## _cr10195

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### Executive Summary — recent developments and program context
- Real GDP growth halved to 2.7 percent in 2009, compared with 5 percent in 2008.
- Average CPI inflation declined to 2.2 percent in 2009.
- Current account balance widened to 10.8 percent of GDP in 2009 (external current account deficit excluding grants).
- Overall fiscal deficit rose to 7.3 percent of GDP in 2009 (payment order basis, excluding grants).
- Financing of the 2009 deficit: additional external donor support, domestic borrowing, and a large carryover of expenditure commitments to 2010 (CFAF 113 billion mentioned as carryovers; CFAF 50 billion carried into 2010).
- Program priorities: contain short-run crisis impact; increase sustainable medium-term growth to advance the MDGs; maintain fiscal and debt sustainability; improve external competitiveness; increase public investment in infrastructure mainly with external concessional financing; contain nonpriority public expenditure through global reform of the civil service; accelerate structural reforms to enhance the business climate.

### Elements of the new Extended Credit Facility (ECF) arrangement
- Program goals:
  - Raise annual real GDP growth from 3.2 percent in 2010 to 6 percent by 2013.
  - Hold inflation below the WAEMU convergence criterion of 3 percent.
  - Reduce the external current account deficit to 7 percent of GDP by 2013 (MEFP summary states 7 percent; elsewhere 7.6 percent cited).
- Access and financing:
  - Proposed access level: 120 percent of quota, equivalent to SDR 74.28 million.
  - Disbursement schedule: seven equal semiannual disbursements of SDR 10.61/10.62 million totaling SDR 74.28 million (first disbursement SDR 10.62 million upon Board approval).
- Fiscal anchor and medium-term stance:
  - Stabilize total public debt-to-GDP ratio at around 25 percent over the medium term.
  - Basic primary balance to be gradually increased to stabilize public debt; basic primary balance projected to reach 1.5 percent of GDP by 2013 from -3.8 percent of GDP in 2009.
  - Tax revenue to increase from 16.0 percent of GDP in 2009 to 19.3 percent of GDP by 2013 (MEFP ¶16).
  - Public investment maintained at about 9 percent of GDP annually.

### Fiscal projections, measures, and 2010 budget
- 2010 macro and fiscal projections:
  - Real GDP growth: 3.2 percent in 2010.
  - Broad money projected to increase by 5.4 percent in 2010.
  - Central government revenue projected at 20.6 percent of GDP in 2010.
  - Total expenditure and net lending projected at 26.5 percent of GDP in 2010.
  - Basic primary deficit projected reduced by 3.5 percentage points to 0.3 percent of GDP in 2010.
  - Overall deficit projected to decline by 1.4 percent of GDP in 2010.
- 2010 budget numeric targets and amounts:
  - Total revenue (CFAF): 681.9 billion (20.6 percent of GDP).
  - Tax revenue (CFAF): 575.6 billion (tax revenue listed elsewhere as 647.9, 718.1 in projections series; 2010 numeric in separate table is CFAF 275.8 billion—preserve both contexts where presented).
  - Nontax revenue expected at CFAF 106.3 billion in 2010.
  - Total expenditure and net lending (CFAF): 876.0 billion.
  - Public investment (CFAF): 320.9 billion in 2010 (domestically financed portion includes CFAF 50 billion carryover).
  - Wage bill limited to CFAF 243.2 billion in 2010; increase limited to 7.7 percent in nominal terms.
  - Privatization proceeds: CFAF 17.5 billion from cement company sale received March 2010; CFAF 20 billion sale of SCO noted (CFAF 17.5 billion cashed, CFAF 2.5 billion payable pending lease termination).
- Financing commitments and donor support cited:
  - World Bank PRSC-6: $30 million approved April 2010.
  - African Development Bank, EU, and French government committed CFAF 22.2 billion (0.7 percent of GDP) additional budget support.
  - Expected proceeds from sale of three 3G GSM licenses (CFAF 52 billion expected in July 2010 per staff statement).

### Public wage bill, labor policy, and macro impact
- Historical wage bill dynamics:
  - Wage bill grew at average real annual rate of 9.6 percent (2000–2009) versus real GDP growth of 4.2 percent.
  - Wage bill growth accelerated to average real rate of 14.7 percent (2007–2009).
  - Wage bill expanded by 24 percent in nominal terms in 2009 due to large bonuses.
- DSA and scenario results:
  - If wage-bill trends persist and total wage growth accommodated by corresponding increase in total expenditure, overall fiscal deficit would widen by 6½ percentage points to 10 percent of GDP by 2015.
  - Two scenarios: (i) reallocation between wages and public investment with unchanged overall expenditure; (ii) additional external grants used to increase wages or increase investment. Under both, increasing civil servant wages depresses growth, raises unemployment, and widens income disparities; increasing public investment raises productivity and supports investment, employment, and growth.
- Policy recommendations:
  - Limit growth of the public wage bill over the medium term to preserve fiscal and debt sustainability and improve competitiveness.
  - Implement a new institutional framework for centralized wage bargaining and introduce multiyear labor contracts for civil servants.
  - Broader civil service reform to increase efficiency, better target human resources, and attract/retain qualified civil servants.
- Authorities’ commitments:
  - Agreed to adopt a comprehensive civil service reform strategy by June 2011.
  - Noted that civil servants will not be paid for strike days going forward.

### Debt sustainability, DSA findings, and borrowing strategy
- DSA conclusion: Benin faces a "moderate risk of debt distress".
- External-debt and public-debt trends:
  - External debt stock cut by 58 percent to 11.5 percent of GDP in 2006 and 15.1 percent of GDP at end-2009 (multiple figures presented in source).
  - External public debt at end-2009: 88.5 percent multilateral, 11.5 percent bilateral.
  - Regional government borrowing surged: regional government debt 11.1 percent of GDP at end-2009 (vs. 1.5 percent at end-2006).
- DSA baseline and stress tests:
  - Under baseline, PV of external debt projected to decline to just over 9 percent of GDP in the long run; debt service ratios remain below 3 percent.
  - A shock to exports could cause marginal breach over three years of debt-to-exports threshold; other indicators remain under thresholds in alternative scenarios.
  - Addition of CFAF 150 billion of nonconcessional borrowing during 2010–12 (PV terms) does not lead to breach of thresholds or change debt vulnerability category.
- Policy implications:
  - Continue to finance primarily with external concessional assistance (grants and highly concessional loans).
  - Limited use of regional nonconcessional borrowing only as last resort and ensuring project viability.
  - Preserve fiscal adjustment to restore and maintain fiscal sustainability.

### Structural reforms, privatizations, and public enterprise restructuring
- Progress and planned actions:
  - Cotton ginning company privatized in 2008; new cotton strategy and purchase agency established.
  - Concession for Port of Cotonou container terminal awarded September 2009.
  - Majority stake in cement company awarded March 2010; proceeds CFAF 17.5 billion received.
  - Privatization of Benin Telecom launched; completion expected in third quarter of 2010; sale of majority stake and additional 6 percent to domestic investors planned.
  - SBEE (state electricity) reforms: tariffs increased (July 2009, April 2010), debt restructuring in March 2010, conversion and guarantees outlined (CFAF 14.02 billion conversion; guarantee CFAF 15.7 billion; securitization CFAF 25 billion).
- Planned regulatory and institutional reforms:
  - Adoption and implementation of public procurement code (implementing decrees by September 30, 2010 structural benchmark).
  - Regulatory framework for electricity sector to be adopted by June 30, 2011 (open distribution to private investors; regulatory authority; transparent tariff-setting).
  - Civil service reform strategy adoption by June 30, 2011.
  - One-stop window at Port of Cotonou: bids called May 2010; completion for port by end-2010 and extension to customs by June 2011 targeted.
  - Extension/generalization of TIN and ASYCUDA++ rollout to 12 additional regional customs offices by December 31, 2010 (structural benchmarks).

### Fiscal performance through Q1 2010 and corrective measures
- Q1 2010 outturns:
  - Income tax receipts: CFAF 1.1 billion higher than targeted.
  - Customs collections: CFAF 6.6 billion below target.
  - Basic primary balance: small deficit of CFAF 6.2 billion (0.2 percent of GDP).
  - Overall cash deficit (excluding grants): CFAF 62.5 billion (1.9 percent of GDP).
  - Authorities cleared all end-2009 outstanding bills by March 2010.
- Measures to address Treasury strains in H2 2009 and thereafter:
  - Strengthen tax collections; freeze expenditure commitments and new bonuses; enforce rigorous expenditure execution controls.
  - Halt capital spending commitments as of September 28, 2009; postpone CFAF 50 billion in capital spending to 2010.
  - Limit bonuses and accelerate regularization of exceptional payment orders.

### Quantitative performance criteria, indicative targets, and TMU highlights
- Key quantitative ceilings and targets (selected):
  - Ceiling on net domestic financing of the government (end-period):
    - CFAF 37.0 billion for end-June 2010 (performance criterion),
    - CFAF -25.4 billion for end-September 2010 (indicative target),
    - CFAF -15.3 billion for end-December 2010 (performance criterion).
  - Basic primary fiscal balance (excluding grants) performance criterion ceilings for 2010:
    - Not less than CFAF 37.8 billion at end-June,
    - CFAF 1.9 billion at end-September (indicative),
    - CFAF -10.5.8billion at end-December (performance criterion) — preserve exact form as in source.
  - Ceiling on exceptional payment procedures (cumulative from January 1, 2010):
    - CFAF 4.6 billion at end-June 2010,
    - CFAF 7.5 billion at end-September 2010,
    - CFAF 10.6 billion at end-December 2010.
  - Floor for government revenue (cumulative since January 1, 2010):
    - CFAF 315.5 billion end-June,
    - CFAF 494.6 billion end-September,
    - CFAF 618.9 billion end-December.
- Borrowing restrictions:
  - No contracting or guaranteeing of new nonconcessional external debt for the program duration (performance criterion), with narrow exceptions requiring IMF concurrence and DSA assessment.
  - No contracting or guaranteeing of short-term nonconcessional external debt.
- Reporting and data provision requirements:
  - Monthly TOFE within six weeks of end of month; detailed monthly domestic financing within four weeks; monthly reporting on exceptional payment procedures within four weeks.
  - Monetary data monthly within eight weeks; external-sector data within 12 weeks of end of quarter.
  - Authorities to provide decisions, laws, decrees within 10 days of entry into effect.

### Financial sector and safeguards
- Financial soundness indicators:
  - Nonperforming loans ratio reported 9.2 percent in 2008 to 8.1 percent in 2009 in one section; elsewhere nonperforming loans ratio reported 6.5 percent in 2008 to 5.7 percent in 2009 (preserve both source figures).
  - Capital adequacy ratio of five largest banks about 11.6 percent; these five hold 79 percent of deposits.
  - Four banks continue to have negative capital; two of these hold more than 5 percent of deposits; one bank under provisional administration with six months to correct deficiencies.
- Microfinance risks:
  - Reports of unlicensed microfinance institutions offering unrealistically high deposit rates; mission urged licensing and supervision; authorities have informed judicial system and committed to intervene if necessary.
- Safeguards:
  - Safeguards assessment of the BCEAO completed March 1, 2010; controls in place at operational level; recommendation to strengthen governance by adding an audit committee for Board oversight.
  - Implementation of Institutional Reform of WAEMU and BCEAO in 2010 expected to help governance; pursue IFRS implementation.

### Risks, staff appraisal, and conditionality
- Main program risks:
  - Lack of a government majority in parliament and the 2011 election cycle.
  - Trade union pressures for public wage increases (strikes by teachers and health care workers).
  - Uncertainties about pace of global and domestic recovery.
  - Weaker-than-anticipated donor support.
- Staff appraisal highlights and recommendations:
  - IMF staff supports authorities’ request for new ECF arrangement given prior satisfactory performance.
  - Emphasize strict limit on wage bill via centralized wage bargaining and multiyear wage contracts.
  - Speedy implementation of structural reform agenda essential to reach growth objectives.
  - Save privatization proceeds and, after consultation, use them to finance investment projects with high social rate of return.
  - Semiannual reviews and precise monitoring through quantitative performance criteria, indicative targets, and structural benchmarks.

_Authors: Beninese authorities; and IMF staff estimates and projections (content unit: _cr10195 — IMF Country Report excerpt)._

### 1. Selected Economic and Financial Indicators, 2007–15 .......................................................21

### 1. Selected Economic and Financial Indicators, 2007–15

### Executive Summary — recent developments and program context
- Real GDP growth halved to 2.7 percent in 2009, compared with 5 percent in 2008.
- Average CPI inflation declined to 2.2 percent in 2009.
- The current account balance widened to 10.8 percent of GDP in 2009.
- The overall fiscal deficit rose to 7.3 percent of GDP in 2009.
- Financing of the 2009 deficit: additional external donor support, domestic borrowing, and a large carryover of expenditure commitments to 2010.
- Structural reform implementation is progressing, but with some delays.
- Program priorities identified: contain short-run crisis impact; increase sustainable medium-term growth to advance the Millennium Development Goals (MDGs); maintain fiscal and debt sustainability; improve external competitiveness; increase public investment in infrastructure mainly with external concessional financing; contain nonpriority public expenditure through a global reform of the civil service; accelerate structural reforms to enhance the business climate.

### Elements of the new Extended Credit Facility (ECF) arrangement
- The basic primary balance will be gradually reduced during 2010–13 to stabilize the public debt-to-GDP ratio.
- Adjustment prerequisites:
  - Further revenue mobilization efforts.
  - A strict limit of recurrent expenditures to safeguard fiscal space for priority social and infrastructure spending.
- Structural reform agenda to include:
  - Measures to enhance revenue collection.
  - Improvements in public financial management.
  - Civil service reform.
  - Privatization of public utilities.

### Staff appraisal and program risks
- IMF staff supports the authorities’ request for a new ECF arrangement.
- Fiscal program implementation conditional on a strict limit on the wage bill to be achieved through:
  - A new framework for centralized wage bargaining.
  - Multiyear wage contracts.
- To reach ambitious growth objectives, speedy implementation of the structural reform agenda is imperative.
- Main risks: lack of a government majority in parliament and the 2011 presidential and parliamentary election cycle.

### Background — outcomes of previous ECF arrangement (2005–09)
- Objectives of the 2005–09 ECF: higher sustainable growth, poverty reduction, macroeconomic stability, reduced vulnerability to external shocks; expanded fiscal space for public investment; improved quality of poverty-reducing spending; deepen structural reforms for private sector-led growth.
- Program achievements and outcomes:
  - Inflation was gradually reduced below 3 percent, except during the temporary surge in 2008.
  - External debt stock was cut by 58 percent to 11.5 percent of GDP in 2006 and remained relatively low thereafter.
  - The basic primary balance was kept in surplus throughout the arrangement period (except in 2009).
  - Public investment averaged 6.8 percent of GDP during the arrangement period.
  - The wage bill increased by 67 percent in nominal terms between 2006 and 2009.
  - The overall fiscal deficit was contained below 4.5 percent of GDP (except in 2009), largely financed with external concessional resources.
  - Real GDP growth rose from 2.9 percent in 2005 to 5.0 percent in 2008, then fell to 2.7 percent in 2009.
  - Poverty headcount fell from 37.4 percent in 2006 to 34.4 percent in 2009.
- Structural reform implementation: mixed progress — substantial progress in cotton sector reform; civil service reform lagged; PFM strategy adopted in 2008; key tax and customs reforms implemented; two unmet structural benchmarks to be completed by end-2010.

### Implementation of prior recommendations and structural changes
- Privatizations and concessions:
  - Cotton ginning company privatized in 2008.
  - New agency for centralized purchase of fertilizers established in March 2009.
  - New global cotton sector reform strategy adopted.
  - Concession for Port of Cotonou container terminal awarded in September 2009.
  - Majority stake in the cement company awarded to a strategic private investor in March 2010.
  - Privatization of Benin Telecom launched; completion expected in the third quarter of 2010.
- State-owned energy company (SBEE):
  - Electricity tariffs increased twice: July 2009 and April 2010.
  - SBEE debt restructuring in March 2010.
- Fiscal measures and PFM:
  - Temporary fiscal measures from the 2008 food and fuel crisis were phased out; full pass-through of international food and fuel prices allowed in July 2008 with targeted protections for low-income households.
  - New law on public procurement contracts adopted in 2009.
  - Audit of PFM information system completed and medium-term PFM reform strategy adopted in 2008.
  - Delays: completion of tax and customs information systems deferred to end-2010; a one-stop window at customs and Port of Cotonou deferred to 2011.
- Other reforms:
  - Increased private sector participation in public services following outsourcing and privatizations.
  - Introduction of second-generation reforms to strengthen judicial and land tenure systems and expand credit to small and medium enterprises.
- Borrowing policy:
  - Authorities maintained a prudent borrowing policy relying primarily on external concessional sources.
  - Borrowing on the regional market surged in 2009 to finance the large fiscal deficit associated with the global economic crisis.

### Impact of the global crisis and policy response (2008–09)
- Growth and production:
  - Real GDP growth fell from 5.0 percent in 2008 to 2.7 percent in 2009.
  - Growth decline driven by lower cotton prices, weaker export demand (notably from Nigeria), lower FDI, reduced cotton production, and floods in the south.
  - Noncotton agricultural production and transportation continued to grow, supported by fiscal stimulus.
- Inflation:
  - Average CPI inflation declined from 8.0 percent in 2008 to 2.2 percent in 2009.
  - Despite a 13 percent increase in electricity tariffs in July 2009, lower food, transportation, and gasoline prices reduced inflation.
- External sector:
  - Sharp decline in transit trade and weaker cotton exports widened the current account deficit.
  - Terms of trade were unchanged due to offsetting declines in international food and energy prices and cotton prices.
  - Balance of payments turned into a deficit of 1.6 percent of GDP in 2009.
  - Real effective exchange rate in December 2009 appreciated by 1.1 percent year-on-year.
- Monetary developments:
  - Reserve requirement reduced from 15 to 9 percent in June 2009.
  - Broad money expanded in the second half of 2009; banks increased credit to the economy by 11 percent at end-2009.
- Fiscal response:
  - Authorities implemented a strong fiscal stimulus in the first half of 2009, later tightened in the second half due to financing constraints.
  - Total revenue declined by 1 percent of GDP in 2009; customs receipts fell nominally by 7 percent.
  - Domestic taxes were in line with program projections.
  - Wage bill expanded by 24 percent in nominal terms in 2009 due to large bonuses to civil servants.
  - Domestic capital spending doubled in nominal terms from 2008 to 2009, influenced by a surge in first-half investment and the carryover of CFAF 113 billion (3.8 percent of GDP) of unfunded expenditure commitments from 2008.
  - Measures in the second half of 2009 to address Treasury strains: strengthen tax collections; freeze expenditure commitments and new bonuses; enforce more rigorous controls on expenditure execution.
- Financing and carryovers:
  - About two-thirds of the 2009 fiscal deficit was financed by external grants and concessional loans, including the counterpart of the SDR allocation.
  - Additional financing through regional market borrowing and one-off measures.
  - About CFAF 50 billion (1.4 percent of GDP) of expenditure commitments were carried over into 2010.

### Article IV Consultation discussions — medium-term growth strategy
- Core challenge: contain short-run crisis impact and achieve higher sustainable medium-term growth to advance the MDGs.
- Authorities’ assessment: economy could reach a potential growth rate of 6 percent by 2013, conditional on adoption and implementation of appropriate policy measures. 

*Source: IMF staff and Beninese authorities, IMF Country Report excerpt (Selected Economic and Financial Indicators, 2007–15).*

### 15.      To achieve this growth, it will be critical to increase investment while

### _cr10195 - 15.      To achieve this growth, it will be critical to increase investment while

### Investment needs and fiscal framework
- Annual level of public investment of about 9 percent of GDP over the medium term would be consistent with the country’s development needs and absorption capacity constraints, if adequate concessional financing can be secured.
- Public investment should be financed primarily with external concessional funds to enhance fiscal and debt sustainability.
- The basic primary fiscal balance should gradually be brought to a surplus by mobilizing tax revenue and containing the increase in nonpriority current expenditure.
- PFM reforms to increase the effectiveness of public spending, improve the provision of utilities, and enhance the business climate will increase productivity.

### Debt sustainability analysis and background studies
- Updated DSA confirmed earlier results of a moderate risk of debt distress.
- Two background papers analyze:
  - The effect of the wage bill on sustainability of public and external debt.
  - The impact of the composition of expenditure on economic development.

### A. The Macroeconomic Impact of Public Wage Policies
- From 2000 through 2009, the wage bill in Benin grew at an average real annual rate of 9.6 percent, compared to an average real GDP growth of 4.2 percent.
- From 2007 to 2009, wage bill growth accelerated to an average real rate of 14.7 percent.
- Growth in the wage bill was driven by an increase in allowances and bonuses to civil servants.
- If these trends persist and growth in the total wage bill were accommodated by a corresponding increase in total expenditure:
  - The overall fiscal deficit would widen by 6½ percentage points to 10 percent of GDP by 2015.
- If total spending and the corresponding fiscal deficit are maintained at the level projected under the authorities’ program:
  - There is a risk that spending on wages crowds out public investment, adversely impacting long-term growth and compromising fiscal and debt sustainability in the long run.
- Taking into account population growth and the intent to make progress toward the MDGs, there will be limited scope for increasing civil service wages without corresponding increases in civil service productivity.
- Second study results:
  - Two scenarios analyzed: (i) reallocation between wages and public investment with unchanged overall expenditure envelope; (ii) additional external grants used either to increase civil servant wages or to increase investment.
  - Under both scenarios, an increase in civil servant wages would depress growth, increase unemployment, and widen income disparities.
  - Mechanism: public sector wages used as a benchmark increase private sector labor costs, reducing private labor demand and investment.
  - By comparison, an increase in public investment increases productivity and thereby encourages investment, employment, and growth.
- Policy recommendations from the mission:
  - Limit growth of the public wage bill over the medium term to preserve fiscal and debt sustainability and improve competitiveness.
  - Implement a new institutional framework for centralized wage bargaining and introduce multiyear labor contracts for civil servants to reduce successive rounds of wage negotiations and link wage increases to available budgetary resources.
  - Broader civil service reform to increase efficiency, better target government human resources toward priority sectors, and attract, retain, and motivate well-qualified civil servants.
- Authorities’ stance:
  - Acknowledged difficulty of containing wage-bill growth politically ahead of the 2011 presidential and legislative elections; labor unions intensifying wage demands with prolonged strikes by key categories including teachers and health care workers.
  - Agreed on the need for comprehensive civil service reform and committed to adopting a comprehensive reform strategy based on the study recommendations by June 2011.
  - Noted that, going forward, civil servants will not be paid for strike days.

### B. External Sustainability and Competitiveness
- REER is overvalued by 13–22 percent at the end of 2009.
- Benin moved down to the bottom 10th and 20th percentiles of all countries surveyed by the World Bank and the World Economic Forum, respectively, in the last four years; and ranked among the least competitive countries in the WAEMU region in 2010.
- Authorities committed to improve external competitiveness and the business climate; fiscal policy is being tightened and an ambitious structural reform agenda is being implemented to reduce the cost of doing business.
- Authorities confirmed Benin had not imposed measures that could give rise to exchange restrictions subject to Fund jurisdiction.

### C. Health of the Financial Sector
- Nonperforming loans ratio declined from 9.2 percent in 2008 to 8.1 percent in 2009.
- The capital adequacy ratio of the five largest banks (holding 79 percent of deposits) was constant at about 11.6 percent during the period.
- Banks reported loan portfolio performance had suffered from government payment delays earlier in 2009, but the situation had recently improved.
- Authorities expect bank capital to strengthen significantly in 2010 in line with new WAEMU requirements; most banks have submitted plans to comply with the new own capital requirement of CFAF 5 billion.
- Four banks continue to have negative capital, two of which hold more than 5 percent of bank deposits.
- One bank with a severe capital deficiency has been put under provisional administration; the authorities granted six months to implement corrective measures and have delayed withdrawing the bank’s license.
- Risks from unlicensed microfinance institutions:
  - Reports of unlicensed microfinance institutions offering unrealistically high deposit rates, possibly “Ponzi-type” schemes, attracting deposits away from commercial banks.
  - Mission urged authorities to ensure all operating microfinance institutions are licensed and properly supervised.
- Authorities reported informing the judicial system about certain unauthorized microfinance institutions and committed to intervening if necessary and strengthening licensing and supervision.

### IV. The New ECF Arrangement — Objectives and Program Design
- Program goals:
  - Raise annual real GDP growth from 3.2 percent in 2010 to 6 percent by 2013.
  - Hold inflation below the WAEMU convergence criterion of 3 percent.
  - Reduce the external current account deficit to 7 percent of GDP by 2013.
- Monetary framework:
  - Containment of domestic demand through prudent fiscal policy and a moderate WAEMU regional monetary policy under the fixed peg with the euro.
  - Broad money projected to increase by 5.4 percent in 2010.
- Fiscal anchor:
  - Stabilize the total public debt to GDP ratio at around 25 percent of GDP over the medium term.
- Fiscal policy measures to preserve debt sustainability:
  - Increase the basic primary fiscal balance through stronger mobilization of revenue and more rigorous management of public expenditure (MEFP, ¶15).
  - Tax revenue to increase from 16.0 percent of GDP in 2009 to 19.3 percent of GDP by 2013 through reforms in tax policy and administration (MEFP ¶16).
  - Public expenditure to be kept at about 26 percent of GDP while improving public expenditure management and containing growth of the public wage bill (MEFP ¶17–19).
  - Development of a tracking system for priority expenditures (MEFP ¶28); staff expects to track priority spending starting with the 2011 budget.
  - Financing the overall fiscal deficit primarily through external concessional sources (MEFP ¶20); authorities do not plan to borrow on nonconcessional terms for the time being.
- Expected outcomes:
  - Fiscal space for growth-enhancing priority expenditure.
  - Public investment maintained at about 9 percent of GDP annually throughout the period.
  - Improve selection and monitoring of projects, and strengthen transparency and accountability in public procurement contracts.
  - Limit and monitor the use of exceptional payment procedures outside the expenditure chain as an indicative target under the program.
- Structural reforms (MEFP ¶21 and ¶12, ¶27):
  - Strengthen external competitiveness and improve the business climate.
  - Improve mobilization of revenue, quality and efficiency of public expenditure, transparency and accountability in public financial management, widen the role of the private sector, and modernize public administration.
  - “Second generation” reforms to improve land registration and property rights and the financial and judiciary systems.
  - Strengthen microfinance supervision and devote more resources to encouraging youth entrepreneurship in agriculture and establishment of small and medium enterprises (MEFP ¶27).

### A. Fiscal Policy in 2010 — Projections and Measures
- Real GDP growth projected to pick up marginally from 2009 to 3.2 percent of GDP in 2010.
- Broad program intentions for 2010 budget execution:
  - Authorities committed to executing the budget in accordance with fiscal projections agreed with Fund staff; starting with 2011 budget, draft budget law to be presented to parliament in line with the Fund-supported program (MEFP ¶18).
- Government revenue projections:
  - Revenue projected to rebound in 2010 to 20.6 percent of GDP due to improvements in tax administration, selected tax increases, and planned sale of three third-generation Global System for Mobile (GSM) Communication licenses (MEFP ¶30).
- Expenditure and wage bill:
  - Increase in the wage bill will be limited to 7.7 percent in nominal terms, reflecting wage concessions already granted to the education sector in early 2010.
  - Expenditure on transfers and purchases of goods and services will increase by 0.5 percent of GDP.
  - Capital spending will be maintained in line with the 2009 level by mobilizing more concessional financing from donors.
  - Domestically financed portion of capital spending includes the CFAF 50 billion (1.4 percent of GDP) in expenditure carryover from 2009 (MEFP ¶32–33).
- Deficit and financing:
  - Basic primary deficit projected to be reduced by 3.5 percentage points to 0.3 percent of GDP.
  - Overall deficit projected to decline by 1.4 percent of GDP, reflecting more external financing of investment (MEFP ¶34).
  - Deficit to be financed primarily with external concessional budget support.
  - World Bank approved a $30 million Poverty Reduction Support Credit (PRSC)-6 credit in April 2010.
  - African Development Bank, the EU, and the French government have committed CFAF 22.2 billion (0.7 percent of GDP) in additional budget support.
  - Remaining financing gap to be covered with additional assistance from multilateral and bilateral donors, and the proposed ECF arrangement; staff expects the program to be fully financed.
- Privatization proceeds:
  - Privatization proceeds will be saved pending discussions with Fund staff on their use (MEFP ¶23).
  - Includes CFAF 17.5 billion (0.5 percent of GDP) from the sale of shares of the cement company (Société de Ciments d’Onigbolo) received in March 2010, and proceeds from the forthcoming privatization of Benin Telecom.
  - Authorities agreed on the principle that these resources should be used to finance investment projects with a high social rate of return.

*Source: Beninese authorities and Fund staff estimates (content unit: _cr10195 - PDF chapter).*

### 43.      Preliminary data indicate that fiscal performance through the first quarter of

### _cr10195 - 43.      Preliminary data indicate that fiscal performance through the first quarter of

### Fiscal performance through Q1 2010
- Income tax receipts were CFAF 1.1 billion higher than targeted.
- Customs collections were CFAF 6.6 billion below target.
- Primary expenditure was in line with program projections.
- Basic primary balance: small deficit of CFAF 6.2 billion (0.2 percent of GDP).
- Authorities cleared all end-2009 outstanding bills by March 2010.
- Overall cash deficit (excluding grants): CFAF 62.5 billion (1.9 percent of GDP).

### Structural reforms (planned or underway)
- Taxation and revenue administration:
  - Legislation to establish a personal income tax to expand the tax base.
  - Introduction of a more favorable tax regime for private savings and small and medium enterprises.
  - Strengthening tax and customs administration by coordinating tax collection agencies, reinforcing inspection capacity, refining targeting of controls, and enhancing use of information technologies (MEFP ¶16).
- Budget and procurement:
  - Full implementation of the new public procurement code (MEFP ¶19).
  - Revision of the organic budget law in line with WAEMU guidelines.
  - Extension of program budgeting to all branches of public administration and improved controls at all levels of budget implementation (MEFP ¶18).
- Port and customs modernization:
  - Bids called in May 2010 for implementation of a one-stop window at the Port of Cotonou.
  - Expected completion for the Port of Cotonou by the end of 2010; extension to the customs department by June 2011.
  - Objective: modernize clearance process and increase transparency in port and customs operations.
- Privatization and state-owned enterprises:
  - Privatization of a majority stake of Benin Telecom to a strategic investor to be completed by the third quarter of 2010.
  - An additional six percent of Benin Telecom to be sold to domestic investors.
  - Restructuring of state-owned electricity company SBEE underway; privatization to be launched by the end of 2011 (MEFP ¶22).
  - Prior to SBEE privatization, implementation of a regulatory framework for the electricity sector, including a transparent system for determining electricity tariffs.
- Civil service and pensions:
  - Global strategy to reform the civil service to be adopted in 2011, including a comprehensive revision of the remuneration system.
  - Measures to improve the actuarial balance of the pension fund to be implemented (MEFP ¶17, ¶25).

### Access, disbursements, and program monitoring
- Proposed access level for the three-year arrangement: 120 percent of quota, equivalent to SDR 74.28 million.
- Disbursement schedule: to be disbursed in seven equal semiannual disbursements (Table 7).
- Immediate availability: SDR 10.62 million would become available after Board approval of the arrangement.
- Monitoring framework:
  - Program monitored through quantitative performance criteria, indicative targets, and structural benchmarks (MEFP Tables 1 and 2).
  - Indicative target on the public wage bill under the previous ECF arrangement has been dropped.
  - Performance to be monitored with semiannual reviews.

### Risks and safeguards
- Principal risks to program implementation:
  - Lack of a government majority in parliament and the 2011 election cycle.
  - Trade union pressures for public wage increases, which could endanger fiscal sustainability.
  - Uncertainties about the pace of recovery.
  - Weaker-than-anticipated donor support.
- Safeguards and capacity to repay:
  - Safeguards assessment of the BCEAO completed on March 1, 2010.
  - 2010 update assessment found that the BCEAO continues to have controls in place at the operational level.
  - Recommendation to strengthen the overall governance framework by adding an audit committee to ensure Board oversight over the control structure, including audit mechanisms and financial statements.
  - Upcoming implementation (2010) of the Institutional Reform of the WAEMU and the BCEAO expected to help address governance issues.
  - Efforts to fully implement the International Financial Reporting Standards reporting framework should be pursued.
  - Benin’s capacity to repay the Fund is sound (Table 6).

### Staff appraisal — outlook, challenges, and recommendations
- Economic outlook:
  - The global economic crisis continues to affect Benin adversely.
  - Following a sharp deceleration in 2009, growth is projected to be weak in 2010.
  - Medium-term outlook is more favorable if prudent macroeconomic policies and the structural reform agenda are implemented.
  - Continued international support is essential for progress toward the MDGs.
- Macroeconomic challenge:
  - Mitigate short-term impact of the crisis while achieving higher sustainable growth over the medium term.
  - For 2010, there is scope to extend fiscal support to the economy.
  - Over the medium term, a marked fiscal adjustment should be enforced to preserve fiscal and debt sustainability.
  - Specifically, growth of the public wage bill should be limited to preserve fiscal space for priority spending to support growth and poverty alleviation.
- Policy recommendations and program design:
  - Prudent implementation of the 2010 budget in line with the program is essential to sustain the fiscal position.
  - Limit the public wage bill to program projections by adhering to the new framework for centralized wage bargaining and moving toward multi-year wage contracts.
  - Save privatization proceeds and, after consultation with Fund staff, use them to finance projects with a high social rate of return.
  - Future draft budgets should align with the program to avoid large unfunded expenditure carryovers and to increase budget transparency.
  - Structural reforms (one-stop window, civil service reform, electricity sector regulatory framework with automatic tariff adjustment) are appropriately ambitious and central to strengthening revenue collection, public financial management, external competitiveness, and the business climate.
- Support for the arrangement:
  - Given satisfactory performance under the previous arrangement, staff supports the authorities’ request for a new ECF arrangement.
  - The arrangement will provide essential financial support to cover temporary imbalances and catalyze additional concessional assistance from other donors.
  - Program conditionality has been designed to mitigate the sizeable risks, particularly those related to the election cycle.

*Source: _cr10195 - 43.      Preliminary data indicate that fiscal performance through the first quarter of (IMF staff report content).*

### 59.      It is proposed that the next Article IV consultations with Benin be held on a

### _cr10195 - 59.      It is proposed that the next Article IV consultations with Benin be held on a

### Consultation schedule
- It is proposed that the next Article IV consultations with Benin be held on a 24 month cycle, subject to the decision on consultation cycles in program countries.

### Macroeconomic findings and projections
- National income (annual percentage change unless otherwise indicated):
  - GDP at current prices: 7.4, 12.6, 4.8, 5.4, 6.8, 7.7, 8.3, 8.3, 8.3 (2007–2015 series as presented)
  - GDP at constant prices: 4.6, 5.0, 2.7, 3.2, 4.4, 5.5, 6.0, 6.0, 6.0
  - GDP deflator: 2.6, 7.2, 2.0, 2.1, 2.2, 2.2, 2.2, 2.2, 2.2
  - Consumer price index (average): 1.3, 8.0, 2.2, 2.5, 2.8, 2.8, 2.8, 2.8, 2.8
  - Consumer price index (end of period): 0.3, 9.9, -2.9, 2.8, 2.8, 2.8, 2.8, 2.8, 2.8
- Basic ratios (percent of GDP unless otherwise indicated):
  - Gross investment: 21.4, 20.8, 24.8, 25.1, 24.4, 24.9, 25.1, 25.7, 26.4
  - Gross domestic saving: 5.9, 7.5, 10.3, 11.5, 12.2, 12.9, 13.5, 14.5, 15.5
  - Gross national saving: 11.3, 12.8, 16.3, 17.2, 16.7, 17.6, 18.1, 18.9, 19.8
- External sector (in percent of GDP and levels):
  - Trade balance: -14.3, -13.6, -14.1, -14.4, -13.2, -12.8, -12.4, -12.0, -11.7
  - Current account balance (including grants): -10.1, -8.0, -8.5, -7.9, -7.7, -7.3, -7.0, -6.8, -6.6
  - Nominal GDP (in billions of CFA francs): 2,658.1, 2,992.6, 3,136.1, 3,305.2, 3,529.0, 3,802.4, 4,117.0, 4,458.4, 4,828.9
  - Population (in millions): 8.9, 9.1, 9.4, 9.6, 9.9, 10.2, 10.5, 10.8, 11.1
  - Nominal GDP per capita (in U.S. dollars): 624.8, 736.2, 711.3, 770.1, 795.6, 828.9, 867.1, 905.3, 945.2

### Fiscal findings, composition, and projections
- Central government finance (percent of GDP unless otherwise indicated):
  - Revenue (consolidated central government): 20.6, 19.4, 18.4, 20.6, 20.5, 21.0, 21.3, 21.3, 21.3
  - Expenditure and net lending: 23.4, 22.9, 25.7, 26.5, 26.1, 25.8, 25.2, 25.1, 25.0
  - Primary balance: -1.2, -3.1, -6.8, -5.1, -4.7, -4.1, -3.3, -3.2, -3.2
  - Basic primary balance: 3.1, 0.7, -3.8, -0.3, 0.1, 0.7, 1.5, 1.6, 1.5
  - Overall fiscal deficit (payment order basis, excl. grants): -2.8, -3.5, -7.3, -5.9, -5.6, -4.8, -3.9, -3.7, -3.7
  - Overall fiscal deficit (cash basis, excluding grants): -3.4, -7.4, -9.1, -6.4, -6.1, -5.2, -4.3, -4.0, -4.0
  - Debt service (after debt relief) in percent of revenue: 7.9, 2.9, 3.7, 4.3, 4.6, 4.3, 4.1, 3.4, 2.9
  - Total government debt: 15.4, 24.5, 26.2, 24.9, 24.8, 24.5, 24.6, 24.6, 24.7
- Consolidated central government operations (billions of CFAF and percent of GDP):
  - Total revenue (billions of CFAF): 548.0, 581.3, 575.8, 681.9, 721.9, 797.2, 878.4, 951.8, 1,029.4 (2007–2015 series as presented)
  - Tax revenue (billions of CFAF): 446.7, 512.2, 500.4, 575.6, 647.9, 718.1, 796.4, 865.6, 935.3
  - Total expenditure and net lending (billions of CFAF): 622.4, 684.7, 805.4, 876.0, 920.5, 981.2, 1,039.2, 1,117.1, 1,206.8
  - Current expenditures (billions of CFAF): 423.8, 465.1, 490.4, 555.1, 610.1, 646.0, 687.8, 731.6, 780.2
  - Investment (capital expenditures) (billions of CFAF): 198.4, 174.7, 302.3, 320.9, 310.3, 335.2, 351.4, 385.5, 426.6
  - Financed by domestic resources (capital): 85.2, 105.3, 221.6, 161.9, 140.9, 152.6, 153.7, 173.4, 199.0
  - Financed by external resources (capital): 113.2, 69.4, 80.7, 159.0, 169.4, 182.6, 197.7, 212.1, 227.6
  - Overall balance (payment order basis, excl. grants) (billions of CFAF): -74.4, -103.4, -229.6, -194.1, -198.5, -184.0, -160.8, -165.3, -177.5
  - Overall balance (cash basis, excl. grants) (billions of CFAF): -90.6, -222.6, -284.7, -211.5, -213.5, -199.0, -175.8, -180.3, -192.5
  - Financing gap / statistical discrepancy (billions of CFAF): 28.7, 3.4, -3.5, 24.3, 32.8, 19.6, 13.2, 6.1, 2.1

### Monetary sector and domestic finance
- Monetary aggregates and credit (levels in billions of CFA francs unless otherwise indicated):
  - Net foreign assets (BCEAO + banks): 678.6, 709.6, 698.5, 727.8, 738.5, 759.9, 788.2, 818.7, 859.2
  - Net domestic assets: 268.9, 510.4, 597.1, 637.7, 719.4, 811.0, 912.6, 1,023.1, 1,135.7
  - Broad money (M2): 947.4, 1,220.0, 1,295.6, 1,365.4, 1,457.9, 1,570.9, 1,700.8, 1,841.8, 1,994.9
  - Credit to the nongovernment sector (levels): 512.9, 635.5, 705.6, 751.7, 824.5, 921.5, 1,063.5, 1,216.9, 1,373.1
- Monetary growth and velocity:
  - Broad money (M2) growth (change in percent of beginning-of-period broad money): 17.7, 28.8, 6.2, 5.4, 6.8, 7.7, 8.3, 8.3, 8.3
  - Velocity of broad money: 3.0, 2.9, 2.9, 2.8, 2.8, 2.8, 2.8, 2.8, 2.8

### External sector details and reserves
- Balance of payments highlights (billions of CFA francs and percent of GDP as presented):
  - Exports, f.o.b. (billions of CFAF): 241.8, 290.1, 275.0, 278.1, 301.5, 338.2, 379.5, 425.9, 477.8
  - Imports, f.o.b. (billions of CFAF): -620.7, -696.5, -718.1, -752.8, -767.0, -824.6, -889.6, -962.1, -1,043.4
  - Services (net): -33.9, 9.3, -11.9, 25.3, 32.8, 31.7, 33.8, 35.8, 37.7
  - Current transfers (net): 148.7, 162.0, 192.4, 186.2, 158.5, 173.6, 185.5, 196.4, 208.0
  - Overall balance (billions of CFAF): 86.0, 47.9, -51.3, -3.0, -12.0, 11.7, 25.2, 34.4, 48.4
- Reserves and adequacy:
  - Gross official reserves (imputed reserves, billions of U.S. dollars): 0.9, 1.2, 1.3, 1.4, 1.4, 1.5, 1.5, 1.5, 1.6
  - Gross official reserves (percent of broad money): 47.8, 44.0, 46.1, 45.3, 43.9, 42.7, 39.1, 38.2, 37.6
  - Current account balance (incl. program grants) (percent of GDP): -10.1, -8.0, -8.5, -7.9, -7.7, -7.3, -7.0, -6.8, -6.6

### Program request, policy commitments, and structural reforms
- Program request:
  - The government asks the Executive Board of the IMF to approve a three-year arrangement under the Extended Credit Facility (ECF), with access equivalent to SDR 74.28 million (120 percent of quota).
- Macroeconomic policy commitments (as described in the Letter of Intent and MEFP excerpts):
  - Pursue a prudent fiscal policy to maintain macroeconomic stability and preserve fiscal space for social safety nets and priority social spending.
  - Step up efforts to rebalance public finances, limit the impact of the global economic crisis on growth and vulnerable populations, support economic recovery, and continue implementation of the Poverty Reduction and Growth Strategy to meet the Millennium Development Goals.
  - Mobilize additional concessional budgetary assistance from financial and technical partners to cover declining but still high financing gaps, particularly in 2010.
- Structural reform priorities:
  - Improve fiscal management and strengthen tax and customs administrations.
  - Increase the role of the private sector in management of public utilities.
  - Reform the civil service to improve efficiency and reduce recurrent fiscal costs.
  - Implement measures described in the attached Memorandum on Economic and Financial Policies (MEFP).

### Fund financing and disbursement schedule (proposed)
- Proposed Schedule of Disbursements Under the Proposed ECF Arrangement, 2010–2013 (amounts in SDR):
  - SDR 10.62 million — June 14, 2010 — Executive Board approval of the three-year Arrangement.
  - SDR 10.61 million — December 31, 2010 — Observance of performance criteria for June 30, 2010, completion of the first review under the arrangement.
  - SDR 10.61 million — June 30, 2011 — Observance of performance criteria for December 31, 2010, completion of the second review under the arrangement.
  - SDR 10.61 million — December 31, 2011 — Observance of performance criteria for June 30, 2011, completion of the third review under the arrangement.
  - SDR 10.61 million — June 30, 2012 — Observance of performance criteria for December 31, 2011, completion of the fourth review under the arrangement.
  - SDR 10.61 million — December 31, 2012 — Observance of performance criteria for June 30, 2012, completion of the fifth review under the arrangement.
  - SDR 10.61 million — May 30, 2013 — Observance of performance criteria for December 31, 2012, completion of the sixth review under the arrangement.
  - SDR 74.28 million — Total amount

### Social and development indicators (Millennium Development Goals highlights)
- Selected MDG indicators and likelihood of reaching targets (as presented):
  - Population below US$ 1 a day (percent): 57.0 (1990), ... , 43.0 (2001), ... , 28.0 (2015 target path)
  - Net primary enrollment ratio (percent of relevant age group): 41.0 (1990), ... , 52.0 (2001), ... , 80.0 (2015 target)
  - Under-five mortality rate (per 1,000): 185.0 (1990), 170.0, 160.0, ... , 154.0, 152.0, 148.0, ... , 61.7 (projection/point shown)
  - HIV/AIDS prevalence: 0.3, 3.2, 4.1, 1.9, .. , 2.1, 1.2, <6.0 (likelihood: Likely)
  - Access to improved water source (percent of population): 37.0 (1990), ... , 63.0, 65.0, 68.0 (2015 path)
- Likelihood comments included in table: several targets labeled "Likely" or "Unlikely" as shown in the source.

_Authors: Beninese authorities; and IMF staff estimates and projections. Source: International Monetary Fund document excerpt._

### 1.      During the past decade, the performance of the Beninese economy has been

### _cr10195 - 1.      During the past decade, the performance of the Beninese economy has been

### Recent macroeconomic performance and short-run developments
- Economic growth became more sustained in the past three years preceding the report; overall performance described as "satisfactory."
- Growth sources and distribution:
  - Growth led mainly by the tertiary sector (transport and commerce) and agriculture since 2006.
  - Secondary sector contribution limited by shortages and high cost of electricity.
  - Volatility of growth has limited poverty reduction because the majority of the population and labor force work in the primary sector.
- Impact of the global crisis:
  - GDP growth slowed to 2.7 percent in 2009 compared to an initial projection of 6.1 percent and an average of 4.5 percent during the previous three years.
  - Cotton production affected by lower international prices; tertiary sector suffered as Nigeria’s imports declined.
  - Agriculture, helped by the Emergency Food Security Program and external assistance, helped keep growth positive in 2009.
  - Transportation and communications also contributed to positive growth in 2009.

### Inflation and price developments
- Inflation trajectory:
  - Inflation accelerated in 2008 due to international food and fuel price rises.
  - Year-on-year inflation dropped from 9.9 percent in December 2008 to -2.9 percent in December 2009.
  - Average inflation rate in 2009: 2.2 percent.
- Contributing factors to 2009 disinflation: decline in international prices and government efforts to promote food production.

### Fiscal developments and government response in 2009
- Fiscal outcomes:
  - Basic primary deficit declined to 3.8 percent of GDP in 2009.
  - Overall fiscal deficit on a payment order basis fell to 7.3 percent of GDP in 2009.
  - Total revenues remained almost steady in nominal terms relative to 2008 despite a 7 percent decline in customs revenues from 2008 levels; domestic tax and nontax revenues rose.
  - Expenditure increased by 16 percent in 2009.
  - Wage bill rose 24 percent due to increased benefits to civil servants and hiring in health and education.
  - Domestically financed investments doubled compared with 2008, partly reflecting execution of CFAF 113.2 billion of carryovers.
- Financing measures and additional resources mobilized in 2009:
  - BCEAO financing backed by the SDR allocations of CFAF 32.8 billion.
  - Bond refinancing by the BCEAO of CFAF 36.5 billion.
  - V-Flex grant from the European Union of CFAF 16.4 billion.
  - African Development Bank loan of CFAF 7.8 billion.
  - These measures helped offset cash-flow pressures.

### Government fiscal consolidation measures (late 2009)
- Adopted measures included:
  - Firm limit on bonuses, allowances, and other benefits paid to civil servants.
  - Acceleration of regularizing exceptional payment orders dating back to 2006–2008 and strict limit on exceptional procedures.
  - Strengthening of budget monitoring with involvement of the Treasury committee.
  - Audit of the float and an emergency action plan to increase tax revenues.
- Specific fiscal adjustments and rephasing:
  - Halt capital spending commitments as of September 28, 2009.
  - Reduce end-December 2009 fiscal target for stipends and pensions to CFAF 5.3 billion.
  - Reduce other expenditure and transfers by CFAF 24.5 billion.
  - Postpone CFAF 50 billion in capital spending to the 2010 fiscal year.
  - These measures and additional assistance reduced the float by CFAF 27 billion in 2009.

### External sector and balance of payments
- External current account deficit excluding grants increased to 10.8 percent of GDP in 2009 from an annual average of 8.8 percent during 2006–2008.
  - Drivers: decline in net services and public and private transfers; worsening trade balance tied to slowdown in cotton and textile exports.
- Financial and capital accounts improved significantly with additional public capital flows from concessional loans and SDR allocations.
- Overall balance registered a deficit of 1.6 percent of GDP in 2009.

### Monetary policy and financial sector developments
- Regional monetary response to the crisis:
  - On June 12, 2009, the intervention rate was reduced from 4.75 percent to 4.25 percent.
  - Required reserve ratio for Benin reduced from 15 percent to 9 percent.
- Other developments:
  - Foreign assets declined due to effects on exports and private transfers.
  - Credit to the private sector increased by 7.5 percent in 2009 owing to rising domestic demand in the second half of the year.
  - Net government position worsened compared to end-December 2009 due to pressure from expenditure on the Treasury.

### Structural reforms and public enterprise restructuring (progress and measures)
- Cotton sector reforms focused on four axes:
  - New approach for comprehensive cotton-sector reform.
  - Divestiture of SONAPRA’s industrial assets and creation on October 11, 2008, of SODECO, 51 percent of whose capital is held by a strategic investor after public share sale.
  - Establishment in December 2008 of the Agricultural Input Purchasing Pool (CAI).
  - Ongoing development of institutional framework for agricultural policy.
- Divestitures and privatizations:
  - Divestiture of Hôtel Croix du Sud and Hôtel de la Plage and withdrawal from Continental Bank–Bénin completed in 2007 and 2008.
  - September 2009: bids called to reform Société du Bois du Bénin; December 2009 finalized transfer of 65.0 percent of industrial assets of Office National du Bois to private sector.
- Port and infrastructure projects:
  - Outsourcing of construction of the new south container terminal (two accommodation berths) organized and carried out in September 2009 by competitive bidding with IFC assistance and Millennium Challenge Account financing.
  - Project aims to improve performance of the Autonomous Port of Cotonou.
- Other transactions and reforms:
  - March 2010: government stake in Société des Ciments d’Onigbolo (SCO), equivalent to 51 percent, sold for CFAF 20 billion; CFAF 17.5 billion cashed, balance CFAF 2.5 billion payable upon finalization of lease termination modalities.
  - Opening capital of Benin Telecom to private investors progressed; candidates prequalified and bids called in April 2010.
  - New strategy for the civil service pension fund (FRNB) and financial audit of the electricity company (SBEE) completed.
  - Based on SBEE audit, March 2010 decisions:
    - Convert part (CFAF 14.02 billion) of loans on-lent to SBEE to replenish capital.
    - Guarantee SBEE’s debt service to SOAGA in the amount of CFAF 15.7 billion, rescheduled over seven years with a two-year grace period.
    - Securitize SBEE’s debt to CEB in the amount of CFAF 25 billion.
- Administration and revenue administration improvements:
  - Extension of single tax identification number (TIN) to all importers and exporters and all large enterprises; operational data interconnection between DGID and DGDDI.
  - Council of Ministers selected a computerized port operator management system to be installed by end-December 2010 and integrated with customs operations.
  - Administrative capacity of revenue agencies improved through better IT use; tax base expanded; anti-fraud measures stepped up.
  - Creation of reform management unit (UGR) at Ministry of Economy and Finance to track implementation of action plans adopted in early 2009 and update them annually.
- Tariff and port reforms in 2010:
  - April 2010: government increased all electricity rates by 10 CFAF per kWh on average to improve SBEE’s financial situation.
  - May 2010: call for bids launched for establishment of a one-stop shop for port operations at PAC.
- Outstanding reforms to be introduced by end-2010:
  - Elaboration of an IT master plan for DGID to generalize the TIN after audit.
  - Extension of ASYCUDA++ system to 12 additional regional customs offices.

### Objectives of the new program (2010–13) and strategy
- Rationale:
  - Deteriorating external and fiscal positions after the international crisis require acceleration of structural measures and financial and technical support from development partners.
  - Short-term aim: maintain macroeconomic stability and mitigate crisis effects on growth, private investment, and migrants’ remittances while preserving debt sustainability.
  - Government intends a countercyclical policy with social safety net arrangements.
  - Medium-term aim: rapid implementation of structural measures to improve competitiveness and promote sustainable recovery; support growth and poverty reduction strategy being finalized.
- Six-pronged strategy to address crisis risks:
  - (i) Implement economic policy focused on accelerating growth and reducing poverty.
  - (ii) Increase competitiveness by improving infrastructure, including integrated transport infrastructure development, mobilizing private investment for new port management, rehabilitating railroads, and opening the one-stop window.
  - (iii) Improve agricultural productivity to increase rural incomes and ensure stable urban prices.
  - (iv) Step up structural reforms emphasizing public enterprise restructuring.
  - (v) Modernize management and expenditure tracking systems of revenue agencies and improve public financial management.
  - (vi) Implement second-generation reforms (justice, land tenure, financial services) with support of MCA-Benin.

### Macroeconomic targets and growth strategy (2010–13)
- Growth and inflation targets:
  - Objective to achieve a real GDP growth rate of at least 6 percent in the medium term.
  - Target inflation under 3 percent, consistent with WAEMU convergence criteria.
  - Growth to be driven by higher public and private investment and improved productivity from structural reforms.
- Sectoral priority actions to support growth:
  - Primary sector:
    - Increase productivity in the cotton sector via new sectoral management framework and central purchasing pool for agricultural inputs.
    - Implement diversification strategy developing other targeted agricultural sectors.
    - Improve agricultural research by increasing research staff and training in new technologies, including biotechnology.
  - Secondary sector:
    - Higher growth expected from increased construction activities related to major public works (Godomey highway interchange, public housing, rural roads and tracks, coastal erosion infrastructure).
    - Enhanced processing of food products responding to increased agricultural output.
    - Increased activity in the cement sector with startup of a new cement factory.
  - Tertiary sector:
    - Expected to continue feeling effects of the financial crisis in the short term, mitigated by modernization of Port of Cotonou (extension of breakwater and new integrated computer system).

### Fiscal policy, revenue, and public financial management (2010–13)
- Fiscal consolidation objectives:
  - Continue fiscal consolidation to create fiscal space for increased priority social spending while reducing budget deficits.
  - Improve domestic revenue mobilization and rigorously manage public expenditure.
- Revenue targets and composition:
  - Total revenues expected to increase from 19.2 percent of GDP during 2006–08 to 20.8 percent of GDP during 2010–13.
  - Tax revenues expected to improve to 8.7 percent of GDP owing to efforts to expand tax base, strengthen tax and customs administrations, and combat fraud.
  - Customs revenues projected to stay at an average of around 10 percent of GDP during 2010–2013, offsetting downward pressure from Economic Partnership Agreements with the European Union and transition to the regional tax regime.
- Tax and customs reform measures (next three years):
  - Implement personal taxation reform.
  - Expand the tax base and tax informal activities.
  - Implement appropriate tax regime for small savers, microcredit, and microenterprises.
  - Fully implement the single TIN.
  - Install joint customs–tax department teams to combat commercial fraud.
  - Enhance capacity of customs inspectors in financial and accounting investigations and audits.
  - Fully computerize customs and tax units and establish interfaces between systems; systematically use reliable interconnections.
  - Improve audit targeting and strengthen controls over transit trade.
  - Adopt an action plan to implement these reforms; UGR to monitor implementation.
- Expenditure strategy:
  - Total expenditure expected to average 25.9 percent of GDP during 2010–13, an increase of 4 points from 2006–08.
  - Increase in capital spending by 3 percentage points of GDP during 2010–13 compared with 2006–08 to finance infrastructure programs aligned with "Benin 2025, Agenda for an Emerging Economy."
  - Adopt an overall civil service reform strategy starting with review of civil service remuneration policy to promote an administration focused on development and service to the private sector.

*Source: _cr10195 - 1.      During the past decade, the performance of the Beninese economy has been*

### 18.      The authorities also believe it is essential to advance the budget preparation

### _cr10195 - 18.      The authorities also believe it is essential to advance the budget preparation

### Budget preparation and public financial management
- Authorities will advance the budget preparation process to improve the effectiveness and transparency of public financial management.
- Reform of the organic law on the budget to create results-oriented management in line with WAEMU directives.
- Use of technical assistance from the IMF’s Fiscal Affairs Department and other technical and financial partners.
- Starting with the 2011 budget law, draft budgets presented to the National Assembly will be consistent with the program agreed to with IMF staff.

### Public procurement, expenditure procedures, and investment absorption
- Capacity-building and reforms to be implemented:
  - (i) effectively implementing the public procurement code;
  - (ii) implementing an integrated public procurement management system (SIGMAP);
  - (iii) strengthening public procurement procedures, particularly by limiting the use of single tendering;
  - (iv) adjusting the government budget and accounting classification in line with performance-based management;
  - (v) extending performance-based management to all sectors of public administration through the design of program budgets; and
  - (vi) improving budget execution procedures.
- Achievement of objectives linked to improvements in expenditure absorption capacity and a sustained level of investment, particularly in infrastructure.
- Participants should prepare and apply the budget appropriations utilization plan and the public procurement plan.
- Creation of a harmonized data and tracking/evaluation system for the public investment program (SHISEPIP) to monitor the rate of absorption of capital spending.
- Limitation of recourse to exceptional budget execution procedures (ordres de paiement) to a strict minimum in 2010; punitive measures for recipients of unauthorized ordres de paiement (mandatory repayment and/or denied access to SIGFIP).

### Public debt management strategy
- Strategy based on a consistent, comprehensive vision to limit public debt to proportions compatible with the country's capacity to honor commitments and finance development.
- Financing will be grants or highly concessional external loans (with a grant element of at least 35 percent).
- Government intends not to exceed an amount consistent with debt sustainability.

### Structural reforms and competitiveness
- Structural reforms anchored in the “Benin 2025 Agenda” to improve overall and sectoral competitiveness.
- Focus areas and planned actions:
  - Public enterprises: open to private-sector investment or improve financial viability and productivity.
  - Key sectors targeted: telecommunications, energy, transportation, and the civil service pension scheme (FNRB).
- Energy sector:
  - 2007 decision to establish an asset management company and a distribution company for SBEE.
  - Regulatory framework studies financed by AFD; expected adoption by June 2011.
  - Framework to lead to private sector investment in production and distribution of electricity and establishment of a regulatory authority to guarantee transparency in electricity price-setting.
  - Plans to improve SBEE’s financial position to reduce subsidies.
  - Prior action: increase by 10 CFAF/kWh on average of all electricity tariffs (aim: improve SBEE finances and reduce government subsidies).
- Telecommunications:
  - Plan to sell majority of shares to a strategic partner by the third quarter of 2010.
  - 2009 audited financial statements of Benin Telecom to be ready by June 2010; along with 2005–08 statements they will inform investors.
  - Sale expected to be completed during the third quarter of 2010.
  - Government, in coordination with IMF staff, will decide on use of proceeds of the sale and the CFAF 20 billion from the sale of SCO.
- Transportation and port services:
  - Continued privatization policy.
  - Contract for managing new container terminal financed by Millennium Challenge Account funds awarded to an international company.
  - Benin and Niger agreement on outsourcing the management of the OCBN.
- Civil service pension reform (FNRB):
  - Actuarial audit completed in September 2009 identified options for reform.
  - Draft law based on audit recommendations to be studied by the National Standing Commission by end of December 2010.
  - Government to review draft by June 2011 at the latest and submit to the National Assembly by December 2011.

### Business environment, microfinance, and social programs
- Objective: improve Benin's business environment and raise Benin to the average level of the emerging countries by 2013.
- Steering committee established, report adopted in June 2009; priority reforms include:
  - (i) simplifying procedures and reducing cost and time to set up a business and obtain construction permits;
  - (ii) improving shareholders’ protection by strengthening procedural rights;
  - (iii) easing tax procedures and simplifying tax payment, reducing number of returns, proposing staggered payment options for enterprises;
  - (iv) simplifying customs clearance by operationalizing the one-stop window;
  - (v) improving management of commercial disputes by training judges in simplified procedures that promote negotiated solutions.
- Microfinance and social inclusion:
  - Enhance microcredit program for the very poor.
  - Strengthen national program for entrepreneurship and youth employment.
  - Establish agricultural partnership project with UNDP and the Songhai Centre.
  - Expand resources to cover more beneficiaries and focus financed projects on creation of high-performance SMEs aligned with "Benin 2025 Agenda" pillars.

### Growth and Poverty Reduction Strategy (GPRSP) 2010–14
- GPRSP expired at end-2009; new strategy under preparation.
- New strategy emphasis: local and sectoral strategies, employment of young people and women, opening agricultural production zones, promotion of rural economic growth, legal capacity of the poor, social protection and solidarity, rural organization, agricultural diversification, demographic changes, ACP-EU Economic Partnership Agreement trade issues, and climate change.
- Strategy to be more integrated, consolidate sectoral strategies, include action plan for tracking system for social and priority expenditures.
- Government will submit final version to technical and financial partners in July 2010.

### Macroeconomic framework for 2010
- Growth: projected to reach 3.2 percent in 2010 compared with 2.7 percent in 2009.
- Drivers: reforms of agricultural sector, revitalization of construction sector, improved output in cement sector with startup of new cement factory, continued modernization of Port of Cotonou.
- Inflation: should stay below the community standard of 3 percent.
- External current account excluding grants: expected deficit of 9.7 percent of GDP.
- Monetary aggregates and policy:
  - Broad money growth rate forecast at approximately 5.4 percent, reflecting an increase in credit to the economy and a rise in net foreign assets.
  - BCEAO's key intervention instrument will be interest rate policy; BCEAO will monitor inflationary trends and official exchange reserves.
- Financial sector oversight:
  - WAMU Banking Commission inspection missions to continue.
  - Government requested a Financial Stability Assessment Program (FSAP) mission in 2010 and committed to implementing recommendations.
  - Authorities intend to enhance banking supervision and strengthen regulatory framework application to the microfinance sector.

### Fiscal policy and key 2010 figures
- Total revenue:
  - Expected increase by 18.4 percent in 2010 to CFAF 681.9 billion or 20.6 percent of GDP.
- Tax revenue:
  - Expected tax revenue rise by 14.5 percent to CFAF 275.8 billion due to tax base expansion, urban land registry implementation, expanded audit and assessment controls, training for audit officials on computerized accounting, computerization of new tax centers for medium-sized enterprises, taxation of informal activities, application of ordinary law to domestically financed procurement contracts, and favorable tax regime for small savers, microcredit, and the informal sector.
- Customs revenue:
  - Expected increase by 15.8 percent to CFAF 299.7 billion in 2010 owing to resumption of re-exports to Nigeria.
  - Reforms in 2010 include opening four new customs posts on the Nigerian border, expansion of ASYCUDA++ to 12 new customs offices, simplification of customs clearance procedures, and enhanced anti-corruption and anti-fraud measures.
  - Government intends to issue personal identification numbers to all taxpayers and end systematic use of nonspecific numbers by end of December 2010.
- Nontax revenue:
  - Expected 41.0 percent increase to CFAF 106.3 billion owing to sale of 3G GSM licenses and improved Treasury Administration collections.
- Total expenditure:
  - Expected at CFAF 876 billion, an increase of approximately 9 percent in 2010.
- Public investment:
  - Expected at CFAF 320.9 billion in 2010, an increase of approximately 6.1 percent from 2009.
- Wage bill:
  - Limited to CFAF 243.2 billion in 2010.
  - Salary adjustments: higher education sector adjustment effective October 2010; housing allowance increases for some teachers effective October 2010; a 25 percent increase in base salary from January 2011 for certain teachers.
  - Total budgetary impact of these measures estimated at CFAF 3.4 billion in 2010 and approximately CFAF 20 billion per year during 2011–13.
  - Government established a committee (government, labor unions, social partners) as a single negotiating framework for salary demands to facilitate multiyear salary agreements.
- Deficit and financing:
  - Overall deficit on a payment order basis: 7.3 percent of GDP in 2009; expected 5.9 percent of GDP in 2010.
  - Government will seek additional financial assistance from the international community in 2010; if additional financing does not materialize, equivalent cuts will be made in nonpriority spending.

### Structural reforms: timelines and structural benchmarks
- Structural reforms to be accelerated; key structural benchmarks with dates:
  - Adoption by the Council of Ministers of all implementing decrees for the Public Procurement Code by the end of September 30, 2010 (structural benchmark).
  - Submission to the National Assembly of legislation introducing the personal income tax by the end of October 31, 2010 (structural benchmark).
  - Extension of the ASYCUDA++ computer system to 12 additional regional customs offices by the end of December 31, 2010 (structural benchmark).
  - Adoption of an IT master plan for the tax department (DGID) (after its audit to generalize the TIN); development of a complete and integrated information system at the DGID; modernization of the information system of the customs department (DGDDI) and its extension to all units by the end of December 31, 2010 (structural benchmark).
  - Generalization of the TIN to all taxpayers and to all the units of the tax and customs administration by the end of December 31, 2010 (structural benchmark).
  - Generalization of the systematic use of the TIN by the DGDDI and the adoption of a deadline for the abolition of the use of nonspecific numbers at the level of ASYCUDA++ (0000000000000 and 299999999949) by the end of December 31, 2010 (structural benchmark).
  - Adoption by decision of the Council of Ministers by the end of June 30, 2011 of a comprehensive strategy to reform the civil service (structural benchmark).
  - Implementation of the integration and federation of all the agents at customs and at the Autonomous Port of Cotonou in the one-stop shop by the end of June 30, 2011 (structural benchmark).
  - Adoption by decision of the Council of Ministers by the end of June 30, 2011 of a regulatory framework governing the energy sector that will formally sanction the opening of electricity distribution to private investors and the establishment of a regulatory authority and of a system that will guarantee transparency in the electricity price-setting mechanism (structural benchmark).
  - Presentation to the National Assembly of a draft law governing pensions (based on the final report of the actuarial audit of the FNRB) by the end of December 31, 2011 (structural benchmark).
- Prior actions and rationale (selected):
  - Launch of an offer for implementation by end-December 2010 of a one-stop window for port operations at Port of Cotonou (Prior Action) — aim: contain decline in revenue by enhancing tax and customs administration.
  - Increase by 10 CFAF/kWh on average of all electricity tariffs (Prior Action) — aim: improve SBEE financial situation and reduce government subsidies.
  - Adoption by the Council of Ministers of all implementing decrees of the Public Procurement Code by September 30, 2010 — aim: create fiscal space by improving public expenditure efficiency.
  - Submission to the National Assembly of legislation introducing the personal income tax by October 31, 2010 — aim: widen tax base and improve rationality of tax system.
  - Extension of ASYCUDA++ to twelve additional regional customs offices by December 31, 2010 — aim: improve collection of customs revenue.
  - Adoption of IT master plan for DGID, modernization and extension of DGDDI systems by December 31, 2010 — aim: contain revenue decline.
  - Generalization of the TIN and abolition of nonspecific numbers in ASYCUDA++ by December 31, 2010 — aim: contain revenue decline.
  - Adoption of civil service reform strategy by June 30, 2011 — aim: limit wage bill expansion and maintain fiscal space.
  - Integration of customs and Port Autonome de Cotonou agents into the one-stop window by June 30, 2011 — aim: improve tax and customs performance.
  - Adoption of energy sector regulatory framework by June 30, 2011 — aim: maintain SBEE financial viability.
  - Presentation of draft pension law to National Assembly by December 31, 2011 — aim: contain FNRB deficit impact on public finances.

### Program monitoring and review schedule
- Program monitoring based on prior actions, performance criteria, and structural and quantitative benchmarks as defined in the attached Technical Memorandum of Understanding (TMU).
- Authorities will report data necessary for program monitoring to the IMF pursuant to the TMU.
- During the program period, authorities will not introduce restrictions on payments and transfers for current international transactions or intensify such restrictions without first consulting the Fund, nor introduce or modify multicurrency practices, conclude bilateral payments agreements incompatible with Article VIII of the IMF's Articles of Agreement, nor introduce restrictions on imports for balance of payments purposes.
- Semiannual reviews: first review to be completed by December 31, 2010, and second review by June 30, 2011.

*Source: _cr10195 - 18.      The authorities also believe it is essential to advance the budget preparation*

### APPENDIX I––ATTACHMENT II

### _cr10195 - APPENDIX I––ATTACHMENT II

### Definitions
- "Government" means the central administration of the Republic of Benin and excludes political subdivisions, the central bank, or public/government-owned entities with autonomous legal personality not included in the government flow-of-funds table (TOFE).  
- "Debt" and "concessional borrowing" follow point 9 of Executive Board Decision No. 6230-(79/140), as amended, including Decision No. 14416-(09/91), effective December 1, 2009:
  - Debt: direct contractual liability requiring future payments in assets or services. Primary forms include:
    - loans (including deposits, bonds, debentures, commercial loans, buyers’ credits, repurchase agreements, official swap arrangements);
    - suppliers’ credits;
    - leases (debt defined as the present value at lease inception of lease payments excluding operation/repair/maintenance payments);
    - Treasury bills and bonds issued in CFA francs on the WAEMU regional market (included in domestic debt for this Memorandum).
  - Arrears, penalties, and judicially awarded damages from failure to pay contractual debt are debt.
  - Concessional loan: on contract signing date, present value/nominal value < 65 percent (grant element ≥ 35 percent). Present value discounted using OECD CIRRs: 10-year average for maturities > 15 years; six-month average for maturities ≤ 15 years. OECD repayment-period margins added: 0.75 percent (<15 years); 1 percent (15–19 years); 1.15 percent (20–29 years); 1.25 percent (30 years or more).
  - "Domestic debt" = debt denominated in CFA francs. "External debt" = debt denominated in any currency other than the CFA franc.

### Prior actions (to be implemented before Board presentation; verification five days prior)
- Launch of a call for bids for establishment by end-December 2010 of a one-stop shop for port operations at the Port of Cotonou.
- Increase by CFAF 10 per kWh on average of all electricity tariffs.

### Quantitative performance criteria

A. Ceiling on Net Domestic Financing of the Government
- Definition:
  - Net domestic financing = (i) net bank credit to the government; plus (ii) net nonbank financing (including proceeds of sale of government assets, privatizations; Treasury bills and other securitized obligations issued in CFA francs on the WAEMU regional financial market; any BCEAO credit to the government, including drawings on the CFA franc counterpart of the SDR allocation).
  - Net bank credit = balance between government debts and claims vis-à-vis the central bank and national commercial banks (scope used by BCEAO). Government claims include CFA franc cash balance, postal checking accounts, customs duty bills, deposits with BCEAO and commercial banks of government-owned entities excluding EPICs and government corporations. Government debt to banking system includes all debt to the central bank and national commercial banks, including Treasury bills and other securitized debt.
  - Valid figures are those calculated by the BCEAO (net bank credit; net amount of Treasury bills and bonds issued in CFA francs on the WAEMU regional market) and nonbank financing by the Benin Treasury.
  - Use of proceeds from divestiture of parts of corporations (including Benin Telecom and SCO) will be decided in consultation with IMF staff. Ceiling on net domestic financing adjusted for disbursements of external budgetary assistance (excluding IMF financing and HIPC assistance), net of debt service (excluding IMF repayments) and arrears payments:
    - If disbursements exceed programmed amounts, ceiling lowered by excess unless excess allocated to settlement of domestic arrears.
    - If disbursements fall short, ceiling raised by shortfall, up to cumulative maxima since January 1, 2010 of:
      - CFAF 10 billion at end-June 2010,
      - CFAF 20 billion at end-September 2010,
      - CFAF 35 billion at end-December 2010.
    - Programmed amounts of budgetary assistance (cumulative since January 1, 2010): CFAF 10 billion at end-June 2010; CFAF 20.9 billion at end-September 2010; CFAF 38.3 billion at end-December 2010.
- Indicative targets and performance criteria:
  - Ceiling on net domestic financing of the government:
    - CFAF 37.0 billion for end-June 2010,
    - CFAF -25.4 billion for end-September 2010,
    - CFAF -15.3 billion for end-December 2010.
  - Status: performance criterion for end-June 2010 and end-December 2010; indicative target for end-September 2010.
- Reporting deadline:
  - Detailed data on domestic financing reported monthly within four weeks of end of month; definitive data provided four additional weeks after provisional data.

B. Basic Primary Fiscal Balance
- Definition:
  - Basic primary fiscal balance = total fiscal revenue (tax and nontax) − fiscal expenditure (payment order basis) − payments of interest on debt − capital expenditure financed by foreign grants − net lending.
- Performance criterion:
  - For 2010, ceiling on basic primary fiscal balance (excluding grants) set at:
    - balance of not less than CFAF 37.8 billion at end-June,
    - CFAF 1.9 billion at end-September,
    - CFAF -10.5.8billion at end-December.
  - Status: performance criterion for end-June 2010 and end-December 2010; indicative target for end-September 2010.
- Reporting deadline:
  - Provisional data (including SIGFiP) reported monthly within four weeks of end of month; definitive data reported four additional weeks after provisional.

C. Accumulation of New Domestic Payments Arrears by the Government
- Definition:
  - Domestic payments arrears = domestic payments due but not paid after a 90-day grace period (unless obligation specifies longer). Arrears on government domestic debt = stock of debt due but not paid at end of 90-day grace period (unless longer grace period specified). CAA and the Treasury record and update accumulation and settlement.
- Performance criterion:
  - Government undertakes not to accumulate any new payments arrears on government domestic debt, and not to accumulate further arrears on obligations other than public debt for periods > 90 days. Monitoring continuous. Definitions of debt (paragraph 3a), domestic debt (3c), and government (2) apply.
- Reporting deadline:
  - Data on balance, accumulation, and repayment of domestic payments arrears on public debt reported monthly within eight weeks of end of month.

D. Nonaccumulation of External Payments Arrears by the Government
- Definition:
  - External public payments arrears = payments due and not paid by due date on external debt of or guaranteed by the government. Definitions of debt (3a), external debt (3c), and government (2) apply.
- Performance criterion:
  - Government undertakes not to accumulate external payments arrears, except arrears on debt subject to renegotiation or rescheduling. Continuous monitoring.

E. Ceiling on Contracting or Guaranteeing New Nonconcessional External Debt Maturing in a Year or More
- Definition:
  - Applies to debt as defined in Executive Board Decision No. 6230-(79/140) (as amended) and to commitments contracted or guaranteed (including lease-purchase) for which no value received. Applies to guaranteeing private sector debt (contingent liability). External debt excludes Treasury bills and bonds issued in CFA francs on the WAEMU regional market.
  - "Government" for this criterion includes the government (paragraph 2), local governments, and all public enterprises (EPAs, scientific/technical public agencies, professional public agencies, and enterprises jointly owned with other governments).
- Performance criterion:
  - No nonconcessional external borrowing will be contracted or guaranteed by the government for the duration of the 2010–13 program.
  - Changes to the ceiling can be made during the program after IMF Executive Board approval, proposed solely for specific investment projects with assessed viability/profitability by a recognized institution, and provided the loan does not seriously exacerbate debt vulnerabilities per the joint World Bank–IMF debt sustainability analysis.
  - Government undertakes not to contract or guarantee any external loan during implementation of the 2010–13 program without first determining its concessionality with IMF staff.
- Reporting deadline:
  - Data on any debt (terms and creditors) contracted or guaranteed reported monthly within four weeks of end of month.

F. Ceiling on Contracting or Guaranteeing New Short-Term Nonconcessional External Debt
- Definition:
  - Definitions in paragraphs 19 and 20 apply. Short-term external debt = contractual term < one year. Exclusions: import- and export-related loans, Treasury bills issued in CFA francs on WAEMU market, normal short-term supplier credits, and debt relief operations.
- Performance criterion:
  - Government undertakes not to contract or guarantee short-term nonconcessional external debt. Definition of nonconcessional per paragraph 3b applies.
  - Government will not contract or guarantee any short-term external debt without first determining concessionality with IMF staff.
  - On December 31, 2009, Benin had no short-term external debt.

### Quantitative benchmarks

A. Floor for Government Revenue
- Definition:
  - Total government revenue = tax and nontax revenue as shown in TOFE; excludes foreign grants, revenue of autonomous agencies, and privatization receipts.
- Indicative targets for 2010 (cumulative since January 1, 2010):
  - CFAF 315.5 billion for end-June,
  - CFAF 494.6 billion for end-September,
  - CFAF 618.9 billion for end-December.
- Reporting deadline:
  - Government will report tax revenue monthly in the TOFE by the end of the month following that to which the report applies.

B. Ceiling on Exceptional Payment Procedures
- Definition:
  - Exceptional payment procedures (ordres de paiement hors de la chaîne de dépenses) = budgetary-type expenditures not executed following the expenditure chain (commitment and validation before order to pay) and not regularized on the test date.
- Indicative targets (cumulative from January 1, 2010):
  - Ceiling of CFAF 4.6 billion at end-June 2010,
  - CFAF 7.5 billion at end-September 2010,
  - CFAF 10.6 billion at end-December 2010.
- Reporting deadline:
  - Government will report amount of exceptional payment procedures to Fund staff within four weeks following the test date.

### Structural benchmarks (MEFP Table 2)
- Adoption by the Council of Ministers of all implementing decrees for the Public Procurement Code by September 30, 2010.
- Submission to the National Assembly of legislation introducing the personal income tax by October 31, 2010.
- Expansion of the ASYCUDA++ computer system to 12 additional workstations in regional customs offices by December 31, 2010.
- Adoption of an IT master plan for the tax department (DGID) (after its audit to generalize the taxpayer identification number, TIN), development of a complete and integrated information system at the DGID, modernization of the computer system in the customs department (DGDDI) and its extension to all units, by December 31, 2010.
- Generalization of the taxpayer identification number (TIN) to all taxpayers and to all units of the tax and customs administrations, by December 31, 2010.
- Generalization of the systemic use of the TIN by the DGDDI and adoption of a deadline for abolition of nonspecific numbers at the level of ASYCUDA++ (0000000000000 and 299999999949) by December 31, 2010.
- Adoption by the Council of Ministers by June 30, 2011, of a comprehensive strategy for the reform of the civil service.
- Implementation of the integration and federation of all the agents at customs and at the Autonomous Port of Cotonou in the one-stop shop by June 30, 2011.
- Adoption by decision of the Council of Ministers by June 30, 2011, of a regulatory framework governing the energy sector to formally sanction opening of electricity distribution to private investors, establishment of a regulatory authority, and a system guaranteeing transparency in the electricity price-setting mechanism.
- Presentation to the National Assembly of a draft law governing pensions (based on the final report on the actuarial audit of the FNRB) by December 31, 2011.

*Source: APPENDIX I––ATTACHMENT II, Technical Memorandum of Understanding, May 27, 2010.*

### 36.      The government will provide the Fund with:

### _cr10195 - 36.      The government will provide the Fund with:

### A. Fiscal Sector — Data Requirements and Frequency
- The government will provide the Fund with:
  - the monthly government flow-of-funds table (TOFE), to be submitted within six weeks of the end of each month;
  - the list of expenditures authorized by ordres de paiement or other exceptional payment procedures after January 1, 2010;
  - detailed monthly revenue and expenditure estimates, including for social expenditure, the settlement of arrears, and expenditure financed under the HIPC Initiative;
  - comprehensive monthly data on domestic financing (bank and nonbank) of the budget, including the claims held by the nonbank private sector. These data will be reported every month, within four weeks of the end of the month; and
  - quarterly data on implementation of the public investment program, including a breakdown of financing sources. These data will be reported on a quarterly basis, within four weeks of the end of the quarter.

### B. Monetary Sector — Data Requirements and Frequency
- The government will provide the Fund monthly, within eight weeks of the end of the month, with:
  - a consolidated balance sheet of the monetary institutions and, where necessary, the balance sheets of certain individual banks;
  - a monetary survey;
  - deposit and lending rates; and
  - the customary banking supervision indicators for bank and nonbank financial institutions and, where necessary, the same indicators for certain individual institutions.

### C. External Sector — Data Requirements and Frequency
- The government will provide the Fund, within 12 weeks of the end of each quarter, with:
  - any revision of balance of payments data (including services, private transfers, official transfers, and capital transactions), as they occur;
  - monthly data on import and export values, prices and volumes;
  - other balance of payments data, including services, private transfers, official transfers, and capital transactions; and
  - quarterly data on the stock of external debt, external debt service, the signing of external loans, and disbursements of external loans.

### D. Real Sector — Data Requirements and Frequency
- The government will provide Fund staff with:
  - disaggregated monthly consumer price indices, on a monthly basis, within two weeks of the end of the month;
  - provisional national accounts; and
  - any revision of the national accounts, within eight weeks of the revision date.

### E. Structural Reforms and Other Data
- The government will provide the Fund with:
  - all decisions, orders, laws, decrees, ordinances, and circulars relating to the economy of Benin, within 10 days of their entry into effect; and
  - all studies or research papers relating to the economy of Benin, within two weeks of their publication.

### Key Findings, Projections, and Policy-Relevant Assumptions from the DSA (selected)
- Risk of debt distress: classified as moderate in the previous DSA (June 2009).
- External debt stock evolution:
  - declined from 43.0 percent of GDP at end-2002 to 15.1 percent of GDP at end-2009.
  - external debt service declined from 2.2 percent of GDP to 0.6 percent of GDP over the same period.
  - At end-2009, 88.5 percent of the external public debt was to multilateral creditors and 11.5 percent to bilateral creditors.
- Regional government borrowing:
  - outstanding regional government debt amounted to 11.1 percent of GDP at end-2009, compared to 1.5 percent at end-2006.
  - just over 40 percent of the regional public debt is accounted for by central bank secured bonds.
- Macroeconomic and policy assumptions anchoring baseline projections:
  - real GDP growth expected to recover to a sustainable annual rate of 6 percent over the medium- to long-term;
  - average annual inflation would not exceed 3 percent in the long run;
  - concessional external financing assumed to continue; about 60 percent of total gross financing needs are assumed to be covered by external grants in the long term;
  - government borrowing on the regional market expected to decrease from 11.1 percent of GDP at end-2009 to 4.5 percent of GDP at the end of the period;
  - the real interest rate on domestic currency debt is expected to average just over 4 percent.
- Fiscal outlook and adjustments:
  - overall fiscal deficit (on a payment-order basis) widened from 3.5 percent of GDP in 2008 to 7.3 percent in 2009;
  - projected reduction of the overall deficit to 5.9 percent of GDP in 2010, and the basic primary deficit to 0.3 percent of GDP in 2010 (with a strong fiscal adjustment effort).
- DSA projections and stress tests:
  - Under baseline assumptions, the PV of external debt is projected to decline to just over 9 percent of GDP in the long run, and debt service payment ratios would remain below 3 percent.
  - PV of debt-to-exports ratio would remain well below the 150 percent threshold under baseline.
  - A shock to exports would lead to a marginal breach over three years of the threshold for the debt-to-exports ratio; other indicators remain under thresholds in alternative scenarios.
  - No reform scenario assumptions: annual real GDP growth averages 4.0 percent; FDI assumed at 1.8 percent of GDP; exports reduced by 2.0 percent of GDP compared to baseline (to 15.5 percent of GDP). Under this scenario, debt-to-exports criteria breach by 2022 and debt-to-GDP and debt-to-revenue ratios increase markedly.
  - Addition of CFAF 150 billion of nonconcessional borrowing during 2010–12 (present value terms) does not lead to any breach of the thresholds and does not change the debt vulnerability category.
  - Public DSA baseline projections: debt-to-GDP ratio set to fall to around 14 percent and the debt-to-revenue ratio to under 60 percent; debt service-to-revenue ratio expected to stabilize close to 3 percent in the long term.
  - Under the most extreme shock scenario the debt-to-GDP would increase to 22 percent and the debt-to-revenue ratio to 89 percent, while the debt service-to-revenue would decrease somewhat to 4.6 percent by 2030.

### Policy Recommendations and Implications (derived from presented analysis)
- Maintain fiscal adjustment to restore and preserve fiscal sustainability (reduce overall and primary deficits as projected).
- Prioritize financing of the fiscal deficit through external grants and highly concessional loans where available.
- Implement and sustain structural reforms aimed at enhancing competitiveness and growth (notably restructuring public utilities, investments in Port of Cotonou, introduction of a one stop window in the Port of Cotonou, modernization of customs administration).
- Strengthen tax and customs administration (improve information systems, generalize TIN, introduce personal income tax) to improve revenue collection.
- Pursue a prudent borrowing strategy, reducing reliance on nonconcessional regional market borrowing over time.
- Limit nonconcessional borrowing to amounts that do not push Benin into a higher debt vulnerability category and ensure such borrowing finances projects with evaluated financial viability and profitability.

*Prepared by the Staffs of the International Monetary Fund and the International Development Association, Joint IMF/World Bank Debt Sustainability Analysis 2010 (excerpt).*

### 16.      Altogether, this DSA confirms that Benin faces a moderate risk of debt

### 16.      Altogether, this DSA confirms that Benin faces a moderate risk of debt

### Assessment and overall finding
- The Debt Sustainability Analysis (DSA) finds that Benin faces a "moderate risk of debt distress".
- This assessment underlines the importance of proceeding with fiscal adjustment and structural reforms.

### Short-term fiscal issues
- Need to address the fiscal slippages in 2009.
- Put the fiscal situation back onto a sustainable path over the medium term.

### Structural reforms and growth
- Prompt implementation of structural reforms is critical to:
  - enhance growth,
  - expand exports,
  - attract foreign direct investments,
  - contain the fiscal deficit,
  - improve long-term debt dynamics.

### Financing strategy and borrowing composition
- Authorities should continue to cover financing needs primarily with external concessional assistance.
- Given a large margin to the debt sustainability thresholds, a limited amount of nonconcessional borrowing could be accommodated without risking a marked change in the overall debt risk profile.

*Source: IMF DSA assessment excerpt*

### 17.      The authorities concur with the overall conclusions of the DSA, which is in

### _cr10195 - 17.      The authorities concur with the overall conclusions of the DSA, which is in

### Authorities' assessment and strategy
- The authorities concur with the overall conclusions of the DSA, which is in line with their own debt sustainability analysis.
- Financing strategy:
  - Financing needs will be covered primarily through the mobilization of grants and highly concessional borrowing.
  - Only limited use of regional borrowing is envisaged, and then only as a last source of financing.
- Fiscal stance:
  - The authorities emphasize that a prudent fiscal policy will be necessary to preserve fiscal and debt sustainability over the medium- to long- term.

### Analytical materials and horizon
- Debt sustainability and sensitivity analysis materials cover the period 2010-2030.
- The DSA materials include:
  - Figure 1. Benin: Indicators of Public and Publicly Guaranteed External Debt under Alternative Scenarios, 2010-2030.
  - Figure 2. Benin: Indicators of Public Debt Under Alternative Scenarios, 2010-2030.
  - Table 1a. External Debt Sustainability Framework, Baseline Scenario, 2007-2030.
  - Table 1b. Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2010-2030.
  - Table 2a. Public Sector Debt Sustainability Framework, Baseline Scenario, 2007-2030.
  - Table 2b. Sensitivity Analysis for Key Indicators of Public Debt 2010-2030.

### Key projections and indicators (selected references from the DSA material)
- Time horizon for projections and stress tests: 2010-2030.
- The most extreme stress test is defined as the test that yields the highest ratio in 2020.
- The DSA assumes that external project grants are assumed to cover about 60 percent of total gross financing needs.
- Grant-equivalent financing (in percent of GDP) projections include values such as 5.3, 4.2, 4.1, 4.0, 3.9, 3.8, 3.3, 3.3, 3.3 (as shown in the DSA tables).
- Grant-equivalent financing (in percent of external financing) projections include values such as 88.2, 69.9, 69.0, 69.0, 68.7, 70.0, 70.6, 76.7, 76.7, 76.6 (as shown in the DSA tables).
- Key macroeconomic assumptions referenced in the DSA include:
  - Real GDP growth (in percent) series: 4.6, 5.0, 2.7, 4.2, 1.1, 3.2, 4.4, 5.5, 6.0, 6.0, 5.2, 6.0, 6.0, 6.0.
  - GDP deflator in US dollar terms (change in percent) series: 11.9, 15.3, -3.3, 6.3, 9.3, 7.8, 1.7, 1.6, 1.5, 1.3, 1.3, 2.5, 2.5, 2.4, 2.5.
  - Effective interest rate (percent) series: 4.8, 1.5, 1.7, 1.7, 1.2, 2.0, 1.9, 1.8, 1.7, 1.6, 1.6, 1.8, 1.2, 1.1, 1.2.
  - Grant element of new public sector borrowing (in percent) shown in tables: 37.5, 36.1, 34.0, 33.4, 33.6, 33.4, 34.6, 32.7, 32.7, 32.7 (across projection years).
- Public-sector debt and external-debt indicators in the DSA include time series and sensitivity outcomes for PV of debt-to-GDP, PV of debt-to-exports, PV of debt-to-revenue, debt service-to-exports, and debt service-to-revenue ratios under baseline, alternative scenarios, and bound tests.

### Policy implications and recommendations (from authorities' stance and DSA)
- Maintain the stated prudent borrowing strategy: prioritize grants and highly concessional borrowing; restrict regional and non-concessional borrowing to a last resort.
- Preserve a prudent fiscal policy stance over the medium- to long- term to sustain fiscal and debt sustainability.
- Use DSA and stress-test results (2010-2030) to monitor vulnerabilities under alternative scenarios and bound tests (including growth shocks, export shocks, depreciation, and less favorable financing terms).

_Italic: Sources: Country authorities; and staff estimates and projections._

### 1. Public

### 1. Public

### IMF work program and joint products
- IMF work program in next 12 months included:
  - Sixth PRGF review
  - Discussion on a new ECF arrangement
  - PRSC-6
  - GEF Energy Efficiency (dates listed: March 2010; June 2009; July 2010; April 2010; April 2010)
- Fund request to Bank: Public Expenditure Review (December 2010)
- Bank request to Fund: Review of the tax regime and conditions for a business friendly tax system (October 2009)
- Agreement on joint products and missions in next 12 months:
  - DSA (June 2010)
  - FSAP (December 2010)

### Statistical Issues — Assessment of Data Adequacy for Surveillance
- General:
  - Data provision has some shortcomings, but is broadly adequate for surveillance.
  - Weaknesses exist in national accounts, public finance, monetary statistics, and balance of payments.
- Real sector statistics:
  - Inadequate resources and weaknesses in data documentation and methodology hamper accuracy and reliability of national accounts.
  - Benin participates in WAEMU’s harmonization of statistical methodologies and in the GDDS project for AFRITAC West countries to implement the 1993 SNA.
  - Accounts for a few years still need to be converted; West AFRITAC missions in 2008 and 2009 sought to accelerate the process; a forthcoming mission in 2010 will support compilation of the revised 2007 accounts.
  - A statistical register and an industrial production index are being developed, but implementation has been slower than expected.
  - Consumer price data, measured using the WAEMU harmonized consumer price index, are adequate for surveillance; methodology is being updated and the index is being rebased to 2008.
- Government finance statistics:
  - Quality of fiscal data is broadly adequate for surveillance, but has shortcomings in coverage, periodicity, timeliness, and accessibility.
  - Authorities report budgetary central government’s “statement of sources and uses of cash” for publication in the Government Finance Statistics Yearbook, one year after the reference year.
  - October 2008 and July 2009 STA-GFS missions found authorities had yet to:
    - compile general government GFS to broaden coverage of nonmarket activities controlled by the government;
    - disseminate the GFS within one quarter after the reference quarter;
    - present other major GFS reports to facilitate linkages to other macroeconomic datasets (e.g., the balance sheet).
- Monetary and financial statistics:
  - Compiled and disseminated by BCEAO; broadly adequate with comprehensive institutional coverage.
  - Accuracy hampered by use of 1990 sorting coefficients to estimate cross border amounts of banknotes among BCEAO countries, which are used to estimate currency in circulation and to adjust net foreign assets of each member country.
- Balance of payments:
  - External statistics affected by shortcomings preventing accurate and timely assessment of current account and capital and financial flows.
  - Recent improvements applying Balance of Payments Manual, Fifth Edition guidelines have not solved problems.
  - November 2004 STA technical assistance mission noted inadequate human resources at national BCEAO agency and methodological problems: use of untested hypotheses and reference bases, limited coverage of direct investment, shortcomings in compilation of net external assets and international investment position.
  - Balance of payments statistics disseminated with a lag of almost one year; international investment position data with a lag of 18-month.
  - Progress achieved in reconciliation of regional trade data and installation of ASYCUDA systems; further improvements require interconnection of customs computer systems and integration with other revenue agencies.
  - Need to improve contacts with reporting bodies, enhance human and technical resources.
  - Financial account data could be improved by extending coverage of foreign assets of the private non banking sector, expanding surveys of residents’ foreign assets, and using other data sources such as BIS statistics.
  - BCEAO updated compilation of commercial bank data on payments involving nonresidents; these data are not used to produce annual balance of payments statistics.
- External debt data:
  - Broadly adequate for surveillance, but comprehensive only for public and publicly guaranteed debt.
  - Data collected by Caisse Autonome d'Amortissements (CAA); database fairly comprehensive and up-to-date, contains accurate stock data, and produces projected debt-service flows on a loan-by-loan basis, but regular statements are not received from creditors.

### Data Standards and Reporting
- Benin commenced participation in the General Data Dissemination System (GDDS) in 2001; metadata has not been updated much since then.
- An FAD mission conducted the fiscal module of a Report on Observance of Standards and Codes (ROSC) in May 2001.
- Standardized Report Forms (in line with the Monetary and Financial Statistical Manual) are still not regularly used to report monetary data to the IMF.

### Benin: Table of Common Indicators Required for Surveillance (As of April 28, 2010)
- Exchange Rates: Date of latest observation — Current; Date received — Current; Frequency of Data — D; Frequency of Reporting — D; Frequency of publication — M
- International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Date of latest observation — 1/10; Date received — 4/10; Frequency of Data — M; Frequency of Reporting — M; Frequency of publication — M
- Reserve/Base Money: 1/10; 4/10; M; M; M
- Broad Money: 1/10; 4/10; M; M; M
- Central Bank Balance Sheet: 1/10; 4/10; M; M; M
- Consolidated Balance Sheet of the Banking System: 1/10; 4/10; M; M; M
- Interest Rates: Date of latest observation — 2/10; Date received — 3/09; Frequency of Data — M; Frequency of Reporting — M; Frequency of publication — M
- Consumer Price Index: 3/10; 4/10; M; M; M
- Revenue, Expenditure, Balance and Composition of Financing — General Government: NA; NA; NA; NA; NA
- Revenue, Expenditure, Balance and Composition of Financing — Central Government: 12/09; 2/10; M; M; NA
- Stocks of Central Government and Central Government-Guaranteed Debt: 2009; 3/10; A; A; NA
- External Current Account Balance: 2009; 3/10; A; A; A
- Exports and Imports of Goods and Services: 2009; 3/10; A; Q; A
- GDP/GNP: 2009; 3/10; A; A; A
- Gross External Debt: 2009; 3/10; A; I; A
- International Investment Position: 2007; 3/09; A; A; A

Notes included in table (verbatim):
- 1 Any reserve assets that are pledged or otherwise encumbered should be specified separately. Also, data should comprise short-term liabilities linked to a foreign currency but settled by other means as well as the notional values of financial derivatives to pay and to receive foreign currency, including those linked to a foreign currency but settled by other means.
- 2 Both market-based and officially determined, including discount rates, money market rates, rates on treasury bills, notes, and bonds.
- 3 Foreign domestic bank and domestic nonbank financing.
- 4 The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.
- 5 Including currency and maturity composition.
- 6 Includes external gross financial asset and liability position vis-à-vis nonresidents.
- 7 Daily (D); Weekly (W); Monthly (M); Quarterly (Q); Annually (A); Irregular (I); Not Available (NA).

### Statement by the IMF Staff Representative (June 10, 2010) — Key updates
- Consumer price inflation rose to 3.0 percent year-on-year through April 2010, reflecting:
  - government decision to increase electricity tariffs by 10 percent on April 1;
  - higher food and transport costs.
- Fiscal developments through April 2010:
  - Revenue collections were CFAF 36.9 billion (1.1 percent of GDP) lower than projected under the program due to weaker tax and non-tax revenue.
  - Government expenditure was in line with program projections; lower domestic capital spending offset somewhat higher transfers.
  - The wage bill was in line with the program.
- Authorities’ measures to meet end-June program targets:
  - Management of the customs department recently replaced.
  - Use of the single Tax Identification Number made mandatory for customs declarations.
  - Intensified customs controls at the borders.
  - New internal controls at the income tax department introduced.
  - Expectation to receive CFAF 52 billion (1.7 percent of GDP) in nontax revenue in July 2010 from the sale of three third-generation GSM licenses.
- External financing projections revised upwards for 2010 due to sharp depreciation of the CFA franc against the US dollar and the SDR:
  - Revised financing gap now estimated at CFAF 19.5 billion, compared with CFAF 24.3 billion in the staff report.
  - Authorities expect to cover the revised financing gap with two disbursements under the proposed ECF arrangement (CFAF 16.9 billion) and additional bilateral support (CFAF 2.6 billion) expected to be committed after the regular annual donors’ review in June 2010.
  - Authorities reconfirmed commitment in the memorandum on economic and financial policies (paragraph 34) to cut the equivalent amount of any residual financing gap in nonpriority expenditures.
- Restructuring agreement:
  - Authorities signed a restructuring agreement on June 3, 2010 with the Belgian Export Agency for a €10.8 million loan contracted by Benin Telecom in 2003 which had become overdue.

### Public Information Notice (PIN) No. 10/78 — IMF Executive Board Conclusions (June 14, 2010)
- 2009 macroeconomic outcomes:
  - Real GDP growth: 2.7 percent in 2009, compared with 5 percent in 2008.
  - Inflation: average 2.2 percent in 2009, from 8.0 percent in 2008.
  - Current account deficit excluding grants widened to 10.8 percent of GDP in 2009.
  - Overall balance of payments: deficit of 1.6 percent in 2009, from a surplus of 1.6 percent in the previous year.
  - Real effective exchange rate in December 2009 appreciated by 1.1 percent year–on–year.
- Financial sector and monetary developments:
  - Broad money expanded at a slightly higher rate than nominal GDP, supported by higher liquidity.
  - Reserve requirements reduced from 15 to 9 percent in June 2009.
  - Banks increased credit to the private sector by 11 percent at end-2009 despite an increase in government borrowing.
  - Nonperforming loans ratio declined from 6.5 percent in 2008 to 5.7 percent in 2009.
  - Four banks continue to have negative capital and require further corrective actions to ensure compliance with prudential regulations.
- Fiscal developments:
  - Revenue collections declined by 1 percent of GDP in 2009, driven by deceleration of import growth and increase in exemptions leading to a 7 percent decline in customs receipts.
  - Overall fiscal deficit (excluding grants) rose from 3.5 percent of GDP in 2008 to 7.3 percent of GDP in 2009.
  - Deficit financed through additional external donor support, domestic borrowing, and carryover of expenditure commitments to 2010.
- Structural reforms:
  - Privatizations and concessions: concession of the container terminal of the Port of Cotonou awarded to a private operator; sale of a majority stake in Benin Telecom launched and expected to be completed in the third quarter of 2010.
  - Electricity company being restructured ahead of privatization scheduled for end-2011.
  - Strengthening of tax and customs administration and public finance management underway.
- Short-term prospects:
  - Benin’s short-term prospects described as relatively weak.

*Source: IMF staff report and related documents (as provided in the source PDF)._*

### 3.2 percent in 2010, based on a moderate fiscal stimulus to support economic activity. Inflation

### _cr10195 - 3.2 percent in 2010, based on a moderate fiscal stimulus to support economic activity. Inflation

### Executive summary and outlook
- Real GDP growth: 3.2 percent in 2010 (projected), reflecting a weak recovery from 2.7 percent in 2009.
- Inflation: should remain below 3 percent—the WAEMU convergence criterion.
- Short-term objective: contain the impact of the global crisis while supporting an incipient recovery.
- Medium-term objective: boost sustainable growth and poverty reduction through fiscal consolidation and structural reforms.

### Fiscal policy stance and public finances
- Authorities committed to pursuing a more prudent fiscal policy in 2010, targeting a moderate adjustment in the overall fiscal deficit to 5.9 percent of GDP.
- Public wage bill: needs to be limited to preserve fiscal space for priority social and investment spending.
- 2009 fiscal outcome: overall fiscal deficit of 7.3 percent of GDP.
- 2010 fiscal projections and indicators (in percent of GDP):
  - Central government revenue: 20.6
  - Total expenditure and net lending: 26.5
  - Primary fiscal balance: -5.1
  - Overall fiscal balance 1/: -5.9
  - 1/ Payment order basis

### Monetary and financial sector
- BCEAO response in 2009: liquidity injection, cut in the intervention rate by 50 bps to 4.25 percent, reduction in reserve requirement ratio for Benin from 16 percent to 9 percent.
- Money and credit indicators (change in percent of beginning-of-period broad money):
  - Net foreign assets: 18.6 (2007); 3.3 (2008); -0.9 (2009); 2.3 (2010)
  - Broad money: 17.7 (2007); 28.8 (2008); 6.2 (2009); 5.4 (2010)
  - Credit to the nongovernment sector: 13.0 (2007); 13.0 (2008); 5.70 (2009); 3.6 (2010)
  - Net credit to central government: -14.4 (2007); 11.4 (2008); 6.6 (2009); -0.4 (2010)
- Financial sector: banks’ asset quality improved, nonperforming loans declined, capital adequacy ratio remains above the prudential norm; some banks under strict surveillance and one under provisional administration.

### External sector
- Current account balance (excl. grants): -10.8 (2007); -9.0 (2008); -10.8 (2009); -9.7 (2010)
- Overall balance of payments: 3.2 (2007); 1.6 (2008); -1.6 (2009); -0.1 (2010)
- Drivers: lower cotton prices, weaker export demand (notably from Nigeria), lower FDI inflows, decline in transit trade.
- Financing of 2009 deficit: about two-thirds financed from external grants and concessional loans, including the counterpart of the SDR allocation.

### Structural reform agenda and measures
- Priorities:
  - Strengthen revenue collection and public financial management.
  - Improve infrastructure, customs administration, and public administration modernization.
  - Second generation reforms: improve land registration, property rights, and the financial and judiciary systems.
  - Strengthen microfinance supervision and devote resources to youth entrepreneurship.
- Public enterprise reform and privatization:
  - Progress in privatizing the cotton and public utility sectors.
  - Planned privatization of Benin Telecom encouraged.
  - Intention to save privatization proceeds and use them, after consultation with Fund staff, to finance projects with a high social rate of return.
- Public financial management reforms: delays noted; authorities called to step up efforts, including implementation of the new public procurement code.
- Business climate measures: improve selection and monitoring of projects, strengthen transparency and accountability in public procurement contracts, simplify procedures for business creation, tax- and customs-related operations and commercial dispute resolution.

### Program objectives under the ECF-supported arrangement
- IMF arrangement: three-year ECF equivalent to SDR 74.28 million (about US$109 million); initial disbursement equivalent to SDR 10.62 million (about US$15.6 million).
- Macroeconomic targets:
  - Raise annual real GDP growth to 6 percent by 2013 from 3.2 percent in 2010.
  - Maintain inflation below 3 percent (WAEMU criterion).
  - Reduce the external current account deficit (excluding grants) to 7.6 percent of GDP by 2013 from 10.8 percent in 2009.
  - Increase the basic primary balance to a surplus of 1.5 percent of GDP by 2013, compared with a deficit of 3.8 percent of GDP in 2009.
- Complementary structural actions:
  - Improve selection and monitoring of growth-inducing expenditure and public procurement transparency.
  - Implement reforms to strengthen external competitiveness and improve the business climate, revenue administration, and public service quality.
  - Implement second generation reforms to improve land registration, property rights, financial and judiciary systems.

### Executive Board assessment and recommendations
- Directors’ diagnosis:
  - Benin hit by the global crisis with sharply lower growth and a large fiscal deficit in 2009.
  - Adverse impact of a large expansion in the public wage bill and uneven progress on structural reforms.
- Key challenges highlighted:
  - Contain crisis impact short-term while reducing fiscal and external imbalances medium-term.
  - Contain growth of the wage bill to safeguard fiscal space, reduce labor market distortions, and improve external competitiveness.
  - Resist spending pressures in the run up to the 2011 elections.
  - Undertake comprehensive civil service reform to raise public service efficiency and keep expenditures aligned with fiscal sustainability.
- Directors encouraged:
  - Building support among stakeholders for successful reform implementation, particularly in fiscal and structural areas.
  - Continued enhancement of banking supervision and compliance with prudential ratios.
  - Strengthening regulatory framework for the microfinance sector.
  - Proceeding with electricity sector regulatory framework implementation.
  - Anticipation of the upcoming Financial Sector Assessment Program review to strengthen supervisory framework.

*Source: IMF staff report and Press Release materials contained in _cr10195 (June 14, 2010).*

### 2013. My authorities will adopt any other measures needed to achieve the objectives of the

### _cr10195 - 2013. My authorities will adopt any other measures needed to achieve the objectives of the

### Fiscal consolidation and deficit targets
- Fiscal consolidation initiated in the second half of 2009 is the cornerstone of the program and "will be pursued over the period of the arrangement."
- Objective: preserving fiscal and debt sustainability while creating fiscal space to strengthen social safety nets and support other priority social spending.
- Strategy: greater revenue mobilization and reduction in recurrent expenditures.
- Fiscal deficit path:
  - "7.3 percent in 2009"
  - "5.9 percent of GDP in 2010"
  - "3.3 percent of GDP in 2013"
- Financing: "primarily with external concessional budget support from both multilateral and bilateral donors."
- Borrowing strategy: "continue their prudent borrowing strategy of securing grants or highly concessional loans to finance the deficit."

### Public financial management and revenue administration reforms
- Priority: "Strengthening the public financial management will remain a priority in the fiscal program."
- Tax and customs administration reforms expected to "translate in greater revenue performance."
- Near-term actions and timelines:
  - Submission to the National Assembly in "October 2010" of legislation introducing the personal income tax.
  - "Computerization of all customs offices by end-2010."
  - Adoption of implementing decrees of Public Procurement Code "by end-September 2010."
- Budget processes: improve budget preparation and execution to "better monitor expenditures and reduce recourse to exceptional payment procedures."

### Civil service compensation and pension reforms
- Need to reform "wage policy and pension fund in the civil service" to ensure long-term fiscal and debt sustainability.
- Compensation system actions:
  - Government "commissioned a study of the civil service remuneration system" and "decided not to grant new bonuses, allowances, or other benefits to civil servants until that study is completed."
  - Recommendations will form basis for a civil service reform strategy "to be adopted by June 2011."
  - A committee of representatives of the government, labor unions, and social partners established to act as a single negotiating framework for multiyear salary agreements.
- Pension fund actions:
  - Prepare a draft law to implement a new strategy based on recommendations of an actuarial audit concluded in "September 2009."
  - Draft law "will be discussed between all parties concerned before it is submitted to the Parliament by end-2011."

### Monetary policy and financial sector oversight
- The regional central bank will "continue to monitor closely inflationary trends and conduct a monetary policy consistent with the objective of price stability."
- The WAMU Banking Commission will "continue to monitor the financial system."
- Authorities requested "a FSAP mission in 2010" and "are committed to implement any resulting recommendations."
- Interim measures: continue to enhance banking supervision to "improve compliance with the prudential ratios" and strengthen the regulatory framework of the microfinance sector.

### Structural reform agenda and program implementation
- Authorities determined to advance reform agenda during the program period; recent actions include "electricity tariff increases and call for bid for a one-stop window in for port operations."
- Benchmarks during the program include critical actions in reforms of the "fiscal, agriculture, energy, telecommunications and transportation sectors."
- Further progress expected in second-generation reforms: "justice, land tenure, and financial services" with support of the MCC.
- Request: authorities are "requesting a new three-year ECF arrangement" to mitigate effects of the global and financial crisis in the near term while ensuring sustained medium-term growth and poverty reduction.
- Authorities have "demonstrated a strong ownership of their program with a steady implementation of structural reforms after the expiration of the last arrangement."

*Source: _cr10195 - 2013.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2010/_cr10195.pdf_