## _cr1299 - 1. Selected Economic and Financial Indicators, 2009–17 ## Source details **Canonical URL:** [_cr1299 - 1. Selected Economic and Financial Indicators, 2009–17](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr1299.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr1299.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr1299.pdf.json) --- ### Overview and outlook - Real growth in 2011 is estimated at about 3 percent. - Growth in 2012 is projected to increase moderately to 3½ percent. - Medium-term growth expected to stabilize at about 4½–5 percent under the baseline scenario. - The euro area crisis is projected to lower growth in Benin by 0.2 percentage point of GDP in 2012. - Baseline scenario assumes oil subsidies in Nigeria remain at their current level over the medium term. - Monthly inflation in January increased by 5 percent; average annual inflation in 2012 is expected to reach 7 percent. ### Key macroeconomic projections (2010–17) - GDP at constant prices (percent change): - 2010: 2.6 - 2011: 3.1 - 2012: 3.5 - 2013: 4.7 - 2014: 4.8 - 2015: 4.8 - 2016: 4.9 - 2017: 4.9 - Inflation (average): - 2010: 2.1 - 2011: 2.7 - 2012: 7.0 - 2013: 3.5 - 2014: 3.4 - 2015: 3.3 - 2016: 3.2 - 2017: 2.8 - Overall fiscal balance (excluding grants) (percent of GDP): - 2010: -3.1 - 2011: -4.3 - 2012: -3.6 - 2013: -3.0 - 2014: -2.4 - 2015: -2.0 - 2016: -1.9 - 2017: -1.8 - Basic primary fiscal balance (excluding grants) (percent of GDP): - 2010: 0.5 - 2011: -0.1 - 2012: 0.2 - 2013: 0.8 - 2014: 1.3 - 2015: 1.6 - 2016: 1.7 - 2017: 1.7 - External current account balance (excluding grants) (percent of GDP): - 2010: -8.1 - 2011: -8.2 - 2012: -7.0 - 2013: -6.8 - 2014: -5.9 - 2015: -5.6 - 2016: -5.5 - 2017: -5.3 ### External sector and trade developments - Current-account and balance-of-payments: - External current account deficit widened in 2011 due to higher international fuel prices and lower official transfers. - Current account deficit (including grants) expected to fall to some 6 percent of GDP in 2012. - Overall balance of payments expected to shift from a small deficit in 2011 to a small surplus in 2012. - Exports and imports (selected levels, 2009–17): - Exports of goods and services (billions of CFA francs): 348.9; 396.8; 409.0; 463.6; 472.3; 509.1; 545.6; 584.3; 623.1 - Imports of goods and services (billions of CFA francs): -699.9; -701.4; -734.9; -799.7; -843.9; -885.3; -946.0; -1,021.3; -1,098.0 - Authorities’ external borrowing policy: - Prudent reliance on concessional grants and loans; exception: a CFAF 4.6 billion non concessional loan to finance a road. - Transmission from Nigeria’s fuel policy: - Reduction in fuel subsidies in Nigeria in January 2012 raised gasoline prices by about 50 percent; surge immediately and fully passed through to Benin. ### Monetary and financial sector - Credit and intermediation: - Credit to the private sector expanded less than expected in 2011 but projected to rebound in 2012 with normalization of port operations. - Ratio of private credit to GDP higher than other WAEMU countries but remains low—signals shallow financial intermediation. - Bank exposures and liquidity: - Banks in Benin hold about 17 percent of Ivoirian government bonds; restructuring of Côte d’Ivoire’s sovereign debt weakened bank profitability. - As long as BCEAO accepts those bonds as collateral, liquidity should not be affected. - Monetary aggregates (selected): - Broad money (M2, annual change percent): 6.2; 11.6; 3.0; 4.2; 3.6; 6.3; 6.6; 8.4; 7.3; 9.2; 8.3; 8.0; 7.9; 7.9; 7.7 - Credit to the nongovernment sector (year-on-year change, memorandum): 11.3; 9.7; -4.8; -1.6; -0.4; 11.5; 0.1; 14.2; 6.5; 13.6; 12.5; 10.0; 9.5; 8.6; 7.9 ### Fiscal performance, revenue, and expenditure - Revenue and customs: - Total revenue stagnated in 2011 because of weak customs revenue; customs underperformance driven by implementation resistance at the Port of Cotonou. - Customs reforms implemented: a one-stop window at the Port of Cotonou; an enhanced import-value-verification program (PVI); a customs-valuation system based on actual transactional values. - Authorities temporarily reversed transactional values for 14 products to address price increases. - Monthly revenue program targets: - December target: CFAF 63.7 billion (actuals initially missed but recovered in December). - January and February targets: CFAF 49.0 billion each. - Spending restraint measures: - Elimination of ghost employees; audit of allowances and entitlements; postponement of some recruitments; cuts in current and domestically financed capital spending. - Consequences: basic primary deficit performance criterion met; domestically financed investment lower than planned; priority social spending targets missed twice. - Central government finance (selected levels, 2009–17): - Total revenue (billions of CFA francs, Table 2a): 575.8; 603.0; 650.1; 605.6; 710.0; 710.0; 784.5; 867.5; 943.2; 1,021.2; 1,103.4 - Total expenditure and net lending (billions of CFA francs): 809.0; 702.2; 801.0; 754.7; 843.9; 845.4; 906.3; 971.7; 1,037.3; 1,116.2; 1,202.1 - Wage bill (billions of CFA francs): 225.9; 238.7; 270.0; 253.2; 279.0; 279.0; 298.9; 320.0; 342.2; 365.5; 388.9 - Capital expenditure and net lending (billions of CFA francs): 315.1; 197.8; 233.0; 239.1; 229.7; 257.0; 272.9; 291.9; 308.4; 335.1; 367.5 ### Program performance and structural reforms - Quantitative performance: - All quantitative performance criteria and all but two indicative targets for end-September 2011 were met; similar performance at end-December 2011. - End-September and end-December: basic primary balance and net domestic financing met; total revenue (floor) and priority social expenditure (floor) — Not met. - Structural reform progress: - Advances: customs administration and import valuation reforms at the Port of Cotonou; submission of draft Organic Budget Law to Supreme Court; preparation of 2010 budget execution accounts; establishment of joint customs-tax control unit; steps to strengthen regulatory framework for the energy sector. - Delays: computerization in customs and tax departments; pension reform; generalization of the taxpayer identification number; civil service reform and single computerized civil service database. - World Bank involvement: mission in October provided a new road map for civil service database and intends to become a driving force. ### Policy discussions and recommendations - Revenue-side priorities: - Restore customs revenue performance; progressive return to transactional values once reforms are operational. - Streamline and reduce tax exemptions following FAD technical assistance recommendations. - Expenditure and wage policy: - Ensure wage bill remains within the program envelope; accelerate civil service reform to protect priority social spending and capital investment. - Staff cautioned higher gasoline prices could feed into higher wages, risking a permanently higher wage bill. - Structural and financial-sector actions: - Accelerate implementation of structural reform agenda to enhance revenue collection, fiscal sustainability, and private sector involvement in energy. - Intensify financial sector supervision and resolve failing banks given high non-performing loans and banks failing to meet capital requirements. ### Missed social spending targets and budget implementation (section 12) - Indicative targets on priority social spending were missed in September and December. - Authorities cited technical and administrative difficulties in timely payment of those expenditures. - Staff recommendations: - Strengthened monitoring, including setting monthly targets, and better communication with line ministries. - Authorities’ response: - Concurred and undertook enhancing the Ministry of Finance’s enforcement capacity. - 2012 budget: - Approved by the National Assembly and broadly consistent with the program fiscal framework. - Staff welcomed excise taxes on coffee and on higher-priced cars, and elimination of full exemption on new enterprises; noted several unwarranted exemptions remain to be reviewed. ### Financial sector vulnerability and supervision - Overall assessment: - Financial sector broadly stable, but loan portfolio weak and some small banks fragile. - Prudential indicators and risks (June 2011 data, latest available): - Banking sector overall capital-adequacy ratio is above prudential threshold of 8 percent. - 3 of the 13 commercial banks do not comply with minimum capital requirements (LOI ¶ 6). - Non-performing loans represent 17 percent of total loans. - Authorities’ actions and estimates: - Law grants BCEAO powers to intervene in financial institutions with loans or assets over CFAF 2 billion (about US$4 million). - Three distressed banks represent 3 percent of banking system’s assets; not systemic. - Potential cost of refunding deposits estimated at two tenths of one percent of GDP. - Staff recommendations: - Resolve banks not complying with capital requirements quickly; intensify supervision, on-site inspections, and timely collection of prudential data. ### Civil Service Wage Agreement (Box 1 summary) - Agreement reached on August 5, 2011. - Provides a 25 percent nominal increase in the index used to determine basic salary (retroactive to January 1, 2011), implementation spread over four years. - MOF staff received full 25 percent increase in 2011; other ministries (excluding teachers) receive: 5 percent in 2012 and 2013, and 10 percent in 2014. - Selected wage bill figures (billions of CFA francs): - Wage bill (program): 2011 Est. 253.2; 2012 279.0; 2013 298.9; 2014 320.0. - Impact of the August 5, 2012 wage agreement: 2011 1.6; 2012 4.5; 2013 7.4; 2014 13.2. - Total wage bill (percent of GDP): 7.4; 7.4; 7.3; 7.3. - Authorities estimate the increase is consistent with program projections; wage bill in 2011 was 6 percent below the program target. ### Risks to the program - Domestic risks: - Ambitious fiscal target for 2012 could be derailed by continued weaknesses in revenue collection. - Resistance to customs reforms would prolong revenue underperformance. - Further wage demands or extension of wage agreement coverage would threaten priority social spending and capital investment. - Delays in structural reforms would undermine program and recovery. - External risks: - Rise in price of informally imported gasoline from Nigeria could drain resources. - Policy decisions in Nigeria on fuel subsidies and trade relations could imperil recovery. - A weaker global environment would lower exports, remittances, and aid. ### Staff appraisal and outlook - Program implementation broadly on track but beset by significant underperformance in revenue collection and delays in structural reforms. - Growth: - Projected modest upward trend in 2012 but buffeted by twin external shocks (Nigeria fuel reform and global crisis). - Recovery expected as agriculture recovers and port operations normalize; stunted by higher gasoline prices. - Inflation and convergence: - Inflation in 2012 expected to shoot up; WAEMU convergence criterion in medium term may still be within reach if second-round effects contained. - Fiscal priorities: - Planned increase in revenue critical for successful implementation. - Customs revenue underperformance must be addressed; valuation at customs to return to transactional values. - Meeting social spending goals requires careful monitoring and strong commitment. - Structural and financial sector recommendations: - Accelerate structural reform agenda; intensify financial-sector supervision and resolve failing banks. ### Gasoline price shock: scenarios, macro and fiscal impacts - Nigeria pump price scenarios (naira per liter): - 2011 price: 65 naira. - Early Jan. 2012: 140 naira. - Mid-Jan. 2012: 97 naira. - Corresponding CFA francs (selected): - 2011: 190 - Baseline: 294.6 (rounded in text to 295) - Medium: 364.4 - Truth-in-pricing: 425.2 - Transmission and inflation: - First-round effect: immediate increase in general price level by about 4 percent. - Second-round effect: additional inflation of roughly 1 percent. - Underlying inflation: 2 percent. - Total annual inflation in 2012 in Benin should be around 7 percent (Table 2 shows a revised inflation of 7.2 percent). - Growth impact estimates for 2012: - Combined reduction in growth of 0.8 percentage point: 0.2 point from euro-area slowdown effects; 0.6 point from higher informal gasoline prices. - Gasoline market and fiscal revenue scenarios (selected figures and assumptions): - Informal selling price (CFAF per liter): 2011 300.0; Baseline 415.0; Medium 475.0; Truth-in-pricing 510.0. - Discount on official price (percent): 2011 47.4; Baseline 27.2; Medium 16.7; Truth-in-pricing 10.5. - Share of the formal market (percent of total sales volume): 15.0; 24.5; 60.3; 81.2 (corresponding to scenarios). - Estimated sales value in the formal market (billions of CFA francs), Elasticity = -0.2: 2.8; 17.3; 40.9; 53.8. - Estimated sales value in the formal market (billions of CFA francs), Elasticity = -0.4: 2.8; 16.1; 36.4; 46.6. - Tax revenue from gasoline sales: - Government collects about CFAF 160 per liter on official gasoline sales. - 2011 estimate: total revenue from official sales of gasoline: 3.3 (billions of CFA francs). - 2012 projected fiscal revenue increase (assuming no tax policy change): - Range CFAF 6 billion to CFAF 10 billion depending on scenario and elasticity (equivalent to 0.1 to 0.3 percent of GDP). ### IMF ECF disbursement schedule and program financing - Disbursements under ECF arrangement: - SDR 10.62 million — June 28, 2010 — Disbursed. - SDR 10.61 million — December 31, 2010 — Disbursed. - SDR 10.61 million — June 1, 2011 — Disbursed. - SDR 10.61 million — December 1, 2011 — Condition: Observance of performance criteria for September 30, 2011, and completion of the third review. - SDR 10.61 million — June 1, 2012 — Condition: Observance of performance criteria for March 31, 2012, and completion of the fourth review. - SDR 10.61 million — December 1, 2012 — Condition: Observance of performance criteria for September 30, 2012, and completion of the fifth review. - SDR 10.61 million — June 1, 2013 — Condition: Observance of performance criteria for March 31, 2013, and completion of the sixth review. - SDR 74.28 million — Total amount. ### Program monitoring, definitions, and TMU highlights - Net domestic financing (NDF) ceilings (cumulative since January 1): - CFAF 48.7 billion at end-March 2012; - CFAF 60.7 billion at end-June 2012; - CFAF 48.6 billion at end-September 2012. - Basic primary balance floor (cumulative since January 1): - Not less than CFAF -20.5 billion at end-March 2012; - CFAF -39.8 billion at end-June 2012; - CFAF -21.7 billion at end-September 2012. - Indicative targets — government revenue (cumulative since January 1): - CFAF 148.3 billion at end-March 2012; - CFAF 331.3 billion at end-June 2012; - CFAF 515.0 billion at end-September 2012. - Continuous performance criteria: - Non-accumulation of domestic payments arrears. - Non-accumulation of external public payments arrears. - Ceiling on contracting or guaranteeing new nonconcessional external debt maturing in ≥ 1 year (no nonconcessional external borrowing except with grant element ≥ 20 percent and not exceeding cumulative CFAF 25 billion). - Reporting requirements: - Monthly CPI within two weeks; TOFE within six weeks; monetary survey within eight weeks. - Copies of contracts and data on any loan contracted or guaranteed within first week after month-end. *International Monetary Fund — Benin: Selected Economic and Financial Indicators, 2009–17 (from _cr1299)* ### 1. Selected Economic and Financial Indicators, 2009–17 ________________________________________ 17 ### _cr1299 - 1. Selected Economic and Financial Indicators, 2009–17 ### Overview and outlook - Real growth in 2011 is estimated at about 3 percent. - Growth in 2012 is projected to increase moderately to 3½ percent. - Medium-term growth is expected to stabilize at about 4½–5 percent under the baseline scenario. - The euro area crisis is projected to lower growth in Benin by 0.2 percentage point of GDP in 2012. - The baseline scenario assumes oil subsidies in Nigeria remain at their current level over the medium term. ### Key macroeconomic projections (2010–17) - GDP at constant prices (percent change): - 2010: 2.6 - 2011: 3.1 - 2012: 3.5 - 2013: 4.7 - 2014: 4.8 - 2015: 4.8 - 2016: 4.9 - 2017: 4.9 - Inflation (average): - 2010: 2.1 - 2011: 2.7 - 2012: 7.0 - 2013: 3.5 - 2014: 3.4 - 2015: 3.3 - 2016: 3.2 - 2017: 2.8 - Overall fiscal balance (excluding grants) (percent of GDP): - 2010: -3.1 - 2011: -4.3 - 2012: -3.6 - 2013: -3.0 - 2014: -2.4 - 2015: -2.0 - 2016: -1.9 - 2017: -1.8 - Basic primary fiscal balance (excluding grants) (percent of GDP): - 2010: 0.5 - 2011: -0.1 - 2012: 0.2 - 2013: 0.8 - 2014: 1.3 - 2015: 1.6 - 2016: 1.7 - 2017: 1.7 - External current account balance (excluding grants) (percent of GDP): - 2010: -8.1 - 2011: -8.2 - 2012: -7.0 - 2013: -6.8 - 2014: -5.9 - 2015: -5.6 - 2016: -5.5 - 2017: -5.3 ### External sector and trade developments - The external current account deficit widened somewhat in 2011 due to higher international fuel prices and lower official transfers. - Improved outlook for cotton and rising non-traditional exports are expected to reduce the current account deficit (including grants) to some 6 percent of GDP in 2012. - Overall balance of payments is expected to shift from a small deficit in 2011 to a small surplus in 2012. - The authorities have pursued a prudent external borrowing policy, relying on concessional grants and loans; exception: a CFAF 4.6 billion non concessional loan to finance a road. - A reduction in fuel subsidies in Nigeria in January 2012 raised gasoline prices by about 50 percent, and the surge was immediately and fully passed through to Benin. - Monthly inflation in January increased by 5 percent; average annual inflation in 2012 is expected to reach 7 percent. ### Monetary and financial sector - Credit to the private sector expanded less than expected in 2011 but is projected to rebound in 2012 with the normalization of port operations. - The ratio of private credit to GDP is higher than in other WAEMU countries but remains low, signaling shallow financial intermediation. - Banks in Benin hold about 17 percent of Ivoirian government bonds; restructuring of Côte d’Ivoire’s sovereign debt weakened bank profitability, but as long as the BCEAO accepts those bonds as collateral, liquidity should not be affected. ### Fiscal performance, revenue, and expenditure - Total revenue stagnated in 2011 because of weak customs revenue; customs underperformance driven by implementation resistance at the Port of Cotonou. - Customs reforms implemented included: - a one-stop window at the Port of Cotonou; - an enhanced import-value-verification program (PVI); - a customs-valuation system based on actual transactional values (replacing consensual values). - Authorities temporarily reversed transactional values for 14 products to address price increases. - Monthly revenue program targets: - December target: CFAF 63.7 billion (actuals initially missed but recovered in December). - January and February targets: CFAF 49.0 billion each. - Spending restraint measures implemented to meet program targets included elimination of ghost employees, an audit of allowances and entitlements, postponement of some recruitments, and cuts in current and domestically financed capital spending. - Consequences of spending restraint: - The basic primary deficit performance criterion was met. - Domestically financed investment was lower than planned. - Priority social spending targets were missed twice. ### Program performance and structural reforms - All quantitative performance criteria and all but two indicative targets for end-September 2011 were met; similar performance at end-December 2011. - Text Table 2 (performance summary for 2011): - Quantitative performance criteria (Net domestic financing ceiling; Basic primary balance floor) — Met (End-Sept. and End-Dec.). - Continuous quantitative performance criteria (accumulation of external payments arrears; external nonconcessional debt contracted or guaranteed by government with maturities of 0–1 year and more than one year; accumulation of domestic payments arrears) — Met. - Indicative targets: Total revenue (floor) — Not met (End-Sept. and End-Dec.); Priority social expenditure (floor) — Not met (End-Sept. and End-Dec.); Payment orders issued outside the expenditure chain (ceiling) — Met. - Structural reform progress: - Advances: customs administration and import valuation reforms at the Port of Cotonou; submission of a draft Organic Budget Law to the Supreme Court; preparation of 2010 budget execution accounts; establishment of a joint customs-tax control unit; steps to strengthen the regulatory framework for the energy sector. - Delays/slow progress: computerization in customs and tax departments; pension reform; generalization of the taxpayer identification number; civil service reform and the creation of a single computerized civil service database. - World Bank involvement: a World Bank mission in October provided a new road map for the civil service database and proposed a new approach; the World Bank intends to become a driving force in this reform. ### Policy discussions and recommendations - Strengthening fiscal policy was emphasized, with particular focus on: - Restoring customs revenue performance as critical for fiscal sustainability. - Progressive return to transactional values once reforms are operational. - Streamlining and reducing tax exemptions following FAD technical assistance recommendations. - On expenditure and wages: - Authorities reined in spending to meet performance criteria; staff commended this but noted medium-term downsides for capital investment and inclusive growth. - Staff urged ensuring the wage bill remains within the program envelope and cautioned that higher gasoline prices could feed into higher wages, risking a permanently higher wage bill. - Staff encouraged acceleration of civil service reform as essential for a sustainable fiscal strategy that protects priority social spending and capital investment. - Authorities’ views: - Revenue recovery in 2012 was expected; the partial use of consensual values was described as temporary with a commitment to a gradual return to transactional values. - The new wage agreement was expected to yield social peace for the next four years and be compatible with the program’s wage bill plan. - The authorities reiterated commitment to civil service reform with World Bank support. *International Monetary Fund — Benin: Selected Economic and Financial Indicators, 2009–17 (from _cr1299)* ### 12. The indicative targets on priority ### 12. The indicative targets on priority ### Missed social spending targets and budget implications - The indicative targets on priority social spending were missed in September and December. - Authorities indicated technical and administrative difficulties in the timely payment of those expenditures. - Staff recommendations and observations: - Strengthened monitoring, including setting monthly targets, and better communication with line ministries would be critical to achieving the social spending targets. - Authorities’ response: - The authorities concurred and undertook enhancing the Ministry of Finance’s enforcement capacity. - The 2012 budget approved by the National Assembly is broadly consistent with the fiscal framework of the program. - Staff welcomed measures adopted in the budget, including excise taxes on coffee and on higher-priced cars, and the elimination of full exemption on new enterprises. - Staff noted that several unwarranted exemptions remained and welcomed the authorities’ plans to review these exemptions to streamline them. ### 2012 budget objectives - The 2012 budget aims at promoting private sector-led growth, strengthening revenue, and prioritizing spending, according to program goals (LOI ¶ 21). - Objectives include a significant increase in the revenue-to-GDP ratio to create fiscal space for public investment and social spending. ### Financial sector vulnerability and supervision - Overall assessment: - The financial sector is broadly stable, but the loan portfolio is weak and some small banks are in a fragile position. - Prudential indicators and risks: - Banking sector overall capital-adequacy ratio is above the prudential threshold of 8 percent. - 3 of the 13 commercial banks do not comply with minimum capital requirements (LOI ¶ 6). - Loan concentration is high and non-performing loans represent 17 percent of total loans. (June 2011 data, the latest available.) - Staff concerns and recommendations: - Need to quickly resolve the situation of the banks that have not complied with capital requirements for a long period. - Concern about the high level of non-performing loans, which made the banking system vulnerable. - Recommended closer and more frequent supervision over risk management practices, lending standards, and taking appropriate measures to address emerging risks. - Timely collection of prudential data and overall strengthening of supervision—including on-site inspections—to ensure compliance with regional norms are critical, as current practices suggest weak supervision. - Authorities’ views and actions: - Financial sector legislation was strengthened with approval of a law granting the BCEAO the powers to intervene in financial institutions with loans or assets over CFAF 2 billion (about US$4 million). - Most banks had increased their capital following strengthened WAEMU guidelines. - The three distressed banks represented a small share (3 percent) of the banking system’s assets and therefore did not represent a systemic risk. - Authorities were considering steps to resolve the situation of a failed bank. - The potential cost of refunding deposits is estimated at two tenths of one percent of GDP. - Staff welcomed these measures while urging intensified supervision, noting the importance given turbulences in the euro area and possible financial ramifications in Benin. - Institutional note: - Bank supervision falls under the regional WAEMU Banking Commission. However, national monetary authorities may put pressure on the regional body to strengthen bank supervision in Benin. ### Box 1 — Civil Service Wage Agreement (summary) - Agreement reached on August 5, 2011, between Government and labor unions on an increase in basic salaries of civil servants within a new national negotiation framework. - No other wage increases planned before 2015; multi-year horizon intended to reduce risk of unsustainable wage-bill spiraling. - Agreement details: - Provides a 25 percent nominal increase in the index (from its 2010 level) used to determine basic salary of civil servants. - Increase is retroactive to January 1, 2011, but implementation spread over four years. - Ministry of Finance (MOF) staff received the full 25 percent increase in 2011 as an incentive to bolster revenue collection. - Staff in other ministries, excluding teachers, will receive salary increases as follows: 5 percent in 2012 and 2013, and 10 percent in 2014. - The agreement also provides a 5 percent increase in 2011, but timing of payment remains to be determined through further negotiations. - Authorities estimate the increase is consistent with program projections for the wage bill. - In 2011, the additional cost (limited to MOF staff) was offset by administrative savings and postponement of some recruitment. - The wage bill in 2011 was 6 percent below the program target. - Benin: Wage Bill, 2011–14 (selected figures as presented) - Wage bill (program): 2011 Est. 253.2; 2012 279.0; 2013 298.9; 2014 320.0 (In billions of CFA francs, unless otherwise indicated). - Impact of the August 5, 2012 wage agreement: 2011 1.6; 2012 4.5; 2013 7.4; 2014 13.2. - MOF staff: 1.6; 1.6; 1.6; 1.6. - Other staff: 0.0; 2.9; 5.8; 11.7. - Salary increase granted by wage agreement (percent): 2011 5.0; 2012 5.0; 2013 5.0; 2014 10.0. - Total wage bill (percent of GDP): 7.4; 7.4; 7.3; 7.3. - Notes: - Equivalent impact numbers reflect sum of increase in base salary plus index change on various payments and allowances. Excludes teachers. - Timing and modalities for paying the 2011 increase to non-MOF staff will be determined through additional negotiations. MOF staff received the full 25 percent increase in 2011. ### Structural reform agenda and delays - Staff welcomed long-awaited customs reforms, but noted other areas of the reform agenda were lagging. - Important structural measures behind schedule included the computerization of customs offices and of the civil service. - Civil service reform had been incorporated into the World Bank’s program with Benin. - Authorities’ view: - Delays often linked to securing required technical or financial support from donors, and some measures would require more time than initially thought. - Authorities reiterated commitment to the 2011–15 growth and poverty reduction strategy and adopted procedures to fully execute priority social spending measures consistent with the 2012 budget. - Priority measures aim at improving living standards and progressing toward the Millennium Development Goals, particularly in health, primary education, and water provision. ### Risks to the program - Program implementation faces serious domestic and external risks. - Domestic and program-specific risks: - Ambitious fiscal target for 2012 could be derailed by continued weaknesses in revenue collection. - Continued resistance to reforms at customs would prolong revenue underperformance and endanger program implementation. - Successful labor union demands for further wage increases or extension of coverage of the wage agreement would threaten priority social spending and capital investment, and jeopardize fiscal sustainability. - Additional delays in structural reforms would undermine the program and put economic recovery at risk. - Conversely, timely implementation of civil service reform would reduce risk of program slippages. - Wide diffusion of benefits of higher customs revenue and broader fiscal space, underpinned by strong government leadership and decisive implementation of the reform program, would help mitigate risks. - External risks: - Rise in the price of informally imported gasoline from Nigeria and a possible global downturn could drain Benin’s already strained resources. - Policy decisions in Nigeria on fuel subsidies and trade relations with Benin could imperil economic recovery. - A weaker global environment would lower exports and remittances, and lead to a reduction in aid as donors confront fiscal constraints. ### Staff appraisal and outlook - Program implementation broadly on track but beset by serious shortcomings: significant underperformance in revenue collection and persistent delays in structural reforms. - Growth outlook: - Growth is projected to continue on a modest upward trend in 2012, but will be buffeted by spillover effects of twin external shocks. - Growth expected to rebound moderately as agriculture fully recovers and operations at the Port of Cotonou normalize. - Recovery will be stunted by higher gasoline prices and, to a lesser extent, by the ongoing global crisis. - Inflation and convergence: - Inflation in 2012 is expected to shoot up, but the WAEMU convergence criterion in the medium-term may still be within reach if second-round inflationary pressures are contained. - Authorities need to remain vigilant to minimize subsequent inflationary pressures, particularly regarding wage increases, which could threaten priority social spending and capital investment. - Fiscal and program priorities: - Planned increase in revenue is critical for successful program implementation. - End-September performance criteria were met, but customs revenue underperformance must be addressed, and valuation at customs needs to gradually return to transactional values. - Indicative targets on priority social spending were missed every quarter since their introduction last year; meeting future social spending goals will require careful monitoring and strong commitment. - Decisions regarding wage policy should be adopted in the context of civil service reform, with the wage bill remaining within the planned envelope. - Structural and financial sector recommendations: - Authorities should accelerate implementation of the structural reform agenda to enhance revenue collection, fiscal sustainability, and private sector involvement in the energy sector. - Financial sector supervision needs to be intensified and failing banks resolved given high non-performing loans and banks failing to meet capital requirements; lack of up-to-date financial sector information and weak supervision compound concerns. - Final assessment: - Program performance is vulnerable to weak customs revenue, wage slippages, and continued delays in the structural agenda. - Authorities’ steadfast commitment to following through with reforms, including strong reforms at customs and the Port of Cotonou, will be critical for economic success. *Source: IMF country report text (section provided).* ### 25. Staff supports the authorities’ ### _cr1299 - 25. Staff supports the authorities’ ### Staff recommendation - Staff supports the authorities’ request to complete the third review under the Extended Credit Facility and to disburse the corresponding financial support. ### National income and price indicators (2009–17, annual percentage change unless otherwise indicated) - GDP at current prices: 4.7; 4.5; 6.0; 9.2; 8.3; 8.0; 7.9; 7.9; 7.7 - GDP at constant prices: 2.7; 2.6; 3.1; 3.5; 4.7; 4.8; 4.8; 4.9; 4.9 - GDP deflator: 2.0; 1.8; 2.8; 5.6; 3.4; 3.1; 2.9; 2.9; 2.7 - Consumer price index (average): 2.2; 2.1; 2.7; 7.0; 3.5; 3.4; 3.3; 3.2; 2.8 - Consumer price index (end of period): -; 2.9; 4.0; 1.8; 7.2; 3.5; 3.4; 3.3; 2.8 ### Central government finance (levels and percent of GDP) - Total revenue (billions of CFA francs, 2009–17 projections in Table 2a): 575.8; 603.0; 650.1; 605.6; 710.0; 710.0; 784.5; 867.5; 943.2; 1,021.2; 1,103.4 - Tax revenue (billions of CFA francs): 500.4; 525.9; 578.0; 534.7; 632.2; 631.4; 704.2; 779.2; 846.8; 917.6; 992.2 - Nontax revenue (billions of CFA francs): 75.4; 77.1; 72.0; 70.9; 77.8; 78.6; 80.3; 88.2; 96.4; 103.6; 111.2 - Total expenditure and net lending (billions of CFA francs): 809.0; 702.2; 801.0; 754.7; 843.9; 845.4; 906.3; 971.7; 1,037.3; 1,116.2; 1,202.1 - Current expenditure (billions of CFA francs): 494.0; 504.4; 568.0; 515.6; 614.2; 588.4; 633.4; 679.7; 728.9; 781.1; 834.6 - Current primary expenditure (billions of CFA francs): 478.4; 486.7; 534.6; 500.7; 580.1; 565.8; 610.4; 657.7; 707.9; 761.1; 816.4 - Wage bill (billions of CFA francs): 225.9; 238.7; 270.0; 253.2; 279.0; 279.0; 298.9; 320.0; 342.2; 365.5; 388.9 - Pensions and scholarships (billions of CFA francs): 39.8; 43.6; 53.0; 48.7; 56.8; 56.8; 62.5; 68.8; 75.5; 82.6; 90.2 - Interest (billions of CFA francs): 15.6; 17.7; 33.4; 14.9; 34.1; 22.6; 23.0; 22.0; 21.0; 19.9; 18.3 - Capital expenditure and net lending (billions of CFA francs): 315.1; 197.8; 233.0; 239.1; 229.7; 257.0; 272.9; 291.9; 308.4; 335.1; 367.5 - Financed by domestic resources (billions of CFA francs): 221.6; 101.2; 133.0; 107.5; 122.7; 137.0; 143.0; 153.0; 160.0; 175.0; 195.0 - Financed by external resources (billions of CFA francs): 80.7; 76.0; 100.0; 119.1; 107.0; 120.0; 129.9; 138.9; 148.4; 160.1; 172.5 ### Fiscal balances and indicators (percent of GDP) - Total revenue: 18.5; 18.6; 17.6; 18.9; 19.3; 19.7; 19.9; 19.9; 20.0 - Total expenditure and net lending: 26.0; 21.6; 23.0; 21.9; 22.5; 22.3; 22.1; 21.9; 21.8 - Primary balance: -7.0; -2.5; -3.9; -3.0; -2.4; -1.9; -1.5; -1.5; -1.5 - Basic primary balance: -4.0; 0.5; -0.1; 0.2; 0.8; 1.3; 1.6; 1.7; 1.7 - Overall fiscal deficit (payment order basis, excl. grants): -7.5; -3.1; -4.3; -3.6; -3.0; -2.4; -2.0; -1.9; -1.8 - Overall fiscal deficit (cash basis, excl. grants): -9.3; -3.3; -4.9; -4.1; -3.4; -2.8; -2.4; -2.2; -2.1 - Debt service (in percent of revenue): 4.3; 5.6; 5.4; 6.3; 5.9; 5.8; 5.5; 5.0; 5.1 - Total government debt (percent of GDP): 27.3; 30.0; 31.0; 29.8; 28.7; 27.3; 26.1; 24.8; 22.8 ### Money, credit, and monetary survey (selected levels and changes) - Broad money (M2, annual change percent): 6.2; 11.6; 3.0; 4.2; 3.6; 6.3; 6.6; 8.4; 7.3; 9.2; 8.3; 8.0; 7.9; 7.9; 7.7 - Net domestic assets (change in percent of beginning-of-period broad money): 7.1; 5.2; 2.1; 6.5; 4.4; 9.8; 6.2; 13.0; 9.5; 8.4; 7.4; 4.7; 3.6; 3.0; 2.5 - Domestic credit (change, percent of beginning-of-period broad money): 12.5; 4.4; 0.0; 3.9; 3.7; 7.2; 7.2; 10.4; 10.4; 8.4; 7.4; 4.7; 3.6; 3.0; 2.5 - Credit to the nongovernment sector (year-on-year change in percent, memorandum): 11.3; 9.7; -4.8; -1.6; -0.4; 11.5; 0.1; 14.2; 6.5; 13.6; 12.5; 10.0; 9.5; 8.6; 7.9 ### External sector and balance of payments (selected items, 2009–17) - Exports of goods and services (billions of CFA francs): 348.9; 396.8; 409.0; 463.6; 472.3; 509.1; 545.6; 584.3; 623.1 - Imports of goods and services (billions of CFA francs): -699.9; -701.4; -734.9; -799.7; -843.9; -885.3; -946.0; -1,021.3; -1,098.0 - Balance of goods and services (percent of GDP): -41.4; -36.9; -38.2; -37.3; -39.9; -39.4; -41.4; -44.6; -47.7 - Trade balance (percent of GDP): -11.3; -9.4; -9.5; -8.9; -9.1; -8.6; -8.4; -8.5; -8.6 - Current account balance (incl. grants, percent of GDP): -8.9; -7.2; -7.9; -6.2; -6.3; -5.4; -5.2; -5.1; -5.0 - Current account balance (excl. grants, percent of GDP): -11.2; -8.1; -8.2; -7.0; -6.8; -5.9; -5.6; -5.5; -5.3 - Overall balance of payments (percent of GDP): -1.6; 0.8; -1.5; 0.6; 0.6; 1.6; 2.0; 2.2; 2.4 - Gross official reserves (imputed, billions of US dollars): 1.2; 1.2; 1.1; 1.2; 1.3; 1.4; 1.6; 1.8; 2.1 - Debt service-to-exports ratio: 3.4; 4.1; 4.2; 4.5; 4.7; 5.0; 5.2; 4.9; 5.4 - Debt-to-GDP ratio (post-MDRI): 15.5; 17.9; 17.6; 17.8; 18.0; 17.8; 17.8; 17.7; 16.6 - Nominal GDP (billions of CFA francs, annual): 3,109.4; 3,248.2; 3,442.2; 3,760.6; 4,071.5; 4,397.1; 4,744.5; 5,119.3; 5,515.3 - CFA francs per US dollar (period average): 470.7; 494.1; 470.4; ... ### Balance of payments components (selected levels, billions of CFA francs) - Current account balance (billions of CFA francs): -277.6; -233.6; -270.7; -234.8; -257.2; -238.6; -248.1; -261.7; -274.9 - Balance of goods and services (billions of CFA francs): -414.2; -369.3; -381.8; -373.3; -398.8; -394.3; -414.1; -445.8; -477.4 - Exports, f.o.b. (billions of CFA francs): 348.9; 396.8; 409.0; 463.6; 472.3; 509.1; 545.6; 584.3; 623.1 - Cotton and textiles (billions of CFA francs): 66.5; 59.4; 59.2; 105.3; 81.9; 83.9; 82.4; 78.7; 72.6 - Imports, f.o.b. (billions of CFA francs): -699.9; -701.4; -734.9; -799.7; -843.9; -885.3; -946.0; -1,021.3; -1,098.0 - Petroleum products (billions of CFA francs): -66.4; -150.3; -187.9; -192.6; -195.9; -199.4; -208.4; -217.0; -213.9 - Services (net, billions of CFA francs): -63.2; -64.7; -55.9; -37.2; -27.1; -18.0; -13.7; -8.8; -2.5 - Income (net, billions of CFA francs): -15.5; -8.9; -8.6; -10.9; -11.8; -12.9; -14.0; -14.9; -15.3 - Interest due on central government debt (billions of CFA francs): -8.2; -8.1; -7.8; -10.0; -10.9; -12.0; -13.0; -13.9; -14.2 - Current transfers (net, billions of CFA francs): 152.1; 144.6; 119.7; 149.4; 153.4; 168.6; 180.0; 199.0; 217.7 - Unrequited private transfers (billions of CFA francs): 32.4; 45.8; 52.0; 59.0; 66.7; 75.3; 84.8; 95.4; 107.1 - Public current transfers (billions of CFA francs): 119.8; 98.8; 67.7; 90.4; 86.7; 93.3; 95.2; 103.6; 110.6 - Budgetary assistance grants (billions of CFA francs): 71.3; 28.9; 10.3; 29.2; 21.2; 21.2; 18.4; 18.4; 18.4 ### Financing, capital, and financial account (selected) - Capital and financial account balance (billions of CFA francs): 187.6; 240.3; 218.6; 257.3; 281.5; 308.9; 342.8; 376.2; 406.6 - Financial account balance (billions of CFA francs): 158.8; 221.1; 141.8; 177.3; 216.5; 238.8; 267.1; 294.6; 318.6 - Medium- and long-term public capital (net, billions of CFA francs): 46.6; 68.3; 28.4; 31.9; 55.4; 60.7; 70.7; 77.6; 79.1 - Disbursements (billions of CFA francs): 56.0; 84.1; 46.3; 53.8; 78.7; 85.8; 96.7; 102.4; 108.5 - Amortization due (billions of CFA francs): -9.4; -15.8; -17.9; -21.9; -23.2; -25.0; -26.2; -24.9; -29.4 - Foreign direct investment (billions of CFA francs): 48.7; 65.9; 55.9; 55.9; 63.6; 72.1; 81.6; 92.0; 103.6 - Portfolio investment (billions of CFA francs): 37.6; 24.4; 45.0; 35.0; 35.0; 38.2; 41.4; 44.7; 48.2 - Errors and omissions (billions of CFA francs): 38.7; 18.3; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0 ### Monetary survey levels (selected, 2012–17 projections, billions of CFA francs) - Net foreign assets (total): 698.5; 781.0; 795.2; 747.2; 769.8; 730.3; 786.5; 713.4; 748.9; 761.4; 775.7; 836.0; 920.7; 1,025.2; 1,146.9 - BCEAO: 526.3; 551.3; 549.4; 532.5; 495.9; 523.1; 469.5; 513.8; 499.2; 521.8; 546.0; 616.4; 711.1; 825.6; 957.2 - Banks: 172.1; 229.6; 245.8; 214.6; 273.8; 207.1; 317.1; 199.6; 249.6; 239.6; 229.6; 219.6; 209.6; 199.6; 189.6 - Net domestic assets (billions of CFA francs): 597.5; 665.2; 694.8; 760.9; 729.0; 808.1; 755.5; 855.3; 802.2; 933.2; 1,059.0; 1,145.4; 1,217.2; 1,281.6; 1,338.4 - Broad money (M2, billions of CFA francs): 1,295.9; 1,446.1; 1,490.1; 1,508.1; 1,498.7; 1,538.4; 1,542.1; 1,568.7; 1,551.1; 1,694.6; 1,834.7; 1,981.4; 2,137.9; 2,306.8; 2,485.3 - Currency: 332.2; 346.1; 360.9; 359.9; 361.4; 366.1; 369.1; 372.2; 366.8; 400.7; 433.9; 468.6; 505.6; 545.5; 587.7 - Bank deposits: 954.9; 1,090.9; 1,120.4; 1,139.5; 1,129.0; 1,163.6; 1,164.4; 1,187.7; 1,175.7; 1,285.3; 1,392.2; 1,504.3; 1,623.8; 1,752.7; 1,889.0 ### IMF ECF disbursement schedule and conditions (2010–13) - Disbursements under ECF arrangement: - SDR 10.62 million — June 28, 2010 — Disbursed. The Executive Board approved the three-year arrangement on June 14, 2010. - SDR 10.61 million — December 31, 2010 — Disbursed. The Executive Board concluded the first review on February 16, 2011. - SDR 10.61 million — June 1, 2011 — Disbursed. The Executive Board concluded the second review on September 7, 2011. - SDR 10.61 million — December 1, 2011 — Condition: Observance of performance criteria for September 30, 2011, and of the continuous performance criteria, and completion of the third review under the arrangement. - SDR 10.61 million — June 1, 2012 — Condition: Observance of performance criteria for March 31, 2012, and of the continuous performance criteria, and completion of the fourth review under the arrangement. - SDR 10.61 million — December 1, 2012 — Condition: Observance of performance criteria for September 30, 2012, and of the continuous performance criteria, and completion of the fifth review under the arrangement. - SDR 10.61 million — June 1, 2013 — Condition: Observance of performance criteria for March 31, 2013, and of the continuous performance criteria, and completion of the sixth review under the arrangement. - SDR 74.28 million — Total amount. ### Indicators of capacity to repay the IMF (2011–23, selected) - Outstanding IMF credit (millions of SDRs, selected years): 56.4; 77.2; 97.8; 93.9; 87.9; 79.9; 66.9; 48.8; 32.9; 19.1; 7.4; 2.1; 1.1 - Outstanding IMF credit (billions of CFA francs, selected years): 41.9; 58.9; 74.9; 72.3; 68.0; 62.2; 50.7; 36.9; 24.9; 14.5; 5.6; 1.6; 0.8 - Outstanding IMF credit (percent of government revenue, selected years): 6.9; 8.3; 9.5; 8.3; 7.2; 6.1; 4.6; 3.1; 1.9; 1.0; 0.4; 0.1; 0.0 - Net use of IMF credit (millions of SDRs, 2011–23 row): 21.2; 20.8; 20.6; -3.9; -6.0; -8.0; -13.0; -18.1; -15.9; -13.8; -11.7; -5.3; -1.1 ### IMF obligations and projected repayments (2011–23, in millions of SDRs and percent indicators) - Total obligations based on existing and prospective credit (millions of SDRs, selected): Principal and charges lines show progressive amortization and charges, with principal repayments starting 2012 and increasing in later years (table displays year-by-year principal and charges). - Percent of government revenue (impact of IMF obligations, selected years): 0.0; 0.0; 0.1; 0.4; 0.5; 0.6; 0.9; 1.2; 0.9; 0.7; 0.6; 0.2; 0.0 - Percent of exports of goods and services (selected years): 0.0; 0.0; 0.1; 0.4; 0.6; 0.7; 1.0; 1.3; 1.0; 0.8; 0.6; 0.3; 0.0 - Percent of debt service (selected years): 0.0; 0.8; 1.0; 6.4; 9.2; 12.5; 17.4; 26.5; 22.9; 19.2; 16.1; 7.4; 1.5 - Percent of GDP (selected years): 0.0; 0.0; 0.0; 0.1; 0.1; 0.1; 0.2; 0.2; 0.2; 0.1; 0.1; 0.0; 0.0 - Percent of quota (selected years): 0.0; 0.7; 1.0; 6.8; 10.0; 13.2; 21.3; 29.6; 25.9; 22.4; 18.9; 8.6; 1.7 ### Millennium Development Goals (selected indicators, 1990–2015) - Population below US$1 a day (percent): 57.0 (1990); ...; 47.3 (2005); 40.8 (2011); 26.7 (2015 target shown) - Net primary enrollment ratio (percent of relevant age group): 41.0 (1990); 60.0 (1995); ...; 87.0 (2011); 90.3 (2015); 100.0 (goal) - Ratio of girls to boys in primary school (percent): 51.0 (1990); ...; 69.0 (2000); 80.0 (2005); 85.0 (2011); 100.0 (goal) - Under-five mortality rate (per 1,000): 184.0 (1990); 162.0 (1995); 144.0 (2000); 129.0 (2005); 115.0 (2011); 59.0 (2015 target shown) - Maternal mortality ratio (per 100,000 live births): 790.0 (1990); 690.0 (1995); 560.0 (2000); 460.0 (2005); 397.0 (2011); 125.0 (2015 target shown) - HIV/AIDS prevalence: 0.1 (1990); 0.8 (1995); 1.3 (2000); 1.3 (2005); 2.0 (2011); < 2 (target) - Access to improved water source (percent): 56.0 (1990); 61.0 (1995); 66.0 (2000); 72.0 (2005); 75.7 (2011); 100.0 (goal) - Mobile cellular subscriptions (per 100 people): 0.0 (1990); 0.0 (1995); 1.0 (2000); 8.0 (2005); 35.0 (2011); 50.0 (goal) *Source: Beninese authorities; and IMF staff estimates and projections.* ### APPENDIX I—LETTER OF INTENT ### APPENDIX I—LETTER OF INTENT ### I. Economic Developments and Program Implementation in 2011 - Overall assessment - Government requests conclusion of the third review under the Extended Credit Facility (ECF) and disbursement of the fourth ECF tranche of SDR 10.61 million. - Program implementation in the second half of 2011 was satisfactory; all quantitative performance criteria for end-September 2011 were met. - Medium-term framework largely unchanged; global environment deteriorated and a drastic increase in the price of gasoline imported fraudulently from Nigeria will slow recovery. - Macroeconomic performance - Real GDP growth estimated at 3.1 percent in 2011 compared to 2.6 percent in 2010. - Inflation at end-2011: 2.7 percent (slightly below WAEMU convergence criterion). - Current account deficit excluding grants: widened to 8.2 percent of GDP (from 8.1 percent in 2010). - Overall balance of payments deficit: 1.5 percent of GDP. - Money supply growth at end-November 2011: 14.0 percent. - Ten out of 13 banks complied with WAEMU capital requirement increase; decentralized financial structures law adopted January 26, 2012—BCEAO and Bank Supervision Commission can supervise structures with deposits or loans larger than CFAF 2 billion. - External debt and financing - Government continued prudent external indebtedness policy; continuous performance criteria met throughout 2011. - External financing strategy: grants and concessional borrowing unless exception authorized. - Budget execution—first three quarters (end-September 2011) - Total revenue: CFAF 439.8 billion, or 12.8 percent of GDP (program target CFAF 464.2 billion). - Total expenditure and net lending limited to CFAF 549.3 billion, or 16.0 percent of GDP (forecast CFAF 586.0 billion). - Overall deficit on a cash basis: CFAF 125.5 billion, equivalent to 3.6 percent of GDP (below program forecasts). - Financing: external financing, third ECF tranche disbursement, use of government deposits with banking system. - Fiscal revenue components at end-September 2011: - Customs receipts: CFAF 189.4 billion, or 5.5 percent of GDP (target CFAF 216.3 billion). - Tax collections: CFAF 200.0 billion, or 5.8 percent of GDP (in line with target). - Nontax revenue: CFAF 50.3 billion, or 1.5 percent of GDP (exceeding target). - Expenditure ceilings: - Primary current expenditure and domestically financed capital expenditure held below ceilings. - Externally financed capital expenditure overshot target. - Priority social expenditure: payment orders CFAF 73.6 billion (~63 percent of targeted amount). - Quantitative outcomes at end-September 2011: - Basic primary deficit: CFAF 30.4 billion (above program floor of CFAF 48.5 billion). - Adjusted net domestic financing: CFAF 83.5 billion (below adjusted ceiling CFAF 88.0 billion). - All quantitative performance criteria were met at end-September 2011. - Budget execution—fourth quarter (end-December 2011) - Total revenue: CFAF 605.6 billion, or 17.6 percent of GDP (target CFAF 650.1 billion). - Customs revenue at end-year: CFAF 261.2 billion, or 7.6 percent of GDP (target CFAF 304.0 billion); December monthly target CFAF 63.7 billion exceeded by CFAF 4.4 billion. - Tax collections estimated at CFAF 273.5 billion, or 7.9 percent of GDP (target CFAF 274.0 billion). - Nontax revenue: CFAF 70.9 billion (annual objective CFAF 72.0 billion), or 2.1 percent of GDP. - Total expenditure and net lending at end-December: CFAF 754.7 billion, or 21.9 percent of GDP (target CFAF 801.0 billion). - Overall fiscal deficit on a cash basis and excluding grants: CFAF 168.5 billion, or 4.9 percent of GDP (below program target). - Financing sources: concessional external budgetary support; issuance of treasury bills and multiyear bonds on regional financial market. - Quantitative benchmarks at year-end: basic primary balance and net domestic financing met; benchmarks on total revenue and priority social expenditure not met. - Priority social expenditure execution at end-year: CFAF 99 billion (target CFAF 132.6 billion); execution speeded up in fourth quarter but shortfall attributed to technical monitoring difficulties in implementing ministries. - Structural reforms implementation (status as reported) - ASYCUDA++ extension to 12 additional border units: planned end-August 2011, completed end-February 2012. - DGID integrated information system development: start in March 2012; full development may require up to three years. - DGDDI information system extension: planned end-August 2011, completed end-February 2012. - General extension of TIN to all taxpayers and tax/customs units: planned end-December 2011, to be completed by September 30, 2012. - Systematic use of TIN by DGDDI and cessation of nonspecific numbers in ASYCUDA++: to be completed by September 30, 2012. - Civil service reform preparatory work: organizational and institutional audit studies completed end-November and end-December 2011; compensation diagnostic report delivered end-December 2011 and validated end-February 2012; other components to be finalized by end-May 2012. - Regulatory framework for energy sector adopted January 11, 2012 (opens power distribution to private operators and introduces regulatory authority and transparent electricity price-setting mechanism). - Draft law governing pensions: not implemented by end-December 2011 due to opposition; issue to be considered by permanent national committee in March 2012, then submitted to Government for National Assembly by end-May 2012. - Draft Organic Law on Budget Law (LOLF): submitted to Supreme Court in December 2011. - SIGRH introduction: World Bank technical assistance recommended gradual approach and action plan (October 2011). - 2010 budget accounts: forwarded to Chamber of Accounts of Supreme Court in December 2011. - Joint Customs-Taxes Brigade: established by ministerial decree at end-December 2011. ### II. Economic, Financial, and Structural Policies for 2012 - Macroeconomic framework and outlook - Policy aim: support return to strong and sustained private-sector-led growth via macroeconomic consolidation and strengthened structural measures. - External shocks (increase in price of gasoline fraudulently imported from Nigeria and global sluggishness) expected to negatively affect 2012 real household incomes, growth, and inflation. - Growth projection for 2012: 3.5 percent. - Average inflation in 2012 could significantly exceed WAEMU convergence criterion of 3 percent. - External current account deficit and overall balance of payments expected to improve in 2012 relative to 2011 due to anticipated increase in cotton exports and external budgetary support. - Fiscal policy for 2012 - 2012 budget objectives: - Total revenue expected to reach 18.9 percent of GDP. - Total expenditure and net lending projected at 22.5 percent of GDP. - Basic primary balance projected at 0.2 percent of GDP. - Revenue mobilization measures: - Continue and strengthen structural reforms (one-stop window and PVI). - Expected customs receipts increase by 28 percent to CFAF 334.0 billion. - Tax revenue expected to increase by 10 percent to CFAF 297.4 billion. - Nontax revenue expected to amount to CFAF 78.6 billion. - Additional measures: forced collection efforts and results from joint Customs-Taxes Brigade; ASYCUDA++ extension and interconnection with Directorate General of Customs to support customs revenue. - Expenditure management: - Total expenditure and net lending projected at CFAF 845.4 billion (22.5 percent of GDP), an increase of 0.6 percentage point of GDP over 2011. - Breakdown of expenditure as percent of GDP expected broadly unchanged from 2011. - Mechanism introduced for consultation with ministries for preparing and executing 2012 Budget Law and modification of management and monitoring process for priority social expenditure; monthly targets to be determined for each concerned ministry. - Public Investment Program (PIP) arrears and payments - Identified works ready to be definitively accepted: CFAF 35 billion. - Payment commitments: - Pay at least CFAF 5 billion by March 9, 2012. - Pay at least CFAF 10 billion by March 31, 2012. - Settle the balance by June 8, 2012. *Source: APPENDIX I—LETTER OF INTENT* ### 25. The Government reached a wage agreement with the labor unions in August 2011. This ### _cr1299 - 25. The Government reached a wage agreement with the labor unions in August 2011. This ### Wage agreement, implementation, and fiscal impact - Agreement reached in August 2011 ending a prolonged period of strikes and projecting a social truce for four years. - Government committed to increasing the wage scale for government employees by 25 percent over 2011–14. - Ministry of Economy and Finance staff received the total increase of 25 percent in 2011 to encourage stepped-up revenue mobilization. - For other staff (excluding teachers of primary, secondary, technical, and higher education), phased wage-scale increases: - 5 percent in 2012; - 5 percent in 2013; - 10 percent in 2014; - catch-up for the increase for 2011 to be the subject of future negotiations. - Total impact of the wage increase is about CFAF 5 billion in 2012. - Government remains committed to keeping the wage bill within the envelope of CFAF 279 billion, as planned under the 2012 budget. ### Structural reforms and benchmarks (2012) - Program underpinned by additional structural measures during 2012. Benchmarks include: - launching operation of the computerized transit module of the ASYCUDA++ system between the Port of Cotonou and all land-based border posts by end-March 2012; - conducting a detailed review of all existing tax and customs exemptions with a view to streamlining them; results to be presented to the Council of Ministers by June 30, 2012; - the measure on the introduction of the SIGRH will be implemented with assistance from the World Bank; - completing the pilot phase and decision on extension of the “Sunkwè” system (civil servants’ database) to the Ministry of Labor and Civil Service (MTFP) by June 30, 2012; to be implemented with assistance from the World Bank; - blocking the following fields in the customs declaration (ASYCUDA++ system): TIN, the inspection certification number (AV), and the customs value corresponding to the AV, by June 30, 2012; - including the PVI data to the one-stop window to facilitate systematic consistency checks between the certification and attestation functions during data processing within the one-stop window, by June 30, 2012; - closing a bank that lost its license in 2009 and that was put under provisional administration, by September 30, 2012. ### Growth and Poverty Reduction Strategy (GPRS) 2011–15 — Priority Action Program - Priority Action Program under the GPRS for 2011–15 revised to maintain consistency with the program budget. - Steps taken to encourage full execution of priority social expenditures, ensuring conformity with GPRS 2011–15 objectives and availability of major budget execution tools. - Priority social expenditures aimed at improving living standards and achieving the Millennium Development Goals (MDGs), particularly in: - health; - primary education; - water; and - sanitation. ### Program conclusion, monitoring, and review timetable - Government requests conclusion of the third ECF review and associated disbursement. - The fifth review of the program expected to be completed by end-March 2013, based on observance of performance criteria on September 30, 2012. - Program monitoring based on semi-annual performance criteria, quantitative targets, and structural benchmarks defined in Tables 1 and 2 attached to the letter. - Government will regularly provide IMF staff with all information required as defined in the Technical Memorandum of Understanding (TMU), or additional information as requested. ### Select quantitative performance figures (as presented) - Wage increase total impact: CFAF 5 billion in 2012. - Wage bill envelope planned under 2012 budget: CFAF 279 billion. - Examples from Table 1 (cumulative from beginning of calendar year; all monetary figures in billions of CFA francs unless otherwise indicated): - Net domestic financing of the government (ceiling) — sample values: 72.1; 78.6; 46.3; 79.7; 88.0; 83.5; 57.3; 73.6; 54.7; 48.7; 60.7; 48.6. - Basic primary balance (excluding grants) (floor) — sample values: -36.5; -36.5; -32.2; -48.5; -48.5; -30.4; -17.6; -17.6; -2.6; -20.5; -39.8; -21.7. - Memorandum item: Budgetary assistance — sample values: 11.0; 11.0; 0.0; 23.0; 23.0; 10.3; 33.8; 33.8; 10.3; 0.0; 14.6; 14.6. - Continuous ceilings (accumulation of external payments arrears, external nonconcessional debt contracted or guaranteed with maturities 0–1 year, accumulation of domestic payments arrears): sample values all 0.0. - External nonconcessional debt contracted or guaranteed with maturities of more than one year — sample values: 0.0; 25.0; 25.0; 0.0; 25.0; 25.0; 4.6; 25.0; 25.0; 25.0. - Indicative targets (total revenue floor) — sample values: 295.0; 295.0; 290.9; 464.2; 464.2; 439.8; 650.1; 650.1; 605.6; 148.3; 331.3; 515.0. - Payment orders issued outside the expenditure chain (ceiling) — sample values: 4.6; 4.6; 3.3; 7.5; 7.5; 4.4; 10.6; 10.6; 9.2; 2.5; 4.6; 7.5. - Priority social expenditure (floor) — sample values: 77.6; 77.6; 56.6; 117.3; 117.3; 73.6; 132.6; 132.6; 99.0; 46.0; 75.0; 104.0. ### Structural benchmarks: implementation status (selected items from Tables 2) - Implemented measures (with dates and objectives): - Extension of the ASYCUDA++ information system to 12 additional regional customs offices — Initial Date/Revised Date: December 31, 2010/August 31, 2011; Objective: Improve the collection of customs revenue; State of Execution: Implemented in February 2012 (delayed). - Extension of the information system of the customs department (DGDDI) to all units — Initial Date/Revised Date: December 31, 2010/August 31, 2011; State of Execution: Implemented in February 2012 (delayed). - Submission to the budget audit office (Chambre des Comptes) of the 2010 budget execution accounts — Initial Date: December 31, 2011; State of Execution: Implemented. - Establishment of a joint Customs-Tax control unit — Initial Date: December 31, 2011; State of Execution: Implemented. - Adoption by decision of the Council of Ministers of a regulatory framework governing the energy sector — Initial Date/Revised Date: June 30, 2011/August 31, 2011; State of Execution: Implemented in January 2012 (delayed). - Submission to the Supreme Court of a draft Organic Budget Law (LOLF) — Initial Date: December 31, 2011; State of Execution: Implemented. - Delayed measures (with revised completion plans where provided): - Starting development of a complete and integrated information system at the DGID — Revised Date: March 31, 2012; State of Execution: Delayed; scheduled to start in March 2012, but full development may take up to three years. - Generalization of the TIN to all taxpayers and all the units of the tax and customs administrations — Revised Date: December 31, 2011/September 30, 2012; State of Execution: Delayed; to be completed by end-September 2012. - Abolition of nonspecific identification numbers at the level of ASYCUDA++ — Revised Date: December 31, 2011/September 30, 2012; State of Execution: Delayed; to be completed by end-September 2012 with support from the AfDB. - Adoption by the Council of Ministers of a strategy for the reform of the civil service — Revised Date: June 30, 2011/May 31, 2012; State of Execution: Delayed; diagnostic phase report validated by end-February 2012; other sections to be completed by end-May 2012. - Presentation to the National Assembly of a draft law governing pensions based on actuarial audit of FNRB — Revised Date: December 31, 2011/May 31, 2012; State of Execution: Delayed; draft legislation to be sent to government for submission to the National Assembly by end-May 2012. - Finalization of studies for SIGRH terms of reference and project document — Initial Date: December 31, 2011; State of Execution: Delayed; to be followed by the World Bank. - Measures in progress (new measures agreed during the 3rd review): - Operationalization of the computerized transit module of ASYCUDA++ between the Port of Cotonou and all land-based border posts — Date: March 31, 2012; State: In progress. - Completion of a detailed review of all existing tax and customs exemption regimes; results to be presented to the Council of Ministers — Date: June 30, 2012; State: In progress. - Introduce the Integrated Human Resources Management System (SIGRH) — Date: December 31, 2012; State: Delayed; to be implemented with assistance from the World Bank. - Completing the pilot phase and decision on extension of the "Sunkwe" system to MTFP — Date: June 30, 2012; State: In progress; to be implemented with assistance from the World Bank. - Block fields in customs declaration (ASYCUDA): TIN, AV, and customs valuation corresponding to AV — Date: June 30, 2012; State: In progress. - Include PVI data in the one-stop window to facilitate consistency checks — Date: June 30, 2012; State: In progress. - Close a bank that lost its license in 2009 and was placed in provisional administration — Date: September 30, 2012; State: In progress. ### Technical Memorandum of Understanding (TMU) — definitions (selected) - “Government” means the central administration of the Republic of Benin and excludes political subdivisions, the central bank, or other public entities with autonomous legal personality not included in the government’s flow-of-funds table (TOFE). - Definition of “debt” (non-contingent direct liability created under a contractual agreement) includes: - (i) loans (including deposits, bonds, debentures, commercial loans, buyers’ credits, repurchase agreements, official swap arrangements); - (ii) suppliers’ credits; - (iii) leases (debt equals present value at inception of all lease payments excluding operation/repair/maintenance payments); - (iv) Treasury bills and bonds issued in CFA francs on the WAEMU regional market (included in public debt). - Concessional loan definition: loan is concessional if ratio of present value to nominal value is less than 65 percent (grant element at least 35 percent); present value calculated using OECD CIRRs with specified averaging and margins: - margin additions: 0.75 percent for repayment periods of less than 15 years; 1.00 percent for 15–19 years; 1.15 percent for 20–29 years; 1.25 percent for 30 years or more. - “Domestic debt” is debt denominated in CFA francs; “external debt” is debt denominated in any currency other than the CFA franc. - Net domestic financing of the government defined as sum of: - (i) net bank credit to the government; and - (ii) net nonbank financing of the government, including proceeds of sale of government assets, Treasury bills and other securitized obligations issued by the government and listed in CFA francs on the WAEMU regional financial market, and any BCEAO credit to the government, including any drawings on the CFA franc counterpart of the allocation of SDRs. *Source: Letter of March 31, 2012, and Attachment 1 (Technical Memorandum of Understanding) as presented in the provided IMF document.* ### 5. Net bank credit to the government is defined as the balance between the debts and claims ### _cr1299 - 5. Net bank credit to the government is defined as the balance between the debts and claims ### Definitions and scope - Net bank credit to the government: balance between the debts and claims of the government vis‑à‑vis the central bank and the national commercial banks. Scope follows the BCEAO definition and IMF practice; government definition is broader than paragraph 2. - Government claims include: the CFA franc cash balance; postal checking accounts; customs duty bills; and all deposits with the BCEAO and commercial banks of government owned entities, except industrial or commercial public agencies (établissements publics à caractère industriel et commercial, EPICs) and government corporations (these are excluded). - Government debt to the banking system includes: all debt to the central bank and the national commercial banks, including Treasury bills and other securitized debt. - Gross external budgetary assistance: grants, loans, and debt relief operations (excluding project-related loans and grants, use of IMF resources, and debt relief under the Highly Indebted Poor Countries (HIPC) and Multilateral Debt Relief Initiatives). - Net external budgetary assistance: gross external budgetary assistance minus the sum of total debt service obligations on all external debt (interest payments and amortizations on all external loans, including interest payments and other charges to the IMF and on project-related loans, but excluding repayment obligations to the IMF) and all payments of external payments arrears. ### Adjustments to the ceiling on net domestic financing (NDF) - Adjustment trigger: if net external budgetary assistance exceeds or falls short of program projections (paragraph 9). - If, at the end of a quarter, net external budgetary assistance exceeds projected cumulative amounts by over CFAF 5 billion: - NDF ceiling lowered by amount = (excess) minus CFAF 5 billion. - If the excess is entirely or partly allocated to settlement of domestic arrears above program objective, NDF ceiling lowered by amount = (excess net external budgetary assistance compared with program targets) minus the sum of (a) CFAF 5 billion and (b) the excess repayment of domestic arrears compared with program targets. - If, at the end of a quarter, net external budgetary assistance falls short of projected cumulative amounts: - NDF ceiling increased by amount equivalent to the shortfall, within limits: - increase may not exceed CFAF 5 billion at end-March 2012; - CFAF 10 billion at end-June 2012; and - CFAF 20 billion at end-September 2012. ### Program projections used for NDF adjustment (cumulative since January 1 of the same year) - Projected gross external budgetary assistance: - CFAF 0.0 billion at end-March 2012; - CFAF 14.6 billion at end-June 2012; - CFAF 14.6 billion at end-September 2012. - Projected external debt service obligations: - CFAF 4.2 billion at end-March 2012; - CFAF 16.0 billion at end-June 2012; - CFAF 23.9 billion at end-September 2012. - Projected settlement of domestic payments arrears: - CFAF 2.1 billion at end-March 2012; - CFAF 8.7 billion at end-June 2012; - CFAF 13.1 billion at end-September 2012. - Projected settlement of external payments arrears: - CFAF 0 billion at end-March 2012; - CFAF 0 billion at end-June 2012; - CFAF 0 billion at end-September 2012. ### Performance criteria and indicative targets — Net domestic financing (NDF) - Ceiling on net domestic financing of the government (cumulative since January 1 of the same year): - CFAF 48.7 billion at end-March 2012; - CFAF 60.7 billion at end-June 2012; - CFAF 48.6 billion at end-September 2012. - Classification: - Performance criterion for end-March 2012 and end-September 2012; - Indicative target for end-June 2012. ### Floor for Basic Primary Fiscal Balance - Definition: basic primary fiscal balance = total fiscal revenue (tax and nontax) minus basic primary fiscal expenditure (payment-order basis). Basic primary fiscal expenditure = fiscal (current plus capital) expenditure minus (a) payments of interest on domestic and external debt; and (b) capital expenditure financed by external grants and loans. Grants excluded from revenue; net government lending excluded from fiscal expenditure. - Floor (cumulative since January 1 of the same year): - Not less than CFAF -20.5 billion at end-March 2012; - CFAF -39.8 billion at end-June 2012; - CFAF -21.7 billion at end-September 2012. - Classification: - Performance criterion for end-March 2012 and end-September 2012; - Indicative target for end-June 2012. ### Non-accumulation of domestic payments arrears (continuous performance criterion) - Domestic payments arrears: domestic payments due but not paid after a 90-day grace period, unless a longer grace period specified. - Recording: National Amortization Fund (Caisse Autonome d’Amortissement, CAA) and the Treasury record and update accumulation and settlement data. - Government commitment: not to accumulate any new domestic payments arrears. Continuous monitoring throughout the program. ### Non-accumulation of external public payments arrears (continuous performance criterion) - External public payments arrears: payments due but not paid by the government at the contract due date on external debt of, or guaranteed by, the government. - Government commitment: not to accumulate any external public payments arrears, except arrears relating to debt subject to renegotiation or rescheduling. Continuous monitoring throughout the program. ### Ceiling on contracting or guaranteeing new nonconcessional external debt maturing in ≥ 1 year (continuous performance criterion) - Scope: applies to debt as defined in paragraph 3a and to commitments contracted or guaranteed by the government (paragraph 18), including lease-purchase contracts and private sector debt guaranteed by the government. - Exclusions: external debt excludes Treasury bills and bonds issued in CFA francs on the WAEMU regional market. Definition of nonconcessional debt per paragraph 3b applies. - “Government” for this criterion (paragraph 18): government (paragraph 2), local governments, and all public enterprises, including administrative public agencies (établissements publics à caractère administratif), scientific and technical public agencies, professional public agencies, and enterprises jointly owned by the Beninese government with other governments. - Commitment: no nonconcessional external borrowing contracted or guaranteed by the government for the duration of the program, except for borrowing with a grant element of at least 20 percent and not exceeding a cumulative amount equivalent of CFAF 25 billion. - Exceptional changes: changes to the CFAF 25 billion ceiling may be made (subject to IMF Executive Board approval) for specific investment projects evaluated and approved by a recognized institution, provided the loan does not seriously exacerbate debt vulnerabilities according to the joint World Bank–IMF debt sustainability analysis. - Additional requirement: government undertakes not to contract or guarantee external debt during the program without first having determined its concessionality with IMF staff. ### Ceiling on contracting or guaranteeing new nonconcessional short-term external debt - Definitions in paragraphs 17 and 18 apply. Short-term external debt: contractual term < one year. - Exclusions: import- and export-related loans; Treasury bills issued in CFA francs on the WAEMU regional market; normal short-term supplier credits; and debt relief operations. - Commitment: government undertakes not to contract or guarantee short-term nonconcessional external debt. - Additional requirement: government undertakes not to contract or guarantee any short-term external debt during the program without first having determined its concessionality with IMF staff. - Status at end-2011: On December 31, 2011, Benin had no short-term external debt. ### Indicative targets — Government revenue, exceptional payments, and priority social expenditures - Government revenue (total tax and nontax revenue as shown in the TOFE; excludes external grants, revenue of autonomous agencies, and privatization receipts): - CFAF 148.3 billion at end-March 2012; - CFAF 331.3 billion at end-June 2012; - CFAF 515.0 billion at end-September 2012. - Ceiling on exceptional payment procedures (expenditures not executed following commitment and validation stages and not regularized on the test date; cumulative since January 1): - CFAF 2.5 billion at end-March 2012; - CFAF 4.6 billion at end-June 2012; - CFAF 7.5 billion at end-September 2012. - Priority social expenditures (selected nonwage expenditures in sectors identified in GPRS III; monitored on payment-order basis via SIGFiP). Budget codes and ministries specified in Table 1 (Ministry of Health; Ministry of Energy, Petroleum and Mineral Research, Water, and Development of Renewable Energy; Ministry of Culture, Literacy, Crafts and Tourism; Ministry of Agriculture, Livestock, and Fisheries; Ministry of Youth, Sports, and Leisure; Ministry of the Family, Social Affairs, National Solidarity, Disabled and Senior Citizens; Ministry of Higher Education and Scientific Research; Ministry of Microfinance and for the Employment of Youth and Women; Ministry of Maternal and Primary Education; Ministry of Secondary, Technical, and Professional Training, Reconversion and Inclusion of Youth). - Indicative targets (cumulative since January 1): - CFAF 46.0 billion at end-March 2012; - CFAF 75.0 billion at end-June 2012; - CFAF 104.0 billion at end-September 2012. ### Information and reporting requirements for program monitoring - Monthly submissions (timing specified): - copies of contracts and data on any loan (terms and creditors) contracted or guaranteed by the government, in the first week after the end of the month; - monthly consumer price index, within two weeks of the end of the month; - the TOFE, including revenue, detailed data on net domestic financing of the government (bank and nonbank domestic financing, including claims held by the nonbank private sector); and data on the basic primary fiscal balance, including SIGFiP data, within six weeks of the end of the month; - data on the balance, accumulation, amount (stock), and repayment of public domestic and external payments arrears, including when these arrears amount to zero, within six weeks of the end of the month; - the monetary survey, within eight weeks of the end of the month. - Quarterly submissions: - data on the amount of exceptional payment procedures or other exceptional measures, within six weeks of the end of the quarter; - data on priority social expenditures, within six weeks of the end of the quarter. - Other data: - monthly: banking and nonbanking supervision indicators for bank and nonbank financial institutions within eight weeks of the end of the month. - quarterly: data on implementation of the public investment program, including detailed financing sources, within four weeks of the end of the quarter; and data on the stock of external debt, external debt service, signing of external loans and disbursements of external loans, within twelve weeks of the end of the quarter. - ad hoc (in the quarter when available): copy of the budget law and supplementary documents; copy of most recent budget execution law; any decree or law pertaining to the budget or implementation of the IMF-supported program. *Prepared by the African Department; March 12, 2012.* ### 4. This situation has a number of implications for the economy of Benin: ### _cr1299 - 4. This situation has a number of implications for the economy of Benin: ### Implications for the economy of Benin - It deters investment and entrepreneurial activities in the formal sector in favor of “rent seeking” in the informal sector. Example: for a citizen with savings, it is more profitable to engage in smuggling gasoline than to set up a business. Informal gasoline imports do not produce any increase in productivity or additional demand for goods and services (at most, they encourage the growth of private transportation in urban settings). - It is a violation of the laws on importing and distributing petroleum products, producing distortions and other negative effects in other business sectors. - It leads to a significant loss in government revenue. Because no taxes or duties are collected on informal sales, the total cost of this tax avoidance can be estimated at between 1 and 2½ percent of GDP according to the assumptions that are used. - It fosters the excessive use of means of transportation and does not encourage fuel savings. Consumers accustomed to artificially low prices in the informal market do not know the real cost of the fuel they consume and therefore overuse transportation services (e.g., purchase products shipped long distances instead of local products) and have no incentive to use more efficient vehicles. Visible consequence: many “zémidjans” (motorcycle-taxis) in urban areas. - It takes a heavy toll in terms of pollution and health. Smuggled fuel is often impure, causing substantial air pollution; shipping and handling smuggled fuel leads to high health costs (e.g., cancer) and serious and deadly accidents. ### Transfer from Nigeria to Beninese consumers - The situation generates a transfer from the government of Nigeria to the consumers of Benin: the government of Nigeria subsidizes the price of gasoline, and this subsidy is transferred to Beninese consumers in proportion to their consumption of gasoline. - This transfer is described as not warranted economically or socially: no benefits to the government of Nigeria, and principal beneficiaries in Benin are urban middle-class consumers rather than the poor. ### Channels for transmitting shocks to Benin A. Recession in Europe - Exports to the euro area account for about 7 percent of total exports from Benin; exports account for roughly 12 percent of GDP. The decline in Europe may slightly lower exports from Benin. - Remittances account for 1½ percent of GDP; one-third of remittances come from the euro area. Given low exposure, impact through remittances would be slight. - Foreign direct investment (FDI) in Benin is estimated at 1½ percent of GDP, and less than half come from the euro area. Impact through FDI would be slight. - Foreign aid: aid flows amounted to about 3.2 percent of GDP in 2010, and about 60 percent came from the euro area. A slowdown in donor countries could produce stagnation or decline in assistance. B. Reduction of subsidies in the price of gasoline - The informal gasoline market, fueled by Nigeria, is an essential share of domestic consumption. An increase in gasoline prices in Nigeria spills over into the informal Beninese market through: - a drop in consumption caused by the decline in real household income, which makes growth slow; and - an increase in prices owing to the primary and secondary price effects. ### Prospects for growth in Benin in 2012 - A mild slowdown in the growth of real GDP in 2012: the rate of real GDP growth may fall from the initial forecast of 4.3 percent to 3.5 percent. - Components of the downward revision: - A drop in exports, remittances, and FDI: combined effects could lower growth by 0.2 percentage points from the initial forecasts. The forecast assumes foreign aid to Benin will remain unchanged in 2012. - The higher price of gasoline in the informal kpayo market (which represents between 85 and 90 percent of gasoline sales in Benin) would lower real GDP growth by 0.6 percentage point. This induces a supply shock, raising production and transportation costs and slowing growth. Sectors most affected: trade, transportation, tourism, restaurants, and the hospitality industry. Growth is also bridle by a downturn in real household income. - Risk note: the 0.8 percentage point combined reduction may be optimistic; further global slowdown (European sovereign debt crisis or U.S. fiscal outlook) could generate additional adverse impact. ### Inflation outlook in Benin in 2012 A. The reform in Nigeria and its consequences - On January 2, 2012, Nigeria moved to truth-in-pricing: price at the pump increased from 65 to 140 naira per liter. This rise immediately caused an increase in informal market prices in Benin; prices temporarily exceeded the official price in filling stations, causing consumers to return to the formal market and long lines at filling stations. - In mid-January 2012, Nigeria reached a compromise: the price stabilized at 97 naira per liter, which is a 49 percent increase over the initial price. - Macroeconomic effects in Benin: - Immediate increase in informal gasoline price and immediate rises in prices of goods and services with significant fuel cost shares (transportation services and taxis), producing an initial rise in the general price level followed by inflationary spillovers. - Loss of transfers from Nigeria affects the trade balance via gasoline imports: (i) increase in value of imports due to higher price, and (ii) reduction in volume of imports. - Short term: effects similar to a sudden deterioration in the terms of trade—loss in buying power weakens domestic demand and growth. - Medium term: relative price changes may reallocate demand and supply between sectors; informal gasoline sales could decline, private capital and energy could shift to productive sectors supporting growth and employment; real exchange rate and productivity effects possible. - Table 1 (selected figures): - 2011 price at pump in Nigeria: 65 naira; early Jan. 2012: 140 naira; mid-Jan. 2012: 97 naira. - Corresponding CFA francs: 2011: 190; early Jan.: 425; mid-Jan.: 295. - Memorandum item: CFA francs/naira 2.9, 3.0, 3.0. B. Inflation projection and risks - First-round effect: immediate increase in the general level of prices by about 4 percent. - Second-round effect: additional inflation of roughly 1 percent. - Underlying inflation: 2 percent. - Total annual inflation in 2012 in Benin should be around 7 percent (Table 2 shows a revised inflation of 7.2 percent). - Risk: heavy depreciation of the euro could increase the cost of fuel imports, generating additional inflationary pressures. - Table 2 (selected figures): - Gasoline: Price Increase 50.0, Weight in the Basket 2.7, Inflation 1.4 (Percent). - Transportation: Price Increase 20.0, Weight in the Basket 14.0, Inflation 2.8 (Percent). - Second-round effects: 1.0 (Percent). - Additional inflation: 5.2 (Percent). - Initial projection: 2.0 (Percent). - Revised inflation: 7.2 (Percent). ### Fiscal effects in 2012 A. Price of gasoline at the pump in Nigeria - Short-term uncertainty: initially subsidies were fully eliminated (Jan 2, 2012) raising the pump price from 65 to 140 naira per liter; mid-January reduced to 97 naira per liter. For the rest of 2012, a steady price of 97 naira per liter seems the most likely assumption. - Three scenarios for price at the pump in Nigeria: - Baseline scenario: continuation of current price of 97 naira per liter. - Medium scenario: subsequent reduction of subsidies resulting in 120 naira per liter. - Truth-in-pricing scenario: complete elimination of subsidies resulting in 140 naira per liter. B. Fiscal effects in the baseline scenario - Baseline: purchase price of gasoline in Nigeria increases from CFAF 190 to 295 per liter, allowing informal operators to continue offering a large discount vs. official price while maintaining substantial profit margins. - Example: informal operators could obtain a profit margin greater than 40 percent of the purchase price by selling gasoline at CFA francs 415 per liter, at a discount of about 27 percent compared to the official price. - Under these conditions, sales volumes in the formal market are unlikely to increase significantly over 2011 volumes; formal sales volume and thus taxable value and tax revenue would not change significantly compared to 2011. C. Fiscal effects in the alternate scenarios — assumptions and estimation stages - Four-stage estimation approach: 1. Estimate how total volume of sales of gasoline in Benin would respond to price changes. 2. Estimate how the size of the formal market would respond to the discount offered in the informal market. 3. Estimate the value of gasoline sales in the formal market in Benin. 4. Apply ratios of taxes and revenue duties to official sales to determine tax revenue under each scenario. Estimate of total sales of gasoline in Benin - Need to establish: (i) how informal market price in Benin would change in scenarios; (ii) how demand would change with informal market price (assuming official price unchanged). - Consumers respond to higher gasoline prices by lowering consumption, but short-term decrease is modest: price elasticity of demand is low. Two arc elasticity values considered: -0.2 and -0.4. - Discount in the informal market depends on Nigeria purchase price: in the medium scenario the discount could go down to about 17 percent leaving a profit margin of 30 percent; in the truth-in-pricing scenario the discount would drop to 10 percent to leave a profit margin of 20 percent. - Volume impacts (applying arc elasticities to informal market sales, assuming formal price constant): - If elasticity = -0.2, total gasoline sales would fall by roughly 7–12 percent. - If elasticity = -0.4, total gasoline sales would fall by roughly 13–24 percent. - Table 3 (selected figures): - 2011 price at pump in Nigeria: 65 naira; Baseline 97; Medium 120; Truth-in-pricing 140. - Price in CFA francs: 2011 190.0; Baseline 294.6; Medium 364.4; Truth-in-pricing 425.2. - Informal selling price in Benin (CFA francs per liter): 2011 300.0; Baseline 415.0; Medium 475.0; Truth-in-pricing 510.0. - Discount on the official price (percent): 2011 47.4; Baseline 27.2; Medium 16.7; Truth-in-pricing 10.5. - Profit margin from informal trade (CFA francs per liter): 2011 110.0; Baseline 120.4; Medium 110.6; Truth-in-pricing 84.8. - Profit margin as percent of purchase price: 2011 57.9; Baseline 40.9; Medium 30.3; Truth-in-pricing 19.9. Size of the formal market - Assumptions on discount and market shares: - If informal selling price equals formal price, informal market disappears in long run. - As of end-2011, informal market sold at CFAF 300 per liter, about 50 percent less than official price (CFAF 570 per liter). - Assumed relationships: - Discount of 30 percent is sufficient to maintain informal market share at current level of 85 percent of total sales volume. - Discount of 5 percent or less leads to elimination of informal market in short-to-medium term. - Discount between 5 and 30 percent makes informal share follow a linear function from 0 percent at 5 percent discount to 85 percent at 30 percent discount. - Under these assumptions, the relative size of the formal market compared to total gasoline sales would increase from about 15 percent in 2011 to roughly 60 percent in the medium scenario and to more than 80 percent in the truth-in-pricing scenario (Table 5 referenced). Volume and value estimates (selected figures from Table 4) - Informal selling price (CFA francs per liter): 2011 300.0; Baseline 415.0; Medium 475.0; Truth-in-pricing 510.0. - Discount on official price (percent): 2011 47.4; Baseline 27.2; Medium 16.7; Truth-in-pricing 10.5. - Estimated volume of total sales (index: 2011 = 100): - Elasticity = -0.2: Baseline 93.5; Medium 90.1; Truth-in-pricing 88.1. - Elasticity = -0.4: Baseline 87.0; Medium 80.2; Truth-in-pricing 76.2. - Estimated volume of total sales (millions of liters): - Elasticity = -0.2: 2011 132.0; Baseline 123.4; Medium 118.9. - Elasticity = -0.4: 2011 132.0; Baseline 114.8; Medium 105.8. *Source: IMF staff estimates and Beninese authorities (content unit: _cr1299).* ### 24. Sales in the formal market would increase significantly only under the most favorable ### _cr1299 - 24. Sales in the formal market would increase significantly only under the most favorable ### Formal market sales: estimates and scenarios - Method: Value of formal-market sales = estimated volume of total sales (based on purchase price in Nigeria and gasoline demand elasticity in Benin) × relative size of formal market × official selling price. - 2011 baseline estimate: - Value of formal sales: about CFAF 13 billion in 2011. - Estimated volume of total gasoline sales in Benin in 2011: derived by dividing formal sales (~20 million liters) by relative size of formal market (~15 percent of total sales). - 2012 scenario estimates: total value of formal sales would climb from about CFAF 13 billion in 2011 to between CFAF 35 and 55 billion in 2012, depending on reform scenario and elasticity of demand. - Numerical example (truth-in-pricing scenario; elasticity = -0.2): - Total sales volume would fall from 130 to 116 million liters. - Relative size of the formal market would grow by 15 percent to 81 percent. - Volume of formal-market sales would increase from 20 to 95 million liters (81 percent of total sales of 116 million liters). - Value of formal-market sales would rise from CFAF 13 to 54 billion (95 million liters at CFAF 570 per liter). - Table 5 reported (selected values reproduced from source): - Informal selling price (CFA francs per liter): 300.0 415.0 475.0 510.0 - Official selling price (CFA francs per liter): 570.0 570.0 570.0 570.0 - Discount of the informal price on the official price (percent): 47.4 27.2 16.7 10.5 - Share of the formal market (percent of total sales volume): 15.0 24.5 60.3 81.2 - Estimated value of total sales (millions of liters): - Elasticity = -0.2: 132.0 123.4 118.9 116.3 - Elasticity = -0.4: 132.0 114.8 105.8 100.6 - Estimated sales volume in the formal market (millions of liters): - Elasticity = -0.2: 19.8 30.3 71.7 94.4 - Elasticity = -0.4: 19.8 28.2 63.8 81.7 - Estimated sales value in the formal market (billions of CFA francs): - Elasticity = -0.2: 2.8 17.3 40.9 53.8 - Elasticity = -0.4: 2.8 16.1 36.4 46.6 ### Tax revenue from gasoline sales - Current taxation: - The Government collects about CFAF 160 per liter on official gasoline sales (from customs import duties, specific taxes, the VAT, and so forth). - 2011 estimates (Table 6): - Total revenue from official sales of gasoline: 3.3 (billions of CFA francs). - Breakdown (billions of CFA francs): - Value-added tax (VAT): 2.3 - Specific tax (TSPP): 0.4 - Hydrocarbons tax (customs): 0.5 - Other taxes and duties: 0.1 - Memorandum item: Estimated value of taxable gasoline sales: 12.8 (billions of CFA francs). - 2012 projected fiscal impact (assuming no change in tax policy; revenue change proportional to rise in value of formal sales): - Increase in fiscal revenue would be between CFAF 6 billion (the equivalent of 0.1 percent of GDP in 2012) in the least favorable case (medium scenario, elasticity = -0.4) and CFAF 10 billion (0.3 percent of GDP) in the most favorable case (truth-in-pricing scenario, elasticity = -0.2). - Table 7 reported (selected values reproduced from source): - Situation in 2011 (estimate): Value of taxable gasoline sales 12.8; Total revenue 3.3 (billions of CFA francs); As a Percentage of GDP 0.1 - Situation expected in 2012, Elasticity = -0.2: - Baseline scenario: 17.3 (billions), 0.5 (As a Percentage of GDP), Total revenue 4.4, 0.1 - Medium scenario: 40.9, 1.1, Total revenue 10.5, 0.3 - Truth-in-pricing scenario: 53.8, 1.4, Total revenue 13.8, 0.4 - Situation expected in 2012, Elasticity = -0.4: - Baseline scenario: 16.1, 0.4, Total revenue 4.1, 0.1 - Medium scenario: 36.4, 1.0, Total revenue 9.3, 0.2 - Truth-in-pricing scenario: 46.6, 1.2, Total revenue 11.9, 0.3 - Memorandum items: - GDP (2011): 3,442.2 (billions), 100.0 - GDP (2012): 3,760.6 (billions), 100.0 ### Macroeconomic and distributional effects (conclusion and outlook) - Growth: - The combined effect of the twin external shocks in Benin would be a loss of 0.8 percentage point in growth in 2012. - Direct effects of the recession in Europe on Benin’s growth in 2012 are marginal because of trade links with emerging Asia; effects of reducing subsidies for gasoline in Nigeria are slightly more important. - Inflation: - Reducing subsidies in Nigeria is significant for inflation in Benin in 2012: level of inflation is expected to double compared to the previous year. - Short-run: prices increased suddenly in January with transmission from Nigeria; inflationary pressures spilled over to other sectors. - If the rise does not lead to general wage increases, inflation will gradually return to a lower underlying trend; the real exchange rate, and thus external competitiveness, will undergo a lasting—probably favorable—change. - Fiscal and market dynamics: - Effects on fiscal revenue will remain modest in 2012 because increase in Nigerian prices will not significantly reduce the share of the informal gasoline market in 2012. - Medium term: complete elimination of gasoline price subsidies in Nigeria could cause the informal gasoline market in Benin to contract considerably, generating major social costs but also opportunities for: - increasing productivity; - fighting corruption; - promoting private investment; - creating productive activities that generate growth and employment in the formal sector. - Under complete subsidy elimination, value of formal gasoline sales will increase significantly, expanding the taxable base and raising tax revenue by an amount that could range from 0.1 to 0.3 percent of GDP. ### Policy recommendations and institutional priorities - Strengthen enforcement to reenergize formal hydrocarbons sales: - Strengthen the fight against fraud among official distributors to bolster their credibility. - Strengthen measures in the informal market to check fraudulent imports. - Fiscal stance: - Assuming no change in tax policy, use proportional relationship between formal sales value and tax revenue estimates to plan revenue outcomes under different scenarios. *Sources: Beninese authorities; and IMF staff estimates.* ### 1. Poverty/Gender Assessment ### 1. Poverty/Gender Assessment ### Statistical issues: assessment of data adequacy for surveillance - General: "Data provision has some shortcomings, but is broadly adequate for surveillance." - Weaknesses identified in: national accounts, public finance, monetary statistics, financial sector prudential indicators, and balance of payments. - Real sector statistics: - Inadequate resources and weaknesses in data documentation and methodology hamper accuracy and reliability of the 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. - West AFRITAC missions in 2008, 2009, 2010 and 2011 sought to accelerate the process and support compilation of revised 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. "The methodology for the WAEMU harmonized consumer price index has been updated." - Government finance statistics: - Quality of fiscal data is "broadly adequate for surveillance, but has some 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 the BCEAO; "broadly adequate" with comprehensive institutional coverage, but timeliness of reporting is weak. - Accuracy hampered by use of 1990 sorting coefficients to estimate cross border amounts of banknotes among BCEAO countries, affecting estimates of currency in circulation and adjustments to net foreign assets. - Balance of payments: - External statistics affected by shortcomings preventing accurate and timely assessment of current account transactions and capital and financial flows. - Improvements in applying BPM5 guidelines have not solved problems. - November 2004 STA mission noted inadequate human resources at BCEAO national agency and methodological problems including use of untested hypotheses, 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 months. - Some progress: reconciliation of regional trade data with partners; installation of ASYCUDA++ customs computer system in all main border customs houses, the port, the airport, and some regional offices. - Further improvements require interconnection of main customs systems and integration with other revenue agencies; better contacts with reporting bodies and enhanced management of human and technical resources. - Financial account data can be improved by extending coverage of foreign assets of private non-banking sector, expanding surveys of residents’ foreign assets, and using 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 are comprehensive only for public and publicly guaranteed debt." - Data collected by Caisse Autonome d'Amortissement (CAA); CAA database is "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, quality, and reporting - GDDS participation: Benin commenced participation in the General Data Dissemination System (GDDS) in 2001; "but since then has not updated much of its metadata." - Fiscal ROSC: An FAD mission conducted the fiscal module of a Report on Observance of Standards and Codes (ROSC) in May 2001. - Reporting to STA: - Standardized Report Forms (in line with the Monetary and Financial Statistical Manual) are "still not regularly used to report monetary data to the IMF." - Annual data for balance of payments and international investment position are reported to STA with a lag of about one and a half years. ### Benin: Table of Common Indicators Required for Surveillance (As of January 31, 2012) — key data points (dates preserved exactly as in source) - Exchange Rates: Current / Current / D / D / M - International Reserve Assets and Reserve Liabilities of the Monetary Authorities: 10/11 (date of latest observation); 1/12 (date received); Frequency of Data: M; Frequency of Reporting: M; Frequency of Publication: M - Reserve/Base Money: 10/11; 1/12; M; M; M - Broad Money: 10/11; 1/12; M; M; M - Central Bank Balance Sheet: 10/11; 1/12; M; M; M - Consolidated Balance Sheet of the Banking System: 10/11; 1/12; M; M; M - Interest Rates: 12/10; 1/11; M; M; M - Consumer Price Index: 1/12; 2/12; 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: 12/11; 1/12; M; M; NA - Stocks of Central Government and Central Government-Guaranteed Debt: 2010; 4/11; A; A; NA - External Current Account Balance: 2010; 7/11; A; A; A - Exports and Imports of Goods and Services: 2010; 7/11; A; Q; A - GDP/GNP: 2010; 4/11; A; A; A - Gross External Debt: 2010; 4/11; A; I; A - International Investment Position: 2008; 9/10; A; A; A - Notes from table footnotes (as in source): definitions and frequency codes — Daily (D); Weekly (W); Monthly (M); Quarterly (Q); Annually (A); Irregular (I); Not Available (NA). ### IMF Press Release: Third ECF review and disbursement (Press Release No. 12/105, March 27, 2012) - Executive Board completed the third review of Benin’s performance under the Extended Credit Facility (ECF) arrangement; decision taken on a lapse-of-time basis and "enters into effect today." - Disbursement details: - Immediate disbursement of an amount equivalent to SDR 10.61million (about US$16.4 million). - Brings total disbursements under the arrangement to an amount equivalent to SDR 42.45 million (about US$ 65.7 million). - The Executive Board approved Benin’s three-year ECF arrangement for SDR 74.28 million (about US$115 million) on June 14, 2010. - Macroeconomic outlook and risks: - "Growth is projected to continue on a modest upward trend in 2012, but will be adversely affected by external spillover effects from higher gasoline prices—because of the reduction of fuel subsidies in Nigeria that will dampen domestic demand—and, to a lesser extent, by the ongoing global crisis." - "Inflation is expected to increase sharply in 2012, but the West African Economic and Monetary Union (WAEMU) convergence criterion may still be within reach in the medium term, if second-round inflationary pressures are contained." - Performance under the program: - "Performance under the program was broadly satisfactory during the third review period, and the end-September performance criteria were met." - Revenue target missed due to underperformance of customs revenue "owing to resistance to customs reform." - Authorities implemented measures to strengthen revenue performance; customs revenue "began to recover in December 2011." - Priority social spending target missed because of technical and administrative difficulties; indicates need to intensify monitoring. - Structural reform agenda and policy priorities: - Long-awaited customs reforms introduced, but stronger implementation of the structural reform agenda is needed to enhance revenue collection and fiscal sustainability. - Structural reform agenda includes further customs and tax reforms, civil service reform, and promotion of greater private sector involvement in the energy sector — all intended to foster higher growth. - Authorities committed to maintaining the wage bill within the program envelope and to adopt wage policy decisions in the framework of civil service reform. - Financial sector: - Financial sector "has been resilient," but banks’ loan portfolio deteriorated and "a few small banks do not meet strengthened capital requirements." - This "highlights the need for greater vigilance by the supervisory body to strengthen the soundness of the banking system." *Source: _cr1299 - 1. Poverty/Gender Assessment (PDF).* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr1299.pdf_