## Benin: Poverty Reduction Strategy Paper—Annual Progress Report—Joint Staff Advisory Note

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---

### Overview
- APR shows mixed progress in implementing Benin’s PRS since PRSP finalization in September 2002.
- Macroeconomic stability and low inflation were maintained despite:
  - deterioration of public finances;
  - weaker economic growth than targeted due to external shocks: declining international cotton prices and trade restrictions imposed by Nigeria;
  - delays in structural reforms due to capacity constraints, lack of coordination, and increasing political and social resistance.
- Progress noted in public expenditure management and service delivery in social sectors.
- Donors worked with the government to harmonize monitoring indicators based on PRSP programs.
- APR concludes the PRS remains a sound strategy for poverty reduction.
- APR process timing: written in 2004 about progress in 2003 but formally delivered in 2005, limiting integration with the budgetary and policy cycle; authorities intend to shorten APR preparation time and better integrate PRS monitoring with the policy cycle.
- APR process effects: improved donor coordination and harmonization and increased government awareness of donors’ expectations for PRS reporting.

### Macroeconomic Developments — Findings and Risks
- General assessment:
  - Macroeconomic policies during the first PRS implementation year were appropriate and aligned with PRS objectives: maintaining macroeconomic stability, strengthening public finance management, and reflecting PRSP priorities in social-sector budget allocations.
- Key statistics and outcomes:
  - Real GDP growth decelerated from 4.5 percent in 2002 to 3.9 percent in 2003, compared with a PRSP baseline target of 5.6 percent.
  - The external current account deficit widened by more than one percentage point of GDP.
  - Inflation remained below the WAEMU convergence criterion.
  - Overall budget deficit overran the PRSP target by 0.5 percentage point of GDP.
  - Revenue to GDP ratio increased to 16.6 percent, slightly below the PRSP target.
  - Expenditures were higher than envisaged, mainly due to an overshooting of the wage bill and additional transfers linked to local elections.
- Staff recommendations:
  - Diversify the economy and strengthen competitiveness given vulnerability to external shocks and dependence on cotton and exports to Nigeria.
  - Urgently implement envisaged reforms in cotton, telecommunications, energy, and transportation sectors.
  - Incorporate Diagnostic Trade Integration Study (DTIS) recommendations into Benin’s medium-term growth strategy.
  - Continue sound and prudent economic and financial policies: broaden tax base, fight tax evasion, simplify procedures, restrain spending, enhance execution of poverty-reducing expenditures, and strengthen public expenditure management.
  - Improve planning and programming aspects of budget management and fiscal sustainability analysis to reduce risks of budgetary slippages.
  - Assess why neither PRSP scenario materialized and use alternative scenarios and sensitivity analysis in PRSP revisions.
  - Strengthen institutional capacity for timely data collection and macroeconomic analysis.

### Sectoral Policies — Findings and Recommendations
- Cotton sector:
  - Liberalization occurred but attempts to bypass the regulatory framework caused disruptions in production and marketing.
  - World cotton price drops in 2002 and 2004 led the government to provide producer subsidies; staffs view such subsidies as potentially warranted only on a limited and temporary basis.
  - Staffs encourage enforcement of the new cotton regulatory framework, completion of SONAPRA privatization, and establishment of a privately managed price mechanism and an income stabilization fund for producers.
- Port, utilities, and telecommunications:
  - APR notes progress in port computerization but omits lengthy delays and obstacles in opening port management to the private sector.
  - Government separated water, electricity, and postal services from telecommunications, but the APR does not describe lack of progress in privatizing utilities or creating needed regulatory functions for the partly private telecommunications sector.
  - Staffs encourage completion of a comprehensive private sector development strategy during 2005 and beginning implementation of its recommendations.

### Human Development and Service Delivery — Findings and Limits
- Data and baseline:
  - APR provides extensive statistics for 1999–2002 on PRSP human development indicators and MDGs, largely based on 2002 household surveys (baseline).
- Key findings:
  - Child and maternal mortality and malnutrition are high.
  - Literacy and access to potable water remain low.
  - Education enrollment rates are rapidly increasing but inefficiencies (high drop-out and repetition rates) slow literacy progress.
  - Health initiatives cited include a new vaccination program, nutrition surveillance, and programs against HIV/AIDS and malaria.
  - Water sector: new strategy with ambitious agenda to construct new water points to increase access to potable water.
- Limitations and needs:
  - APR fails to provide information on drivers or changes to current poverty trends and provides limited explanation of trends between 1999 and 2002.
  - Links between sectoral public spending and outcomes need strengthening.
  - Accelerating progress will require improved quality of social services and decentralized service delivery; many decentralization initiatives remain in planning stages.

### Governance — Findings and Recommendations
- Public expenditure management and fiduciary systems:
  - Good progress in budget system reforms, auditing systems, and delegation of spending authority to line ministries.
  - Adoption of Medium Term Expenditure Framework (MTEF) within many ministries and alignment between MTEF and PRSP noted.
  - Frequent overestimates of revenues and expenditure pressures have forced post-approval budget revisions.
  - Staffs recommend strengthening the quality and timeliness of macroeconomic projections and budgetary estimates.
- Financial management systems:
  - SIGFIP (budget preparation) and ASTER (accounting) are functioning well, with efforts to integrate them; an electronic link has improved follow-up on budget execution including externally financed domestic projects.
  - Some foreign grants are not included in the systems; information is thus not comprehensive.
  - Recent tendency to use exceptional procedures during budget execution may undermine consistency, transparency, and foster corruption; staffs encourage limiting use of exceptional procedures and integrating all public spending, including grants, into the system.
- Administrative and judicial reform:
  - Civil service reform has been long delayed but some actions support program budgets and decentralized service delivery.
  - Judicial modernization: a ten-year program adopted in 2001 is underway but starts from a low base and will require years to deliver reliable legal and judiciary services.

### Capacity Building and Participation — Findings
- Monitoring and evaluation:
  - Significant progress in clarifying and reinforcing the M&E mechanism with a new decree in November 2004.
  - Improved collaboration between Permanent Secretariat of the National Committee for Development and the Fight Against Poverty (ST-CNDLP) in the Ministry of Finance and Economy and the Observatory of Social Change (OCS) in the Ministry of Planning.
  - Most M&E departmental committees have been installed but need to become fully operational.
  - PRSP dissemination and APR validation were conducted through broadly participative processes at central and local levels.
- Local capacity and decentralization:
  - Progress in capacity building and participation at the local level has been slow.
  - Budgetary decentralization delays have slowed resource transfers and local capacity building; few localities have adopted local development plans.
  - One factor is late dissemination of the PRSP (not launched until late 2004).

### Penetration of Financial Services and JSA Weaknesses
- Penetration of financial services:
  - Government tracking indicates the penetration rate into decentralized communities is just over 26 percent, well below the government target.
- Addressing weaknesses noted in the JSA of the PRSP:
  - JSA identified weaknesses to be addressed: increasing knowledge about the impact of policies on the poor; improving analysis of the determinants of poverty; designing a private sector development strategy; and improving capacity for implementation.
  - APR actions and subsequent developments:
    - New core welfare indicators questionnaire (CWIQ) surveys planned for the next several years to improve the poverty diagnosis.
    - A poverty and social impact assessment (PSIA) study of the cotton sector explores the poverty impact of over a decade of policy reforms in the sector producing Benin’s main export.
    - Concrete plans are prepared for developing the private sector growth strategy.
    - Government has agreed on the definition of a set of indicators it would use for monitoring implementation of the PRSP.
  - Remaining gaps noted by staffs:
    - Urgent need to specify and sharpen the content of the monitoring and evaluation program.
    - Make truly effective the M&E units that have been established in line ministries.
    - Strengthen capacities of M&E units to carry out M&E work.

### Conclusion and Recommendations
- APR broadly reflects Benin’s progress in implementing the PRSP and lays out the government’s agenda for improving performance and for monitoring progress on implementation.
- Observations on processes and data:
  - Long period required for finalizing the document indicates the government is still working on establishing a process for producing and using monitoring data.
  - Delays in the availability of monitoring data will make it harder to improve the efficiency of public spending, a crucial ingredient for accelerating progress towards the MDGs.
  - The abundant data in the report has been technically analyzed, but provides little indication of the degree to which results have been institutionally absorbed.
- Staffs encourage authorities to examine closely the progress in implementing the PRS and to consider new adjustments if the impact is less than expected.
- Staffs note critical importance of the following issues raised in the APR:
  - Reducing the vulnerability of the economy to external shocks through implementation of structural reforms.
  - Strengthening the macroeconomic framework through prudent and sound financial policies, while improving budget forecasts and envelopes for program sectors.
  - Adopting the administrative and judicial reforms needed to improve the business climate.
  - Stabilizing the policy environment for the cotton sector.
  - Adopting administrative reforms needed to fully implement and monitor program budgets and improve public sector efficiency.
  - Implementing budgetary decentralization critical for improved service delivery.

### Planning for the Next PRSP
- Timing and coverage:
  - The first PRSP extends through 2005.
  - The next PRSP will be produced during 2006 and will cover the period 2007-2009, the same period as is covered in the next Medium Term Expenditure Framework.
  - Timing will allow government to make use of new survey data that will become available only toward the end of 2005.
  - After the presidential elections scheduled in early 2006, the new government will be able to combine the preparation of the revised PRSP with the articulation of its political agenda.

*Prepared by the Staffs of the International Monetary Fund (IMF) and the International Development Association (IDA); June 3, 2005. Source: _cr05283 - Section 2*

### Section 1

### Benin: Poverty Reduction Strategy Paper—Annual Progress Report—Joint Staff Advisory Note

### I. Overview
- The APR shows mixed progress in implementing Benin’s PRS since the PRSP finalization in September 2002.
- Macroeconomic stability and low inflation were maintained despite:
  - Deterioration of public finances.
  - Weaker economic growth than targeted due to external shocks: declining international cotton prices and trade restrictions imposed by Nigeria.
  - Delays in structural reforms due to capacity constraints, lack of coordination, and increasing political and social resistance.
- Progress was made in public expenditure management and service delivery in social sectors.
- Donors have worked with the government to harmonize monitoring indicators based on PRSP programs.
- The PRS remains a sound strategy for poverty reduction according to the APR.
- The APR process suffered lengthy preparation delays: the APR was written in 2004 about progress in 2003 but formally delivered in 2005, limiting integration with the budgetary and policy cycle; authorities intend to shorten APR preparation time and better integrate PRS monitoring with the policy cycle.
- The APR process improved donor coordination and harmonization and increased government awareness of donors’ expectations for PRS reporting.

### II. Progress in Implementing the Strategy

#### A. Macroeconomic Developments — Findings and Risks
- Macroeconomic policies during the first PRS implementation year were appropriate and aligned with PRS objectives: maintaining macroeconomic stability, strengthening public finance management, and reflecting PRSP priorities in social-sector budget allocations.
- External shocks and sectoral problems produced weaker performance:
  - Real GDP growth decelerated from 4.5 percent in 2002 to 3.9 percent in 2003, compared with a PRSP baseline target of 5.6 percent.
  - The external current account deficit widened by more than one percentage point of GDP.
  - Inflation remained below the WAEMU convergence criterion.
  - Overall budget deficit overran the PRSP target by 0.5 percentage point of GDP.
  - Revenue to GDP ratio increased to 16.6 percent, slightly below the PRSP target.
  - Expenditures were higher than envisaged, mainly due to an overshooting of the wage bill and additional transfers linked to local elections.
- Staff recommendations and assessments:
  - Need to diversify the economy and strengthen competitiveness, given vulnerability to external shocks and dependence on cotton and exports to Nigeria.
  - Urgent implementation of envisaged reforms in cotton, telecommunications, energy, and transportation sectors.
  - Incorporate Diagnostic Trade Integration Study (DTIS) recommendations into Benin’s medium-term growth strategy.
  - Continue sound and prudent economic and financial policies: broaden tax base, fight tax evasion, simplify procedures, restrain spending, enhance execution of poverty-reducing expenditures, and strengthen public expenditure management.
  - Improve planning and programming aspects of budget management and fiscal sustainability analysis to reduce risks of budgetary slippages.
  - Assess why neither PRSP scenario materialized and use alternative scenarios and sensitivity analysis in PRSP revisions.
  - Strengthen institutional capacity for timely data collection and macroeconomic analysis.

#### B. Sectoral Policies — Findings and Recommendations
- Cotton sector:
  - Liberalization occurred but attempts to bypass the regulatory framework caused disruptions in production and marketing.
  - World cotton price drops in 2002 and 2004 led the government to provide producer subsidies; staff view such subsidies as potentially warranted only on a limited and temporary basis.
  - Staffs encourage enforcement of the new cotton regulatory framework, completion of SONAPRA privatization, and establishment of a privately managed price mechanism and an income stabilization fund for producers.
- Port, utilities, and telecommunications:
  - APR notes progress in port computerization but omits lengthy delays and obstacles in opening port management to the private sector.
  - Government separated water, electricity, and postal services from telecommunications, but the APR does not describe lack of progress in privatizing utilities or creating needed regulatory functions for the partly private telecommunications sector.
  - Staffs encourage completion of a comprehensive private sector development strategy during 2005 and beginning implementation of its recommendations.

#### C. Human Development and Service Delivery — Findings and Limits
- APR provides extensive statistics for 1999–2002 on PRSP human development indicators and MDGs, largely based on 2002 household surveys (baseline).
- Findings:
  - Child and maternal mortality and malnutrition are high.
  - Literacy and access to potable water remain low.
  - Education enrollment rates are rapidly increasing but inefficiencies (high drop-out and repetition rates) slow literacy progress.
  - Health initiatives cited include a new vaccination program, nutrition surveillance, and programs against HIV/AIDS and malaria.
  - Water sector: new strategy with ambitious agenda to construct new water points to increase access to potable water.
- Limitations:
  - APR fails to provide information on drivers or changes to current poverty trends and provides limited explanation of trends between 1999 and 2002.
  - Links between sectoral public spending and outcomes need strengthening.
  - Accelerating progress will require improved quality of social services and decentralized service delivery; many decentralization initiatives remain in planning stages.

#### D. Governance — Findings and Recommendations
- Public expenditure management and fiduciary systems:
  - Good progress documented in budget system reforms, auditing systems, and delegation of spending authority to line ministries.
  - Adoption of Medium Term Expenditure Framework (MTEF) within many ministries and alignment between MTEF and PRSP noted.
  - Frequent overestimates of revenues and expenditure pressures have forced post-approval budget revisions.
  - Staffs recommend strengthening the quality and timeliness of macroeconomic projections and budgetary estimates.
- Financial management systems:
  - SIGFIP (budget preparation) and ASTER (accounting) are functioning well, with efforts to integrate them; an electronic link has improved follow-up on budget execution including externally financed domestic projects.
  - Some foreign grants are not included in the systems; information is thus not comprehensive.
  - Recent tendency to use exceptional procedures during budget execution may undermine consistency, transparency, and foster corruption; staffs encourage limiting use of exceptional procedures and integrating all public spending, including grants, into the system.
- Administrative and judicial reform:
  - Civil service reform has been long delayed but some actions support program budgets and decentralized service delivery.
  - Judicial modernization: a ten-year program adopted in 2001 is underway but starts from a low base and will require years to deliver reliable legal and judiciary services.

#### E. Capacity Building and Participation — Findings
- Monitoring and evaluation:
  - Significant progress in clarifying and reinforcing the M&E mechanism with a new decree in November 2004.
  - Improved collaboration between Permanent Secretariat of the National Committee for Development and the Fight Against Poverty (ST-CNDLP) in the Ministry of Finance and Economy and the Observatory of Social Change (OCS) in the Ministry of Planning.
  - Most M&E departmental committees have been installed but need to become fully operational.
  - PRSP dissemination and APR validation were conducted through broadly participative processes at central and local levels.
- Local capacity and decentralization:
  - Progress in capacity building and participation at the local level has been slow.
  - Budgetary decentralization delays have slowed resource transfers and local capacity building; few localities have adopted local development plans.
  - One factor is late dissemination of the PRSP (not launched until late 2004).

*Prepared by the Staffs of the International Monetary Fund (IMF) and the International Development Association (IDA); June 3, 2005.*

### Section 2

### _cr05283 - Section 2

### Penetration of financial services
- The government is usefully tracking the degree of penetration of financial services into decentralized communities.
- This penetration rate, just over 26 percent, is well below the government target.

### Addressing weaknesses noted in the JSA of the PRSP
- The JSA of the PRSP identified several weaknesses to be addressed in future work on the PRSP, including:
  - increasing knowledge about the impact of policies on the poor;
  - improving analysis of the determinants of poverty;
  - designing a private sector development strategy; and
  - improving capacity for implementation.
- The APR addresses some of these issues in a list of actions undertaken to improve the PRSP.
- Actions and developments since the APR was validated:
  - New core welfare indicators questionnaire (CWIQ) surveys have been planned for the next several years to improve the poverty diagnosis.
  - A poverty and social impact assessment (PSIA) study of the cotton sector explores the poverty impact of over a decade of policy reforms in the sector producing Benin’s main export.
  - Concrete plans are prepared for developing the private sector growth strategy.
  - Government has agreed on the definition of a set of indicators it would use for monitoring implementation of the PRSP.
- Remaining gaps noted by staffs:
  - Urgent need to specify and sharpen the content of the monitoring and evaluation program.
  - Make truly effective the M&E units that have been established in line ministries.
  - Strengthen capacities of M&E units to carry out M&E work.

### Conclusion and recommendations
- The APR broadly reflects Benin’s progress in implementing the PRSP and lays out the government’s agenda for improving performance and for monitoring progress on implementation.
- Observations on processes and data:
  - The long period required for finalizing the document indicates that the government is still working on establishing a process for producing and using monitoring data.
  - Delays in the availability of monitoring data will make it harder to improve the efficiency of public spending, a crucial ingredient for accelerating progress towards the MDGs.
  - The abundant data in the report has been technically analyzed, but provides little indication of the degree to which results have been institutionally absorbed.
- Staffs encourage the authorities to examine closely the progress in implementing the PRS and to consider new adjustments if the impact is less than expected.
- Staffs note the critical importance of the following issues raised in the APR:
  - Reducing the vulnerability of the economy to external shocks through implementation of structural reforms,
  - Strengthening the macroeconomic framework through prudent and sound financial policies, while improving budget forecasts and envelopes for program sectors,
  - Adopting the administrative and judicial reforms needed to improve the business climate,
  - Stabilizing the policy environment for the cotton sector,
  - Adopting administrative reforms needed to fully implement and monitor program budgets and improve public sector efficiency, and
  - Implementing budgetary decentralization critical for improved service delivery.

### Planning for the next PRSP
- Government is now planning for the development of their next PRSP.
- Timing and coverage:
  - The first PRSP extends through 2005.
  - The next PRSP will be produced during 2006 and will cover the period 2007-2009, the same period as is covered in the next Medium Term Expenditure Framework.
  - This timing will allow government to make use of new survey data that will become available only toward the end of 2005.
  - After the presidential elections scheduled in early 2006, the new government will be able to combine the preparation of the revised PRSP with the articulation of its political agenda.

*Source: _cr05283 - Section 2*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2005/_cr05283.pdf_