## Benin—Assessment Letter for the World Bank ## Source details **Canonical URL:** [Benin—Assessment Letter for the World Bank](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2010/_043010.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2010/_043010.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2010/_043010.pdf.json) --- ### Background - Last three-year arrangement under the Poverty Reduction and Growth Facility (PRGF) expired on June 30, 2009. - At the sixth and last review on June 24, 2009, the IMF Executive Board approved an augmentation of access of 15 percent of quota (equivalent to about $15 million). - Benin received a total of SDRs 49.76 million (about $78 million) from the general and special SDR allocations on August 28, 2009 and on September 9, 2010, respectively. - The authorities’ program with the sixth review included quarterly indicative targets for 2009 and a plan to complete three outstanding structural benchmarks by end-2009. ### Recent economic developments and near-term prospects - Real GDP growth: estimated at 2.7 percent for 2009; projected at 3.2 percent for 2010; 5.0 percent in 2008. - Inflation: averaged 2.2 percent in 2009. - External current account deficit (excluding grants): estimated at 10.8 percent of GDP in 2009. - Main drivers of slowdown: weak prospects for cotton production and exports, and trade with neighboring countries, despite significant fiscal expansion. ### Fiscal situation and policy response in 2009–2010 Findings on 2009 fiscal deterioration: - Overall fiscal deficit (payment order basis, excluding grants): increased to 7.3 percent of GDP in 2009. - Customs collections: declined by 7 percent in 2009. - Wage bill: grew by 24 percent in 2009, mainly due to a doubling of the cost of bonuses and other fringe benefits to civil servants. - Domestic capital spending: doubled compared to 2008, partly due to a carryover of CFAF 113.2 billion from 2008 without corresponding financing. - Overall cash deficit (excluding grants): reached 9.1 percent of GDP in 2009, a fiscal deterioration of 2.4 percent of GDP compared with the authorities’ program supported in June 2009. Government adjustment measures introduced in August 2009: - Limiting bonuses and other benefits to civil servants. - Regularizing exceptional payment procedures (ordres de paiement) for 2006, 2007, and 2008, and strongly limiting their future use. - Strengthening monitoring of budget execution with the Treasury Committee. - Reviewing outstanding government bills before payment. - Adopting an emergency plan to improve tax revenue. Additional measures during second half of 2009: - Stopped most expenditure commitments for capital investment as of September 28, 2009. - Scaled back pensions and scholarships by CFAF 5.3 billion. - Postponed about CFAF 50 billion in capital spending to the 2010 budget. - Mobilized additional resources totaling CFAF 108.6 billion (3.5 percent of GDP) through: - Domestic counterpart of the SDR allocation: CFAF 32.8 billion. - Bond refinancing guaranteed by the regional central bank: CFAF 36.5 billion. - Transfer of 17.5 percent of state shares in SODECO to strategic investor. - Reimbursement of unused grants for free nursery and primary education for 2008/09. - Compensation of customs revenue losses by ECOWAS under the common tariff agreement. - Grants totaling CFAF 25.1 billion from the African Development Bank and the European Union. 2010 budget and revised fiscal framework: - Original 2010 budget (adopted by presidential decree, January 2010) projected: - Total revenue: CFAF 788.2 billion (23.8 percent of GDP), compared to CFAF 575.8 billion (18.4 percent of GDP) in 2009. - Projected increases: 37 percent overall increase in revenues versus 2009; tax revenue up 33 percent; nontax revenue up 65 percent. - Total expenditures: CFAF 1,052.6 billion (31.8 percent of GDP), compared to CFAF 805.4 billion (25.3 percent of GDP) in 2009. - Overall cash deficit (excluding grants): equivalent to 8.5 percent of projected GDP. - Financing need: CFAF 165 billion (5 percent of projected GDP). - Did not account for CFAF 50 billion in carryover spending from 2009. - Revised March 2010 understandings between authorities and Fund staff: - Revised revenue projection: 18 percent increase from 2009, to CFAF 681.9 billion (20.6 percent of GDP). - Overall expenditure envelope (payment-order basis), including CFAF 50 billion carryover: limited to CFAF 876.0 billion (26.5 percent of GDP). - Expected available financing includes CFAF 50 billion the authorities expect to cover through additional budgetary support from the African Development Bank, the EU, the IMF, the World Bank and possibly other donors. - Overall deficit on a payment order basis (excluding grants) projected to decline to CFAF 194.1 billion (5.9 percent of GDP), from CFAF 229.6 billion (7.3 percent of GDP) in 2009. - Expenditure could increase if additional revenues or concessional external financing above the expected CFAF 50 billion are mobilized. - Fund staff view: if implemented as planned, the revised 2010 fiscal policy will provide the adjustment required to avoid recurrence of 2009 financial problems and constitute substantial progress toward sustainability. - Medium-term: authorities and IMF staff agreed on a gradual fiscal adjustment to preserve fiscal and debt sustainability while allowing fiscal space for priority spending. Wage concessions in education (2010–2011) and offsets: - Increase salaries for professors starting in October 2010 at an annual budget cost of CFAF 12 billion (CFAF 3 billion for 2010). - Increase housing allowances of primary and secondary teachers from October 2010 and their salaries (by 25 percent) from January 2011 at an annual cost of CFAF 7.4 billion (CFAF 0.4 billion in 2010). - Authorities committed to making necessary cuts (CFAF 3.4 billion for 2010) in other expenditure items to preserve the agreed expenditure envelope. - Commitment to implement ongoing capital projects in 2010 before starting new ones. ### Structural reforms, privatizations, and public enterprise measures - Tax and customs administration: - Extended use of the taxpayer identification number (TIN) to all importers and exporters and all large enterprises (second half of 2009). - Appointed a unit for management of reforms at the Ministry of Finance to implement action plans for strengthening tax and customs administration. - Two outstanding structural benchmarks from the last PRGF arrangement expected to be completed by end-2010: extension of ASYCUDA++ to 12 additional customs posts and adoption of a strategic information system at the tax department. - Audits and state enterprise actions: - Completed a financial audit of the pension fund for civil servants (FNRB) identifying options to strengthen its actuarial balance. - Awarded concession for operation of the container terminal at the Port of Cotonou to an international operator (September 2009). - Sold 65 percent of Office National du Bois to a private company (December 2009). - Sold 51 percent stake in Société des Ciments d’Onigbolo to an international investor (March 2010). - Launched sale of a majority stake in Benin Telecom. - Electricity sector reforms and financial measures for Société Beninoise d’Electricite et d’Eau: - Increase electricity tariffs on average by CFAF 10 per KWh. - Convert into capital about CFAF 14 billion in debt owed to the state. - Reschedule and guarantee the debt service on CFAF 15.7 billion of debt owed to SOAGA. - Securitize CFAF 25 billion in debt owed to the power generation company CEB. - Government intends to put in place a transparent regulatory system for the electricity sector by June 2011 with a view to opening up the capital of the state-owned electricity company to the private sector. - Other structural measures: - Launch bids for implementation of the single stop window (guichet unique) at the Port of Cotonou. - Adopt decrees necessary to implement the new 2009 public procurement law by September 2010. - Plan to adopt a global strategy for civil service reform by June 2011. ### Discussions on a new ECF arrangement - March 2010 mission to Cotonou: broad understandings reached on main program elements that could form the basis for authorities’ request for a new Extended Credit Facility (ECF) arrangement. - Understandings are subject to internal review by IMF staff and management before presentation to the IMF Executive Board. *Source: Benin—Assessment Letter for the World Bank (IMF staff assessment).* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2010/_043010.pdf_