabilities in maintenance policy for key infrastructure and pilot in three large sectoral ministries; determine funds allocated to maintenance of non-financial fixed assets within the 2026 draft budget (submitted in October 2025) and within the 2026 budget of SIRAT based on this policy. Tentative date: End-October 2025. Diagnostic reference: C-PIMA. Expected outcome: Improved estimation and budgeting of maintenance requirements related to climate change; improved delivery of public services. - RM3. State-Owned Enterprises. Adopt implementing decree of Law 2020-20 on SOEs and publish a first annual report including analysis of SOE contribution to climate adaptation/mitigation and climate risks affecting SOEs. Tentative date: End-October 2025. Diagnostic reference: C-PIMA. Expected outcome: Enhanced transparency and integration of climate concerns in SOE strategies. Context note: total turnover of FCFA 530 billion in 2020 for SOEs. - RM4. Climate Budget Tagging. Adopt implementing order of decree 2020-495 to institutionalize annual production of a climate budget brief starting with budget preparation for FY25. Tentative date: End-October 2024. Diagnostic reference: C-PIMA. Expected outcome: Enhanced reporting and transparency on climate-related expenditures and improved integration of climate concerns in budget decisions. - Enhancing adaptation and resilience - RM5. Water Resources: (1) Adopt revised decree of the National Water Council to monitor groundwater and surface water and equip the Council; (2) realize a strategic groundwater assessment and have the Council supervise and validate it. Tentative date: End-April 2025. Diagnostic reference: CCDR. Expected outcome: Strengthened governance of water resource management. - RM6. Water Tariffs in Urban Areas. Institutionalize a mechanism for water tariffication in urban areas based on a tariff study, transparent tariff structure, and a financial equilibrium model. Tentative date: End-September 2024. Diagnostic reference: Possible FAD CD. Expected outcome: Incentivize conservation and ensure optimal resource allocation. - RM7. Local Government. Propose an amendment to the 2024 budget law to incorporate community-identified climate priorities in allocation criteria for transfers to local authorities and simulate implementation for the 2024 FADeC. Tentative date: End-March 2024. Diagnostic reference: CCDR / C-PIMA. Expected outcome: Increase public resources for climate-vulnerable communes. - RM8. Social protection. Integrate information on climate risks into the Social Registry (RSU), particularly for municipalities at high flood risk. Tentative date: End-October 2025. Diagnostic reference: WB (in process). Expected outcome: Enhanced shock-responsiveness of Benin’s social safety net. - RM9. Agriculture. Adopt a decree to establish an agricultural insurance scheme leveraging existing programs (FNDA), including climate risk mitigation, with objective of covering by September 2025 two main products among those identified in May 2023 feasibility study to benefit at least 100,000 producers. Tentative date: End-September 2025. Diagnostic reference: CCDR; FNDA / Swiss Development Cooperation Feasibility Study (May 2023). Expected outcome: Support vulnerable populations in building resilience to climate risk. - RM10. Building codes. Adopt in Council of Ministers a draft building code incorporating technical standards favoring adaptation to future climatic conditions and low-carbon/climate resilient options. Tentative date: End-March 2025. Diagnostic reference: CCDR. Expected outcome: Strengthen resilience against floods, heavy rains, and heatwaves; enhance energy efficiency. - Supporting mitigation efforts and energy sector reforms - RM11. Comprehensive fossil fuel subsidy reform: Design a simple tax structure reflecting local fuel market specificities and reform the pricing mechanism in line with IMF TA. Tentative date: End-October 2024. Diagnostic reference: FAD TA (in process). Expected outcome: Institutionalize fuel pricing that aligns domestic pump prices with international oil prices over the cycle; mobilize private climate finance. - RM12. Social protection in relation to fuel subsidy reform: (i) Establish compensatory mechanism using the Social Registry (RSU); (ii) adopt RSU implementation framework defining MIS governance and providing operational guidance and resources. Tentative date: End-October 2024. Diagnostic reference: FAD TA (in process); WB (in process). Expected outcome: Enhance social safety net and protect vulnerable groups during subsidy reform. - RM13. Electricity tariff reform: Design and adopt a comprehensive and gradual electricity tariff reform to fully remove electricity subsidies and reflect cost-recovery levels, with first phase in 2025. Tentative date: End-January 2025. Diagnostic reference: CCDR. Expected outcome: Remove electricity price subsidies and support progress toward the national objective of reaching a 20-30 percent renewable energy penetration by 2035. - RM14. Support to renewable energy: Remove key obstacles to RE development by adopting a connection cost policy supporting RE generation connection and committing to regular assessments of grid flexibility for RE integration. Tentative date: End-January 2025. Diagnostic reference: CCDR and various academic publications (e.g., Akpahou et alii, Sept 2023; Mensah et alii, 2022). Expected outcome: Support progress toward the national objective of reaching a 20-30 percent renewable energy penetration by 2035. - RM15. Climate financial information architecture: Adopt by decree a climate-related taxonomy and a climate mitigation and adaptation data collection and dissemination mechanism coordinated by the National Statistics and Demography Institute (requiring an arrêté under the 2022 legal framework). Tentative date: End-May 2025. Diagnostic reference: MCM (in line with CCDR and AfDB recommendations). Expected outcome: Facilitate financing of mitigation and adaptation activities by the private sector. - Development partner roles are specified across RMs (World Bank, WB; FAD TA; Swiss Development Cooperation; KfW; EU; Belgium; MCC; AfDB among others) as indicated in the reform matrix. ### Technical Memorandum of Understanding (TMU) — definitions and program assumptions - The TMU sets out definitions of performance criteria (PCs) and indicative targets (ITs) for Benin’s 42-month EFF/ECF (2022–2025) and specifies frequency and deadlines for data reporting to IMF staff. - Exchange rates for program conversions (end of period, 2021) (Table 1): - CFAF/US$ 580.3 - CFAF/€ 655.96 - CFAF/SDR 811.4 - Definition of “government”: central government of the Republic of Benin; excludes local governments, the Central Bank, or public/government-owned entities with autonomous legal status not included in the TOFE. - Definition of “debt” (per IMF Executive Board Decision No. 6230-(79/140), amended by Decision No. 15688-(14/107)): - Debt is a current liability created under a contractual agreement requiring future payments in assets or services; forms include: i. loans (including deposits, bonds, debentures, commercial loans, buyers’ credits, repurchase agreements, official swap arrangements); ii. suppliers’ credits; iii. leases (debt equals the present value at lease inception of all expected lease payments, excluding payments covering operation, repair, maintenance); iv. Treasury bills and bonds issued in CFA francs on the WAEMU regional market (included in public debt for TMU purposes). - Under this definition, arrears, penalties, and judicially awarded damages arising from failure to make payment on a contractual obligation that constitutes debt are also debt. - Present value and discounting assumptions: - The present value of loans will be calculated using a single discount rate set at 5 percent. - For variable-rate debts tied to a benchmark plus fixed spread, PV is calculated using a program reference rate plus the fixed spread (in basis points) specified in the contract. - Program reference rate for the six-month USD SOFR is 3.29 percent and will remain fixed for the duration of the program. - The spread of six-month Euro LIBOR over six-month USD SOFR is -50 basis points. - The spread of six-month GBP SONIA over six-month USD SOFR is 150 basis points. - For interest rates on currencies other than Euro and GBP, the spread over six months USD SOFR is 0 basis point. - Where the variable rate is linked to a benchmark other than six-month USD SOFR, a spread reflecting the difference between the benchmark rate and six-month USD SOFR (rounded to the nearest 50 bps) will be added. - Domestic vs external debt: - Domestic debt is defined as debt denominated in CFA franc other than debt contracted from BOAD. - External debt is defined as debt denominated in any currency other than the CFA franc. For program purposes, BOAD loans are considered external debt. *Source: IMF staff report excerpts, Benin program documents and TMU (as presented in the supplied content).* ### 5. The basic primary fiscal balance is defined as the difference between total fiscal revenue on a ### 1benea2024001 - 5. The basic primary fiscal balance is defined as the difference between total fiscal revenue on a ### Basic primary fiscal balance: definition and targets - Definition: - Basic primary fiscal balance = total fiscal revenue on a cash basis (tax and nontax) minus basic primary fiscal expenditure. - Basic primary fiscal expenditure = fiscal (current plus capital) expenditure minus: - (a) interest payments on domestic and external debt; and - (b) capital expenditure financed by external grants and loans (on a payment order basis). - Grants are excluded from revenue in this definition. - Net government lending is excluded from fiscal expenditure. - Targets: - Balances at end-December 2023 and end-June 2024 (Performance Criteria, PCs) and at end-March, end-September and end-December 2024 (Indicative Targets, ITs) must be equal to or greater than the amounts indicated in Table 1 of the MEFP. - Adjustor for 2023: - The floor on the basic primary fiscal balance (cumulative since January 1, 2023) will be adjusted downward by the amount of additional budget support (as defined in Paragraph 9) beyond the programmed 100.7 CFAF billion, for an amount up to CFAF 46 billion at end-December 2023. ### Ceiling on Net Domestic Financing (NDF) of the Government - Definition: - Net domestic financing of the government = (i) net position (difference between the government’s claims and debt) vis-à-vis the central bank and commercial banks; plus (ii) financing through issuance (net of redemptions) of securities to individuals or legal entities outside the banking system or to nonresident banks domiciled in the WAEMU. - Gross and net external budgetary assistance definitions: - Gross external budgetary assistance = grants, loans, and non-earmarked debt relief operations (excluding project-related loans and grants, use of IMF resources, and debt relief under the HIPC and MDRI Initiatives). - Net external budgetary assistance = gross external budgetary assistance minus the sum of total debt service obligations on all external debt (interest payments and amortizations on all external loans, including interest and other charges to the IMF and on project-related loans, but excluding repayment obligations to the IMF) and all payments of external arrears. - Performance Criteria and Indicative Targets: - Net domestic financing at end-December 2023 and end-June 2024 (PCs) and at end-March, end-September and end-December 2024 (ITs) must be equal to or less than the amounts indicated in Table 1 of the MEFP. - Adjustor rules: - If, at the end of a quarter, net external budgetary assistance exceeds the total projected amounts (cumulative since January 1 of the same year) by more than CFAF 5 billion, the NDF ceiling will be lowered by an amount equivalent to that excess, minus CFAF 5 billion. - If, at the end of a quarter, net external budgetary assistance falls short of the projected amounts (cumulative since January 1 of the same year), the NDF ceiling will be raised pro tanto, up to a maximum of CFAF 50 billion. ### Expected net external budgetary assistance (Table 2) - March 31, 2023 - 126.9 (Billions of CFA francs) - June 30, 2023 - 168.0 - September 30, 2023 - 127.6 - December 31, 2023 - 133.2 - March 31, 2024 - 185.4 - June 30, 2024 - 218.9 - September 30, 2024 - 242.4 - December 31, 2024 - 152.3 ### Non-Accumulation of Domestic Payment Arrears - Definition: - Domestic payment arrears = domestic payments due but not paid by the government after a 90-day grace period, unless payment arrangements specify a longer repayment period. - The Autonomous Debt Management Fund (CADG, Former CAA) and the Treasury record and update accumulation and reduction of domestic payments arrears. - The definitions of debt and government given in earlier paragraphs apply. - Continuous Performance Criterion: - The government undertakes not to accumulate any new domestic payments arrears. - Non-accumulation will be continuously monitored throughout the program. ### Non-Accumulation of External Payment Arrears - Definition: - External public payments arrears = payments due but not paid by the government as of the due date specified in the contract, taking into account any applicable grace periods, on external debt of the government or external debt guaranteed by the government. - Definitions of debt, external debt, and government given in earlier paragraphs apply. - Continuous Performance Criterion: - The government undertakes not to accumulate any external public payment arrears, with the exception of arrears related to debt that is the subject of renegotiation or rescheduling. - This performance criterion will be continuously monitored throughout the program. ### Ceiling on the Present Value of New External Debt Contracted or Guaranteed by the Government (maturity ≥ 1 year) - Scope and definitions: - Applies to debt as defined in paragraph 4a and to commitments contracted or guaranteed by the government (including lease-purchase contracts) for which no value has been received. - Also applies to private sector debt guaranteed by the government (contingent liability). - Does not apply to IMF disbursements. - External debt excludes Treasury bills and bonds issued in CFA francs on the WAEMU regional market. - Coverage includes government-guaranteed debt of local governments and all public enterprises, including administrative public agencies (EPA), scientific and technical public agencies, professional public agencies, and enterprises jointly owned by the Beninese government with other governments. - Adjustor for 2023: - For 2023, the ceiling on the present value of new external debt contracted or guaranteed by the government (cumulative since January 1, 2023) will be adjusted upward by the present value equivalent of the amount of additional budget support beyond the programmed 100.7 CFAF billion, for an amount up to CFAF 46 billion at end-December 2023. - Continuous Performance Criterion: - The present value of new external borrowing contracted or guaranteed by the government should not exceed CFAF 620 billion in 2023 (Table 3) and CFAF 620 billion in 2024 (Table 4). - Changes to this ceiling may be made (subject to approval by the IMF Executive Board) based on the results of the public debt sustainability analysis prepared jointly by the staffs of the World Bank and the IMF. ### Borrowing plans (selected figures) - Table 3. Benin: Borrowing Plan in 2023 (Billions of CFA francs) - By sources of debt financing: 909.5 FCFA billion (100) — PV of new debt in 2023 (program purposes): 619.9 FCFA billion (100) - Concessional debt, of which: 530.8 FCFA billion (58) — PV: 269.0 FCFA billion (43) - Multilateral debt: 408.3 FCFA billion (45) — PV: 193.7 FCFA billion (31) - Bilateral debt: 122.4 FCFA billion (13) — PV: 75.3 FCFA billion (12) - Non-concessional debt, of which: 378.7 FCFA billion (42) — PV: 350.9 FCFA billion (57) - Semi-concessional: 118.2 FCFA billion (13) — PV: 90.4 FCFA billion (15) - Commercial terms: 260.5 FCFA billion (29) — PV: 260.5 FCFA billion (42) - Table 4. Benin: Borrowing Plan in 2024 (Billions of CFA francs) - By sources of debt financing: 912.0 FCFA billion (100) — PV of new debt in 2024 (program purposes): 619.7 FCFA billion (100) - Concessional debt, of which: 574.2 FCFA billion (63) — PV: 328.4 FCFA billion (53) - Multilateral debt: 414.1 FCFA billion (45) — PV: 230.1 FCFA billion (37) - Bilateral debt: 160.1 FCFA billion (18) — PV: 98.3 FCFA billion (16) - Non-concessional debt, of which: 337.8 FCFA billion (37) — PV: 291.3 FCFA billion (47) - Semi-concessional: 237.8 FCFA billion (26) — PV: 191.3 FCFA billion (31) - Commercial terms: 100.0 FCFA billion (11) — PV: 100.0 FCFA billion (16) ### Indicative targets: tax revenue and priority social spending - Floor on Tax Revenue: - Definition: tax revenue includes revenues collected on a cash basis by revenue-collection departments. - Data source: Government Financial Operations Table (statistical TOFE) prepared monthly by the Economic and Financial Programs Monitoring Unit of the Ministry of Economy and Finance. - Revenue will be calculated cumulatively from the beginning of the calendar year. - Revenue collections at end-December 2023 and at end-March, end-June, end-September and end-December 2024 must be equal to or greater than the amounts indicated in Table 1 attached to the MEFP. - The tax revenue floor is an IT for the entire duration of the program. - Priority Social Spending (PSE): - Definition: priority social expenditure includes expenditure executed from the State budget (from both domestic and external resources), excluding salary expenditure and relating mainly to public interventions in education, health and nutrition, social safety nets, access to electricity, water and sanitation, microfinance (SMEs), as well as security and civil protection. PSE captures only spending that directly reduces poverty. - Monitoring: PSE will be monitored on a payment order basis; the IT applies to execution of expenditure (not allocation). The central government PSE floor is calculated cumulatively from the beginning of the calendar year. - Coverage: detailed list of priority expenditure items provided in Table 5 (includes agriculture, education, social affairs, health, sanitation and nature protection, energy, sport, security and civil protection, infrastructure and transportation, water and mining, justice, employment). - Indicative target: Priority Social spending at end-December 2023 and at end-March, end-June, end-September and end-December 2024 must be equal to or greater than the amounts indicated in Table 1 of the MEFP. ### Information for program monitoring: data provision requirements - Monthly data to be provided in excel format: - Data on any loan (terms and creditors) contracted or guaranteed by the government, in the first week after the end of the month of entry into force of these loans. - Monthly consumer price index, within two weeks of the end of the month. - The TOFE, including revenue on a cash basis, detailed data on net domestic financing of the government (bank and nonbank domestic financing, including claims held by the nonbank private sector); and data on the basic primary fiscal balance, within six weeks of the end of the month. - Data on the balance, accumulation, amount (stock), and repayment of public domestic and external payment arrears, including when these arrears amount to zero, within six weeks of the end of the month. - The monetary survey, produced by the BCEAO, within eight weeks of the end of the month. - Quarterly data: - Price structure of petroleum products. - Employment index and traffic of merchandise at the Port of Cotonou, within 25 days of the end of the month. - Industrial production index and turnover index, within three months of the end of the quarter. - High priority social spending (Table 4), including health, education, social protection and security, by functional classification of expenditure, within eight weeks after the end of the quarter. - Data on the amount of exceptional payment orders or other exceptional measures, within six weeks of the end of the quarter. - Stock-flow adjustment table. - National account statistics, within three months of the end of the quarter. - Total new Eurobond issuances provided on quarterly basis, within two weeks after the end of the quarter. - Other information to be provided: - Financial soundness indicators, produced semi-annually by the BCEAO, within eight weeks of the end of the semester. - Data on the implementation of the public investment program, including detailed information on sources of financing within eight weeks of the end of the quarter. - Update of the PPP projects catalog and the amounts of contracted projects, within eight weeks of the end of the quarter. - Execution of the investment budget, within eight weeks of the end of the quarter. - Data on the stock of external debt, external debt service, the signing of external loan agreements and disbursements of external loans, within twelve weeks of the end of the quarter. - Data on military and security spending, within eight weeks of the end of the quarter. - Balance of payments data, produced by the BCEAO, within ten months of the end of the year. - Authorities will report any information needed for effective monitoring of the implementation of economic policies. *Source: IMF staff summary of the MEFP text provided in the content unit.* ### 29. With respect to the RSF, the authorities will provide IMF staff with all deliverables (legal texts, ### 29. With respect to the RSF, the authorities will provide IMF staff with all deliverables (legal texts, ### RSF deliverables and additional information requested - Authorities will provide IMF staff with all deliverables (legal texts, manuals, methodologies, etc.) referred to in each reform measure under the RSF. - Additional information to facilitate assessment of specific RMs: - RM5 (Water governance): staffing and budget allocation to the National Water Council. - RM6 (Water tariffication in urban areas): preparatory studies leading to the adoption of the new water tariffication mechanism. ### Debt sustainability assessment — overall findings - Risk ratings: - Risk of external debt distress: Moderate. - Overall risk of debt distress: Moderate. - Benin remains at moderate risk of external and overall debt distress, unchanged from the previous DSA (May 2023). - All projected external debt burden indicators remain below high-risk thresholds under the baseline scenario, apart from a one-off breach to the debt service-to-revenue ratio in 2030 when large Eurobond payments are falling due. - External debt indicators have seen some deterioration since the previous DSA as the authorities have substituted more costly domestic financing with external borrowing amid tighter conditions on the regional security market. - The space to absorb shocks remains limited. - External debt burden indicators breach high-risk thresholds in selected stress tests, particularly commodity price, export, and natural disaster-related shocks. - The high debt service-to-revenue ratio continues to leave debt vulnerable to revenue underperformance or shifts in market sentiment that could increase rollover costs. - Benin is expected to be able to refinance payments falling due in 2024-26. - Policy priorities to mitigate debt distress: sustained revenue mobilization efforts, continued prudent borrowing, active debt management strategy, and mainstreaming climate change into policymaking. - Authorities should ensure the financing mix does not leave debt overly exposed to external risk. ### Public debt coverage and reporting - 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 BOAD, which is included as external debt for the purpose of the DSA. - Coverage excludes non-guaranteed SOE debt and non-financial debts of other government entities. - Authorities published outstanding stock of non-guaranteed SOE debt (13 SOEs) at 1.9 percent of GDP at end-2021. - Local government non-financial debt (e.g., supplier credit or debt to the central government) estimated at 0.3 ppt of GDP at end-2021. - Authorities view consolidating general government fiscal accounts (including SOE financial statements) as important for broadening debt coverage; expanding fiscal accounts coverage is a medium-term capacity development priority supported by AFRITAC-West. - Authorities prepared and annexed to the 2024 budget law a quantitative fiscal risk assessment; the statement reported positive net income from SOEs from 2020–22. ### Contingent liabilities shock calibration - Total contingent liabilities shock: 9.6 percent of GDP, comprised of: - 1.9 percent of GDP in SOE debt (end-2021). - 0.3 percent of GDP for local government debt. - 2.4 percent of GDP for PPPs based on the capital stock from the World Bank’s PPP database (6.8 ppts of GDP). - 5.0 percent of GDP for the default setting for financial market risk. - Benin’s debt policy and management score: 4.5 out of 6 in the 2019 and 2022 CPIA evaluations. ### Recent debt developments (background) - Public debt rose to 54.2 percent of GDP in 2022 (from 50.3 percent of GDP in 2021). - Drivers of increase: higher spending to meet urgent needs (with less grants), CFA franc depreciation against the USD, and additional pre-emptive domestic issuances (FCFA 300 billion, 2.9 percent of GDP) on the regional security market. - Benin has no arrears vis-à-vis external creditors; public domestic debt arrears validated in a 2019 audit totaled 0.1 ppt of GDP as of end-June 2022. - DSA includes all debt service associated with these issuances; issuances’ drawing timeframe undefined, DSA assumes they are maintained as precautionary resources implying upside to projected baseline debt stock. ### SDG loan and shift toward external financing - Authorities received a €350 million SDG-loan (2 percent of GDP) to substitute domestic financing; expected to fund SDG-related spending in the 2023 budget. - Terms: interest rate 2.9 percent above Euribor, 4-year grace-period, 12-year maturity. - Issuance supported by AfDB partial credit guarantee approved in 2022. - 2021 SDG-bond: €500 million, 12.5-year maturity, 4.95 percent. - Shift toward external debt noted: largest shares of debt at end-2022 held by multilateral creditors (38 percent) and international bond holders (19 percent). - Domestic public debt made up about 31 percent of the debt stock, with a large portion of securities on the regional financial market. ### Debt service profile and debt management - Proactive liability management has smoothed public debt service profile, reduced costs, and rolled over risks. - Overall public debt service-to-revenue ratio expected to average 33 percent in 2023-27 (slightly lower than 35 percent in the previous DSA). - Near-term domestic debt service significant, averaging 4.3 percent of GDP in 2023–25. - Interest to tax revenue ratio expected to decline from 20 percent in 2021 to 13.1 percent in 2023. - Measures used historically: 2021 reimbursement of about 65 percent of the 2019 Eurobond falling due in 2024–26; 2018 issuance of a US$300 million external commercial loan backed by a World Bank partial guarantee to reprofile costly short-term domestic debt. ### Financing conditions on the WAEMU regional market (Box 1) - Cumulative BCEAO policy rate hikes: 125 basis points in 2022 and 25 bps in 2023; minimum bid rate raised to 3.25 percent. - BCEAO engaged in de facto loosening by purchasing regional debt worth CFAF 1 trillion in June and CFAF 933 billion in September in the secondary market. - Weighted-average interest rate on Benin’s entire debt stock: 5.9 percent (below the WAEMU average of 6.3 percent). - As of end-October, Benin issued 2.7 ppt of GDP in 2023 at an average of 6.2 percent with a weighted-average maturity of 3 years. - In 2022, issuances ≈ 5 percent of GDP, average interest rate 5.2 percent, maturity 6 years. - Issuances immediately after COVID-19 (Mar 2020–Dec 2021): average interest rate 6 percent and maturity 5 years. - Benin’s issuance in 2022 of CFAF 150 billion in two tranches of 15 and 20 years marked the first 20-year issuance on the regional market. - Short-term rollover needs manageable; medium-term rollover needs expected to peak in August 2025 at 0.5 percent of GDP, with similarly sized short-term peaks in May and June 2024. - About one third of all debt in the domestic market is coming due in the next two years; Benin’s share of WAEMU-wide debt coming to maturity peaks at 73 percent in May 2025. - Liquidity could be constrained if larger economies borrow regionally rather than externally at the same time. ### Decomposition of public debt and debt service by creditor (selected figures) - Total debt (2022): 9,494.6 (In US$ millions) — also shown as Percent total debt and Percent GDP in Text Table 3. - External debt (2022): 6,584.2 (In US$ millions); 69.3 percent total debt. - Memo items: - Contingent liabilities: 306 (In US$ millions) — 1.7 percent of GDP. - Public guarantees: 90 (In US$ millions) — 0.1 percent of GDP. - Other explicit contingent liabilities: 297 (In US$ millions) — 1.7 percent of GDP. - Nominal GDP (various years reported in table): 17,522; 17,522; 19,753; 21,583 (In US$ millions as shown in table). ### Macroeconomic assumptions underpinning DSA projections - Real GDP growth: - Near-term revised down from 6.0 to 5.6 percent in 2023 due to Niger border disruptions amid regional sanctions following a coup. - Medium-term: growth expected to remain around potential at 6 percent. - Longer-term projections: conservative at 5.7 percent converging to the steady-state. - Inflation and GDP deflator: - Inflation for 2023 projected at 3.7 percent (compared with 3.5 percent at the Second Review). - GDP deflator averages 2.4 percent over 2023-28 (compared with 2.2 percent in the previous DSA). - GDP deflator expected to converge around 2 percent over the long term. - Primary fiscal balance: - Primary deficit (including grants) expected to narrow to 2.8 percent of GDP in 2023 (compared with 2.6 percent in the previous DSA). - Baseline assumes overall fiscal deficit converges to the regional fiscal norm of 3 percent of GDP in 2025. - Revenues and grants: - Revenues and grants for 2023: 14.9 percent of GDP (compared with 14.7 percent in previous DSA). - World Bank PACOFID program financing fertilizer subsidies accounted for 0.2 ppt of GDP. - Medium-Term Revenue Strategy (MTRS) finalized in September aims to increase tax collection by 3 ppt of GDP by 2028. - Total expenditure: - Projected at 19.3 percent of GDP in 2023 (compared with 19.0 percent in previous DSA). - Fiscal adjustor: - Baseline overall deficit projected at 4.5 percent of GDP in 2023 (compared with 4.3 percent in previous DSA) as authorities mobilized additional resources. *Prepared by the staff of the International Monetary Fund (IMF) and the International Development Association (IDA); November 30, 2023.* ### 0.2 ppt of GDP in external budget support. This has smoothed fiscal adjustment somewhat, with ### 1benea2024001 - 0.2 ppt of GDP in external budget support. This has smoothed fiscal adjustment somewhat, with ### Fiscal support, financing composition, and short-term fiscal implications - External budget support of 0.2 ppt of GDP has smoothed fiscal adjustment with limited impact on the overall debt profile given the concessional nature of such financing. - The deficit could increase up to 4.7 ppt of GDP if the authorities mobilize further external concessional budget support as allowed under the Fund-supported program. - A larger portion of public gross financing needs will be externally financed: around 85 percent compared with 60 percent in the previous DSA, as proceeds from SDG financing are used to substitute domestic financing. - The World Bank provided a US$80 million Cat-DDO in September 2023; it is not included in the baseline because disbursement is contingent on the materialization of such shocks. - SDG financing assumptions: 5.0 percent interest rate and 15-year maturity (with scope for improved terms if interest rates improve); Eurobonds assumed at a 6.0 percent interest rate and 11-year maturity. ### Macroeconomic projections and key baseline numbers - Current account: expected to widen to 5.8 percent of GDP in 2023; expected to improve over the medium term, hovering close to 4 percent of GDP; projected long-term current account deficit averages 3.4 percent of GDP over 2029-43 (compared with 4.4 percent in the previous DSA). - FDI: expected to increase from 1.6 percent of GDP in 2023 to 1.8 percent of GDP in 2028. - GDP growth (Current DSA): 2022: 6.3; 2023: 5.6; 2024: 6.0; 2025: 5.9; 2026: 6.0; 2027: 5.9; 2028: 6.0; Medium-term 2023-28: 5.9; Long-term 2029-43: 5.7 (percent). - GDP deflator (Current DSA): 2022: 4.1; 2023: 3.3; 2024: 2.8; 2025: 2.0; 2026: 2.0; 2027: 2.0; 2028: 2.0; Medium-term 2023-28: 2.4; Long-term 2029-43: 2.0 (percent). - Exports (Current DSA, percent GDP): 2022: 23.9; 2023: 22.1; 2024: 22.1; 2025: 21.9; 2026: 21.8; 2027: 21.8; 2028: 21.9; Medium-term 2023-28: 21.9; Long-term 2029-43: 22.6. - Primary balance (Current DSA, percent GDP): 2022: -3.9; 2023: -2.8; 2024: -2.1; 2025: -1.4; 2026: -1.5; 2027: -1.5; 2028: -1.5; Medium-term 2023-28: -1.8; Long-term 2029-43: -1.4. - Revenue and grants (Current DSA, percent GDP): 2022: 14.3; 2023: 14.9; 2024: 15.2; 2025: 15.7; 2026: 16.0; 2027: 16.5; 2028: 16.9; Medium-term 2023-28: 15.9; Long-term 2029-43: 19.5. - Total expenditure (Current DSA, percent GDP): 2022: 19.8; 2023: 19.3; 2024: 18.9; 2025: 18.6; 2026: 18.9; 2027: 19.4; 2028: 19.8; Medium-term 2023-28: 19.2; Long-term 2029-43: 22.1. - Overall balance (Current DSA, percent GDP): 2022: -5.5; 2023: -4.5; 2024: -3.7; 2025: -2.9; 2026: -2.9; 2027: -2.9; 2028: -2.9; Medium-term 2023-28: -3.3; Long-term 2029-43: -2.9. ### Debt dynamics, concessional financing, and projected debt path - RSF (Fund-supported) terms and impact: - Interest rate: 3.5 percent; maturity: 20 years; grace period: 10½ years. - RSF expected to substitute more costly domestic financing, improving the debt service profile. - PV comparison: RSF PV about FCFA 101 billion versus PV of FCFA 115 billion for domestic debt of equivalent amount (based on assumed domestic terms in the DSA). - Public debt trajectory: - Public debt expected around 54 percent of GDP at end-2023. - Projected to decline to 46 percent by 2033 as fiscal deficits are contained and growth converges to potential. - External financing assumptions and market access: - Long-term assumption: international market issuances would average 1.2 ppt of GDP per year with terms evenly split between sustainability bonds and Eurobonds. - AfDB partial credit guarantee: US$150 million remaining in current guarantee. - Domestic financing assumptions: - Domestic financing assumed to come mostly as one-to-seven-year bonds with a small portion of longer maturities at rates from 6 to 7 percent. - Some upside risks to domestic rates given recent issuance experience. ### Debt sustainability results and vulnerabilities - External debt indicators (baseline): - PV of total PPG external debt to GDP expected to average 30 percent of GDP in 2023-27 and start declining in 2030. - PV of total PPG external debt to GDP peaks at 31 percent of GDP in 2027 (compared with a peak of 30 percent in the previous DSA). - Debt service-to-revenue ratio temporarily breaches the threshold in 2030 at 19 percent. - Total public debt (baseline): - PV of public debt over the next 10 years averages 40 percent, below the 55 percent benchmark. - Stress tests: - All external debt-burden indicators are below thresholds in the baseline apart from the marginal one-off debt-service to revenue breach in 2030. - Stress tests show breaches under shocks related to commodity prices, exports, and natural disasters; commodity price shocks are the most severe across indicators. - Granularity assessment: Benin has limited space to absorb shocks, with limited space in debt service-to-revenue and debt service-to-export indicators—under a median observed shock scenario these would breach thresholds and could lead to a downgrade to high-risk. - Market-financing module: market risks are moderate; EMBI spreads are above the benchmark but gross financing needs remain below the respective benchmark. Under the market financing shock, debt-service to revenue and debt service-to-exports ratios would exceed thresholds in 2030 given the repayment profile. ### Climate, natural disaster scenarios, and long-term risks - Customized natural disaster stress test calibration: - Simulates a catastrophic flood event like Benin in 2010. - Assumes a 4 percent one-off shock to external PPG debt-to-GDP ratio in the second year of the projection period, a 3 percent reduction of GDP growth, and a 3.5 percent reduction of export growth. - Includes disbursement of the World Bank Cat-DDO in this stress test: Cat-DDO maturity 30 years, 5 years grace period, interest rate 2.5 percent. - Even with Cat-DDO, the PV of PPG debt-to-GDP ratio would be about 5.2 ppt higher over the long term than in the baseline. - No-adaptation (climate inaction) scenario: - World Bank CCDR pessimistic (hot/dry) simulations project real GDP losses of up to -16 percent of GDP by 2043, mainly through labor heat stress and productivity losses and reduced crop yields. - Under the no-adaptation scenario, public debt would follow an unsustainable trajectory: the PV of debt-to-GDP ratio would be continuously above its threshold starting in 2030. - Tailored scenarios indicate decisive climate adaptation is required to avoid long-term imperilment of debt sustainability. ### Key implications and policy-relevant findings - Maintain a prudent borrowing strategy emphasizing concessional financing to preserve debt sustainability while allowing for some market issuances under favorable terms. - Mobilize reforms and investments (PAG-II projects: Port of Cotonou expansion, SEZ acceleration, exploring trade with Nigeria) to raise exports over the long term and offset declines in commodity (cotton) receipts. - Continue revenue-based fiscal consolidation to converge to WAEMU regional fiscal norms and reduce public debt from 54 percent of GDP (end-2023) toward 46 percent by 2033. - Leverage concessional RSF financing and contingent instruments (e.g., Cat-DDO) to improve liquidity and debt-service profiles during shocks, while prioritizing climate adaptation to avoid long-term unsustainable debt trajectories. *Prepared from IMF staff estimates, projections, and DSA text provided in the source content.* ### 22. This DSA finds that Benin remains at moderate risk of external and overall debt ### 22. This DSA finds that Benin remains at moderate risk of external and overall debt distress ### Key findings on debt risk - Benin remains at moderate risk of external and overall debt distress, unchanged from the previous DSA. - External debt indicators have increased more due to increased reliance on external borrowing on comparatively more favorable terms than the regional market. - External debt indicators remain below their high-risk thresholds and benchmarks in the baseline, apart from a one-off breach to the debt service-to-revenue indicator in 2030, last observed in the December 2022 DSA. - Debt levels, though relatively manageable, remain vulnerable to shocks. - High debt service to revenues ratio, large amortization payments, and the low revenue base may pose liquidity risks. - Lower than expected revenues or exports, including due to policy implementation lags or if efforts to boost competitiveness take time to bear fruit, could heighten debt risks. - Further shifts in market sentiment that increase borrowing and rollover costs could heighten debt risks. ### Drivers of vulnerability - Narrow space between debt service ratios and high-risk thresholds in years where large Eurobond bullet repayments are due, as highlighted by the granularity assessment. - Reliance on external borrowing, even on comparatively favorable terms, has raised external debt indicators. - Low revenue base increases sensitivity to shocks and amplifies liquidity pressures when amortization peaks occur. ### Policy recommendations and mitigation measures - Sustain revenue mobilization efforts to improve the fiscal buffer and reduce vulnerability to shocks. - Adopt a prudent borrowing and debt management strategy to mitigate the risk of debt distress. - Continue proactive liability management to facilitate the rollover of large Eurobond bullet repayments. - Maximize concessional borrowing to improve the cost and terms of external financing. - Implement measures to bring tax revenues closer to Benin’s potential. - Leverage the existing SDG financing framework to access financing, including climate-related, on more favorable terms while ensuring a manageable external and domestic financing mix. ### Authorities’ Views - (No additional text provided in the source.) *Source: 1benea2024001 - 22. This DSA finds that Benin remains at moderate risk of external and overall debt* ### 24. The authorities agree with the assessment that Benin remains at moderate risk of ### 1benea2024001 - 24. The authorities agree with the assessment that Benin remains at moderate risk of ### Authorities' views and policy stance - Authorities agree Benin remains at moderate risk of external debt distress. - They view domestic financing conditions will improve structurally in the medium term (with longer maturities and lower costs). - Debt strategy objective: ensure financing needs are met at the lowest possible cost—borrowing on the international capital market would only occur at more favorable conditions than those on the regional security market. - Authorities consider currency risk from external borrowing limited because a large share of borrowing is conducted in euros to which the CFA franc is pegged. - Authorities remain committed to preserving debt sustainability, mitigating refinancing risks and limiting borrowing costs through: - revenue mobilization, - active debt management, - prudent borrowing. ### External Debt Sustainability – Baseline Scenario (selected indicators, 2020–2043) - External debt (nominal) (in percent of GDP) - 2020: 28.4 - 2021: 36.8 - 2022: 37.6 - 2023: 40.1 - 2024: 40.2 - 2025: 41.5 - 2026: 40.5 - 2027: 41.2 - 2028: 40.8 - 2033: 37.2 - 2043: 28.1 - Average (actual/projections row): 22.2 / 39.9 (as presented) - Change in external debt (in percent of GDP) - 2020: 3.2 - 2021: 8.4 - 2022: 0.8 - 2023: 2.5 - 2024: 0.1 - 2025: 1.2 - 2026: -1.0 - 2027: 0.7 - 2028: -0.4 - 2033: -0.7 - 2043: -1.2 - Identified net debt-creating flows (in percent of GDP) - 2020: 0.7 - 2021: 2.6 - 2022: 8.6 - 2023: 5.6 - 2024: 4.8 - 2025: 4.3 - 2026: 4.2 - 2027: 3.9 - 2028: 3.7 - 2033: 3.7 - 2043: 5.0 - Average: 5.4 / 4.0 (as presented) - Non-interest current account deficit (in percent of GDP) - 2020: 1.3 - 2021: 3.4 - 2022: 5.4 - 2023: 4.9 - 2024: 4.5 - 2025: 4.0 - 2026: 3.8 - 2027: 3.4 - 2028: 3.1 - 2033: 2.7 - 2043: 2.7 - Average: 4.2 / 3.4 (as presented) - Exports and imports (in percent of GDP) - Exports: 2020: 22.4; 2021: 23.5; 2022: 23.9; 2023: 22.1; 2024: 22.1; 2025: 21.9; 2026: 21.8; 2027: 21.8; 2028: 21.9; 2033: 22.3; 2043: 22.3 - Imports: 2020: 25.1; 2021: 27.8; 2022: 30.2; 2023: 28.1; 2024: 27.9; 2025: 27.2; 2026: 27.0; 2027: 26.6; 2028: 26.6; 2033: 26.6; 2043: 26.6 - Net FDI (negative = inflow) (in percent of GDP) - 2020: 1.0 - 2021: 1.7 - 2022: 1.9 - 2023: 1.7 - 2024: 1.6 - 2025: 1.6 - 2026: 1.7 - 2027: 1.8 - 2028: 1.9 - 2033: 2.1 - 2043: 2.8 - Average (presented): 1.6 / 1.9 - Endogenous debt dynamics contribution (in percent of GDP) - 2020: -1.6 - 2021: -2.5 - 2022: 1.3 - 2023: -1.0 - 2024: -1.3 - 2025: -1.3 - 2026: -1.4 - 2027: -1.3 - 2028: -1.3 - 2033: -1.1 - 2043: -0.6 - Sustainability indicators (selected) - PV of PPG external debt-to-GDP ratio (selected years shown) - 2024: 26.5 - 2025: 29.0 - 2026: 29.4 - 2027: 30.8 - 2028: 30.2 - 2033: 31.0 - 2043: 30.7 / 29.0 / 24.1 (as table rows present) - PV of PPG external debt-to-exports ratio (selected) - 2024: 110.9 - 2025: 131.6 - 2026: 132.9 - 2027: 140.7 - 2028: 138.3 - 2033: 142.1 - 2043: 140.5 / 130.1 / 107.9 (as table rows present) - PPG debt service-to-exports ratio (selected) - 2020: 5.5 - 2021: 8.7 - 2022: 8.7 - 2023: 9.4 - 2024: 11.6 - 2025: 11.7 - 2026: 10.9 - 2027: 9.8 - 2028: 10.7 - 2033: 11.5 - 2043: 9.7 - PPG debt service-to-revenue ratio (selected) - 2020: 9.7 - 2021: 15.5 - 2022: 15.0 - 2023: 14.9 - 2024: 17.9 - 2025: 17.3 - 2026: 15.8 - 2027: 13.7 - 2028: 14.5 - 2033: 13.8 - 2043: 11.3 - Gross external financing need (Billion of U.S. dollars) - 2020: 0.5 - 2021: 1.3 - 2022: 1.6 - 2023: 1.7 - 2024: 1.9 - 2025: 1.9 - 2026: 2.0 - 2027: 2.0 - 2028: 2.2 - 2033: 3.2 - 2043: 6.9 ### Key macroeconomic assumptions (external DSA) - Real GDP growth (in percent) - 2020: 3.8 - 2021: 7.2 - 2022: 6.3 - 2023: 5.6 - 2024: 6.0 - 2025: 5.9 - 2026: 6.0 - 2027: 5.9 - 2028: 6.0 - 2033: 5.9 - 2043: 5.4 - Average (presented): 5.5 / 5.9 - GDP deflator in US dollar terms (change in percent) - 2020: 4.9 - 2021: 5.4 - 2022: -7.3 - 2023: 6.8 - 2024: 3.3 - 2025: 2.3 - 2026: 2.2 - 2027: 1.6 - 2028: 1.6 - 2033: 2.0 - 2043: 2.0 - Average (presented): -0.6 / 2.5 - Effective interest rate (percent) 4/ - 2020: 2.1 - 2021: 3.0 - 2022: 2.0 - 2023: 2.5 - 2024: 2.5 - 2025: 2.4 - 2026: 2.5 - 2027: 2.4 - 2028: 2.5 - 2033: 2.6 - 2043: 3.3 - Average (presented): 1.9 / 2.5 - Growth of exports of G&S (US dollar terms, in percent) - 2020: -2.3 - 2021: 18.6 - 2022: 0.1 - 2023: 4.3 - 2024: 9.7 - 2025: 7.4 - 2026: 8.0 - 2027: 7.7 - 2028: 7.8 - 2033: 8.2 - 2043: 7.5 - Average (presented): 9.1 / 7.9 - Growth of imports of G&S (US dollar terms, in percent) - 2020: -8.6 - 2021: 25.1 - 2022: 6.9 - 2023: 5.0 - 2024: 8.7 - 2025: 5.7 - 2026: 7.6 - 2027: 6.0 - 2028: 7.6 - 2033: 8.0 - 2043: 7.5 - Average (presented): 8.4 / 7.3 - Grant element of new public sector borrowing (in percent) (selected entries) - 2024: 24.6 - 2025: 32.4 - 2026: 25.8 - 2027: 33.6 - 2028: 26.6 - 2033: 33.0 - 2043: 18.0 / 10.0 (table shows multiple entries) - Government revenues (excluding grants, in percent of GDP) - 2020: 12.7 - 2021: 13.2 - 2022: 13.8 - 2023: 13.9 - 2024: 14.3 - 2025: 14.7 - 2026: 15.1 - 2027: 15.6 - 2028: 16.1 - 2033: 18.5 - 2043: 19.2 - Average (presented): 12.6 / 16.1 - Aid flows (in Billion of US dollars) 5/ - 2020: 0.3 - 2021: 0.2 - 2022: 0.1 - 2023: 0.8 - 2024: 0.8 - 2025: 0.8 - 2026: 0.8 - 2027: 0.8 - 2028: 0.8 - 2033: 0.5 - 2043: 0.6 - Grant-equivalent financing (in percent of GDP) 6/ (selected) - 2024: 2.7 - 2025: 2.4 - 2026: 2.2 - 2027: 1.8 - 2028: 1.9 - 2033: 1.9 - 2043: 1.3 / 0.8 (table shows multiple entries) - Nominal GDP (Billion of US dollars) (table entries are partial/fragmented in source) ### Public Sector Debt DSA – Baseline (selected indicators, 2020–2043) - Public sector debt (in percent of GDP) - 2020: 46.1 - 2021: 50.3 - 2022: 54.2 - 2023: 53.5 - 2024: 52.3 - 2025: 51.1 - 2026: 50.1 - 2027: 49.6 - 2028: 49.0 - 2033: 45.8 - 2043: 42.3 - Average (presented): 38.0 / 49.1 - Of which: external debt (percent of GDP) mirrors external debt figures presented in external DSA (e.g., 2023: 40.1; 2024: 40.2; 2025: 41.5; average/presented: 39.9) - Change in public sector debt (in percent of GDP) - 2020: 4.9 - 2021: 4.1 - 2022: 3.9 - 2023: -0.7 - 2024: -1.3 - 2025: -1.2 - 2026: -0.9 - 2027: -0.6 - 2028: -0.5 - 2033: -0.6 - 2043: -0.2 - Identified debt-creating flows (in percent of GDP) - 2020: 1.4 - 2021: 3.9 - 2022: 7.1 - 2023: -0.4 - 2024: -0.7 - 2025: -1.0 - 2026: -0.9 - 2027: -0.7 - 2028: -0.7 - 2033: -0.5 - 2043: -0.2 - Primary deficit (in percent of GDP) - 2020: 2.7 - 2021: 3.5 - 2022: 3.9 - 2023: 2.8 - 2024: 2.1 - 2025: 1.3 - 2026: 1.4 - 2027: 1.5 - 2028: 1.5 - 2033: 1.4 - 2043: 1.0 - Average (presented): 2.4 / 1.6 - Revenue and grants (in percent of GDP) - 2020: 14.4 - 2021: 14.1 - 2022: 14.3 - 2023: 14.8 - 2024: 15.0 - 2025: 15.4 - 2026: 15.7 - 2027: 16.3 - 2028: 16.7 - 2033: 19.1 - 2043: 19.9 - Automatic debt dynamics (in percent of GDP) - 2020: -3.3 - 2021: 0.5 - 2022: -0.2 - 2023: -3.1 - 2024: -2.8 - 2025: -2.4 - 2026: -2.3 - 2027: -2.2 - 2028: -2.2 - 2033: -2.0 - 2043: -1.2 - PV of public debt-to-GDP ratio (selected) - 2024–2033: 42.9, 42.8, 41.6, 40.6, 40.0, 39.7, 39.3, 37.9, 38.5 (as table presents) - PV of public debt-to-revenue and grants ratio (selected) - 2024: 300.1 - 2025: 289.4 - 2026: 277.9 - 2027: 262.9 - 2028: 254.9 - 2033: 243.8 - 2043: 234.6 / 198.1 / 194.0 (table rows present) - Debt service-to-revenue and grants ratio 3/ (selected) - 2020: 42.5 - 2021: 76.7 - 2022: 60.7 - 2023: 40.2 - 2024: 33.6 - 2025: 37.0 - 2026: 24.8 - 2027: 31.1 - 2028: 22.0 - 2033: 22.9 - 2043: 26.2 - Gross financing need 4/ (in percent of GDP) - 2020: 10.8 - 2021: 14.2 - 2022: 16.0 - 2023: 8.7 - 2024: 7.1 - 2025: 7.1 - 2026: 5.3 - 2027: 6.5 - 2028: 5.2 - 2033: 5.8 - 2043: 6.2 ### Stress tests, sensitivity analysis, and risk indicators - Stress tests and sensitivity tables present multiple scenarios (Alternative Scenarios, Bound Tests, Tailored Tests) with indicators across 2023–2033: - Examples of scenarios and notable outcomes (from tables and figures): - A1. Key variables at their historical averages in 2023-2033 (e.g., PV of debt-to-GDP ratio rises in that scenario across years shown). - C3. Commodity price (tailored test) shows elevated indicators (e.g., PV of debt-to-exports and debt-service ratios spike under commodity price shocks). - Natural Disaster Shock with Cat DDO is presented for certain indicators (values shown across years). - Thresholds and benchmarks are reported in tables (e.g., PV of debt-to-GDP ratio threshold: 40; PV of debt-to-exports ratio threshold: 100; Debt service-to-exports ratio threshold: 180; Debt service-to-revenue ratio threshold: 15). - Table 3 and Table 4 contain detailed year-by-year percent-of-GDP sensitivity results for public and PPG external debt indicators across many scenarios (select entries summarized above in baseline and noted scenario spikes). - Figures included in source: indicators of public guaranteed external debt under alternative scenarios; indicators of public debt under alternatives; drivers of debt dynamics; realism tools; qualification of the Moderate category, 2023–2033; market-financing risk indicators; pessimistic climate change scenario impacts (2023–43). ### Key takeaways and policy implications from the presented analyses - Baseline projections show external and public debt ratios peaking in the 2024–2033 projection window then stabilizing or declining toward 2043 in baseline paths. - Debt-service indicators (to exports and to revenue) rise in near-term years (e.g., PPG debt service-to-exports ratio reaches 11.6 in 2024 and 11.7 in 2025) and require monitoring. - Stress tests, especially commodity price shocks and combinations of adverse shocks, produce materially higher debt and debt-service ratios, indicating vulnerability to external shocks. - Authorities’ strategy emphasizes: - preferring lower-cost, longer-maturity domestic financing as domestic market conditions improve; - accessing international capital markets only under more favorable terms than regional options; - limiting currency risk via euro-denominated borrowing tied to the CFA franc peg; - combining revenue mobilization, active debt management, and prudent borrowing to preserve debt sustainability and mitigate refinancing risk. *Source: Country authorities; and staff estimates and projections (tables and figures as presented in the supplied content).* ### 1. Despite its low contributions to greenhouse gas (GHG) emissions, Benin is ### 1benea2024001 - 1. Despite its low contributions to greenhouse gas (GHG) emissions, Benin is ### Vulnerability and GHG emissions - Benin contributes only 0.05 percent of global GHG emissions. - Ranked 149 out of 188 countries for per capita emissions. - In 2021, Benin’s GHG emissions were 5 percent of South Africa’s. - Second lowest of all West Africa Economic and Monetary Union (WAEMU) countries in per capita emissions. - Ranks 152 out of 181 countries for extreme climate vulnerability (181 being the most vulnerable). - Despite low emissions, Benin is one of the most vulnerable countries to climate change; climate change is set to have a significant impact on Benin’s most vulnerable population and key economic sectors. ### Observed and projected climate impacts - Under a 2.7°C global warming scenario (i.e. under current policies), by 2070: - 98 percent of Benin’s territory is expected to be impacted by the most extreme temperatures. - Future climate trends: - Increased temperatures, greater weather variability, and more extreme weather events. - More frequent droughts and higher risk of floods. - Floods increasingly severe and destructive—recurrent floods in urban areas such as Cotonou, Porto Novo, and Parakou. - Coast has one of the highest rates of coastal erosion in the Gulf of Guinea. - Note: potential catastrophic impacts and tipping points (e.g., West African Monsoon) may pose the biggest future threats. ### Economic and social consequences - Without additional adaptation effort, modelling estimates: - Average annual GDP losses could reach up to 19 percent of GDP by 2050. - Estimated loss of real GDP due to climate change increases from an average range of 7-9 percent in the 2030s to 11-19 percent by 2050 compared to the baseline and across simulated climate scenarios. - Equivalent loss in real per capita income. - Between half a million to 1 million additional people would remain in poverty by 2050 in the absence of adaptation action. - Climate impacts are asymmetric and magnified by poverty and inequality: - Poor households more exposed to air, water, and soil pollution, rising temperatures, uneven rainfall, and extreme weather. - Poor households rely on low-quality public health services and have fewer financial resources to cope with damage. - Increasing temperatures and floods will impact spread of infectious diseases, such as malaria. - Social safety nets are nascent and do not yet account for the climate dimension. - Most health and education infrastructure is vulnerable to climatic shocks. - Sectoral vulnerability: agriculture, disaster-risk management, energy, human health, social protection, transport, tourism, urban planning, water, and sanitation are critical for both climate action and growth; outdoor sectors like agriculture could face particularly large negative impacts. ### Adaptation commitments, needs, and priorities - National commitments and frameworks: - Nationally Determined Contributions (NDC) updated in 2021. - Law on Climate Change enacted in 2018. - National Adaptation Plan (NAP, 2022). - National Climate Change Management Policy (PNGCC, 2021-2030). - NDC adaptation focus: - Considers eight sectors: agriculture, water resources, forestry, coastal areas, tourism, energy, health, urban planning and infrastructure. - Investment needs up to 2030 estimated at approximately US$ 1,796 million: - Government contribution: US$ 578 million (32 percent). - International support: US$ 1,217 million (68 percent). - NAP (2022): - Eight key priority sectors aligned with NDC. - Vision: resilient and decarbonized economic development and growth by 2030 with adaptive capacity and early warning systems. - Total cost of adaptation options for eight targeted sectors estimated at US$4,240 million over the 10-year horizon, equivalent to 4 percent of 2023 GDP. ### Mitigation commitments and energy transition - NDC mitigation target: reduce GHG emissions by 20 percent by 2030 compared to business as usual. - Mitigation measures across agriculture, energy, land use, land-use change and forestry (LULUCF), and waste sectors. - Estimated investment needed to achieve NDC objectives (including adaptation): about US$8.6 billion: - Government and private sector: US$5.1 billion. - International community: US$3.5 billion. - Energy access and renewables: - More than half the population lacks access to electricity; universal access by 2030 is main priority. - Benin Least-cost Electrification Master Plan (2021) expects 76 percent of the population connected to the electricity grid by 2030. - Target RE penetration: between 20-30 percent of the energy mix by 2035 and 33 percent by 2045. - Production expansion plans for 2045 require financing of around US$2.6 billion (or 15 percent of 2022 GDP). - Road transport’s GHG emissions multiplied by six between 2000 and 2021. - Fuelwood and charcoal production support 46 percent of national energy consumption. - Digital and co-benefits: - Renewable energy co-benefits in telecoms, agriculture, water management, and transport. - Digital technologies can facilitate RE transition, energy efficiency, and demand-side flexibility. ### Forests, land use, and carbon finance - To reduce emissions from land use: - Deforestation rates need to slow short-term and stop long-term. - Continued investment in sustainable forest management required. - Carbon finance and policy developments: - Benin adopted two decrees in December 2022 to enable projects to access carbon credits under the Ministry of Environment and Transport in charge of Sustainable Development (MCVT) and Ministry of Environment and Forests (MoEF). - Fuelwood strategy: - Government aims to improve fuelwood production while expanding clean fuels and efficient technologies. ### Financing needs and options - CCDR additional financing needs: - Annual investment of 0.1 percent of GDP to 2030. - Rising to 0.3 percent of GDP to 2040. - Rising to 0.8 percent in 2050. - Annual average of 0.3 percent over 2022-2050. - Nationally Determined Contribution estimates: - Adaptation and mitigation investment needs at about US$8.6 billion (US$5.1 billion from government and private sector; US$3.5 billion from international community). - National Adaptation Plan estimates adaptation needs alone at about US$4.2 billion over a 10-year horizon. - Financing avenues: 1. Increase revenue (such as through a carbon tax) and make public spending more efficient to create fiscal space for adaptation. 2. Tap into concessional and blended finance and disaster risk financing. 3. Leverage corporate investment. - Private sector role: - Significant jump in private sector investment needed across agriculture, water, electricity, transport. - Requires sound regulatory frameworks and greening the financial sector. - Caisse des dépôts et consignations du Benin and government actions offer promising avenues. - Sovereign sustainable financing: - Benin has experience issuing Sustainable Development Goals (SDG) bonds. ### World Bank engagement and support - The World Bank integrates climate action across operations, technical assistance, and knowledge generation for Benin. - Active operations with high climate co-benefits (selected): - Benin Rural Water Supply Universal Access Program: US$220 million (P164186). - Benin - Stormwater Management and Urban Resilience Project: US$100 million (P167359). - Building Resilient and Inclusive Cities Program: US$200 million (P176653). - Gazetted Forests Management Project: US$75 million (P167678). - Agricultural Competitiveness and Export Diversification Project: US$160 million (P168132). - Benin Electricity Access Scale-up (BEAS) Project: US$ 200 million (P173749). - Grand Nokoué Sustainable Urban Mobility Project (P180579) in preparation. - Operations under preparation: - Benin Social Safety Nets Program: US$100 million (P176680) to develop an adaptive Social Registry (RSU) for social assistance, including climatic shocks. - Analysis and technical assistance: - CCDR informs Country Partnership Framework and provides knowledge base. - TA supports NDC implementation, MRV system development, strengthening DRM framework, and operationalizing CCDR findings. - Development Policy Financing (DPF) series with Cat Draw Down Option (DDO): - Supports policy and institutional reforms to strengthen climate resilience and adaptation and advance low-carbon pathway. - Provides contingent financing (Cat DDO) and supports reforms to social protection, urban planning, and coastline protection. - The proposed RSF for Benin contributes to operationalizing CCDR recommendations and complements World Bank engagement. ### Beninese authorities’ financing request and context - Government statement (December 14, 2023) highlights: - Continued engagement with IMF and appreciation of policy dialogue under EFF/ECF and discussions for RSF. - Economic resilience amid regional disruptions (border closure with Niger, phase-out of fuel subsidies in Nigeria). - Climate-related vulnerabilities (floods, extreme heat, droughts) and Sahel security challenges. - Government requests access to the RSF for SDR 148.56 million, equivalent to 120 percent of Benin’s quota. - Authorities view RSF as complementary to blended EFF/ECF programs to enhance resilience to climate change. *Source: https://www.imf.org/-/media/files/publications/cr/2024/english/1benea2024001.pdf (November 30, 2023).* ### 4. Regional developments are having an impact on Benin’s economy. The country ### 1benea2024001 - 4. Regional developments are having an impact on Benin’s economy. The country ### Regional developments and near-term macroeconomic outcomes - Growth and activity - Growth of 6.3 percent in the first half of 2023 driven by increased trade, industrial production, transport activities, and agroindustry. - Closure of the Niger border since July 2023 is expected to have caused a 0.4 percentage points slowdown in the second half of the year. - Real GDP remains strong at 5.6 percent. - Inflation and prices - Inflation levels averaged 3.8 percent by end September 2023 (y/y), reflecting a sharp decline in food prices. - Approximately 17 percent surge in transport costs between June and September 2023. - 60 percent increase in the price of smuggled gasoline—kpayo—following the rise in pump prices in Nigeria. - External sector - Current account deficit estimated to improve to 5.8 percent of GDP in 2023 (from 6.2 percent of GDP in 2022), owing to slowdown in imports and higher international cotton prices compensating for the low cotton harvest in 2022/23 because of weather-related shocks. - Financial sector - Credit to the private sector grew strongly by 38 percent (y/y) at end-September 2023, driven by construction, trade, and transport activities. - Non-performing loans have continued to decline. ### Fiscal performance and debt dynamics - Revenue and spending - Tax revenue continues to exceed expectations, helped by corporate and individual income taxes, and taxes on goods and services. - New tax measures in the 2023 budget include taxing foreign service providers. - Public expenditure has increased following revision of the public expenditure framework; social spending has been scaled up to mitigate security threats in the north through the “civilian approach.” - Debt and risk assessment - Public debt has increased, but Benin remains at moderate risk of external and overall debt distress due to sustained revenue mobilization efforts and a prudent and active debt management strategy. - Fiscal stance and targets - Fiscal consolidation aimed at converging to the WAEMU fiscal deficit target of 3 percent of GDP by 2025. - 2023 fiscal deficit expected to reach 4.5 percent of GDP from a projected 4.3 percent; with resumption of concessional budget support and higher disbursements, it could go up to 4.7 percent of GDP. - Draft 2024 budget law forecasts a deficit of 3.7 percent of GDP. - Policy measures - 2024-2028 Medium-Term Revenue Strategy (MTRS) developed with IMF technical assistance to guide revenue mobilization. - Planned January 2024 IMF technical assistance to inform modalities for gradually eliminating energy subsidies and improving the fuel pricing system of fossil fuel subsidies. - Debt management priorities: prioritize concessional external financing, extend maturity of regional-market financing, and diversify financing sources through innovative ESG-focused options. ### Program implementation under EFF and ECF - Performance against program targets - All Quantitative Performance Criteria (QPCs) and indicative targets (ITs) for end-March and June 2023 were met, some with comfortable margins, including the basic primary balance and net domestic financing. - ITs saw an overperformance in tax revenues by about 7 percent. - Priority social spending also exceeded targets. - Even with a €350 million in SDG financing—partially backed by the African Development Bank (AfDB)—external borrowing remained below the present value ceiling. - Structural benchmarks - Three structural benchmarks for the review were implemented: the Medium-Term Revenue Strategy (MTRS), the quantitative fiscal risk analysis annexed to the 2024 budget law, and the operationalization of the commercial court of appeal. ### Social protection and inclusion priorities - Social safety nets - Reinforcing social protection mechanisms is a top priority, aligned with the Poverty Reduction and Growth Strategy (PRGS). - Government will utilize the completed social registry, Régistre Social Unique (RSU), to execute rollout of cash transfers and income-generating activities (Gbessoke). - Expand coverage of the National Integrated School Feeding Program (PNASI) with World Food Program support while ensuring sustainability. - Fuel subsidy phase-out implications - Authorities note Staff’s analysis on the Implications for Benin of the Phase out of Fuel Subsidy in Nigeria (Box 3) and welcome findings and recommendations. - Committed to managing transition carefully with attention to transport costs, balance of payments, and potential income loss for vulnerable populations. ### Governance, rule of law, and AML/CFT reforms - Governance diagnostic and action plan - 2022 IMF diagnostic identified vulnerabilities and highlighted positive developments in fiscal issues, AML/CFT, and rule of law. - Authorities developed an action plan to address findings and implement recommendations to promote good governance, enhance transparency, and tackle corruption. - AML/CFT measures - Reforms include establishing a legal framework for collecting, verifying, and publishing beneficial ownership information of landholders during land transfers. - Fund-supported program conditionality strengthened with three new structural benchmarks in these areas. ### Financial stability, business environment, and inclusion - Financial stability - National and regional authorities prioritized safeguarding financial stability within the regional monetary union. - Issues of two troubled banks in Benin were resolved. - Plans to deepen financial markets and promote financial inclusion. - Financial inclusion strategy - Transposed WAEMU regional financial inclusion strategy and adopted a 2023-2027 national financial inclusion strategy. - Implementation to start with setting up a permanent secretariat to monitor financial inclusion actions and indicators. - Business environment reforms - Government established a one-stop shop for investors to simplify licensing through digitalization. - Revision of legal and regulatory frameworks for special economic zones; licensing to be simplified via the one-stop shop. ### Reforms under the Resilience and Sustainability Facility (RSF) - Climate vulnerability and economic risk - Benin described as one of the most vulnerable to climate shocks; key sectors including agriculture are exposed to climate hazards that risk balance of payments stability. - RSF reform agenda - Authorities propose an ambitious agenda of mitigation and adaptation measures aligned with the Nationally Determined Contribution (NDC) and National Adaptation Plan (NAP). - Approach leverages existing legislative and regulatory frameworks and recommendations of IMF’s Climate Public Investment Management Assessment (C-PIMA) and World Bank’s Climate Change and Development Report (CCDR). - Fifteen (15) reform measures (RMs) identified around four (4) pillars: - (i) mainstreaming the climate agenda in policymaking and PFM/PIM processes, - (ii) enhancing adaptation to climate change, including transitioning away from fossil fuels, and strengthening populations’ resilience, - (iii) supporting mitigation efforts through a comprehensive fuel subsidy reform, - (iv) mobilizing climate finance from the private sector, including through a climate financial information architecture, building on the recent SDG bond framework. ### Risks, contingency planning, and outlook - Medium-term growth outlook - Outlook favorable with expansion of the Port of Cotonou, increased industrial activity, positive spillovers from GAP II infrastructure projects, and improved business environment. - Economic growth expected to stabilize at its potential rate of 6 percent. - Downside risks highlighted by authorities - Prolonged closure of border with Niger negatively impacting transit activities. - Social discontent. - Regional security threats in the Sahel. - Vulnerability to climate-related shocks, notably recurrent floods and droughts. - Contingency planning - Government committed to proactive measures and contingency plans discussed with IMF Staff to mitigate adverse effects if risks materialize. ### Conclusion and IMF engagement request - Resilience and implementation record - Despite regional challenges, Benin’s economy has proven resilient and authorities have made commendable progress implementing the EFF/ECF-supported reform program. - Requests and forward engagement - Authorities request Executive Board support for completion of the third reviews under the EFF and ECF arrangements and for an arrangement under the RSF. - Authorities look forward to continued close engagement with IMF and other partners to pursue economic, social development, and climate goals. *Source: 1benea2024001.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2024/english/1benea2024001.pdf_