IMF Executive Board Approves US$638 million Extended Fund Facility and Extended Credit Facility for Benin and Concludes 2022 Article IV Consultation

IMF News, July 8, 2022

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IMF Executive Board Approves US$638 million Extended Fund Facility and Extended Credit Facility for Benin and Concludes 2022 Article IV Consultation

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• Published: July 8, 2022

Overview

• Date: July 8, 2022
• Executive Board approved 42-month arrangements under the Extended Fund Facility (EFF) and the Extended Credit Facility (ECF) for Benin in the amount of SDR 484.058 million (equivalent of 391 percent of quota or US$638 million).
• Program objectives: help address pressing financing needs (related to security, COVID-19 scars, and the war in Ukraine), support implementation of the country’s National Development Plan (2018–25) centered on achieving Sustainable Development Goals (SDGs), and catalyze donor support.
• This program is the first case under High Combined Credit Exposure (HCCE) since the IMF adopted the policy in 2020 to support member countries experiencing exceptional balance of payment needs and with institutional capacity to implement a program in amounts exceeding the normal combined access limit for a blended EFF/ECF arrangement.
• The Executive Board also concluded the 2022 Article IV consultation with Benin.

Program Access and Immediate Financing

• Total approved access: SDR 484.058 million (equivalent of 391 percent of quota or US$638 million).
• Immediate disbursement enabled: SDR 108.3 million (US$143 million), intended for budget support.

Policy Priorities and Reforms (program emphasis)

• Revenue mobilization is described as the cornerstone of the authorities’ reform agenda.
• Near-term measures: streamlining tax expenditure and improving spending prioritization and efficiency to create fiscal space.
• Medium-term measures: expand the tax base and improve overall tax system efficiency, informed by the pending homegrown medium-term revenue mobilization strategy.
• Fiscal stance: program calibrated flexibly to accommodate large spending needs in the near term; pivots to revenue-based fiscal consolidation starting in 2023 to ensure medium-term debt sustainability.
• Subsidy reform: authorities should gradually substitute generalized fossil fuel subsidies with more targeted and cost-effective measures to protect the vulnerable.
• Social protection: anticipated completion of the social registry to strengthen social safety nets and deliver targeted social assistance.
• Governance and financial integrity: steadfast implementation of the recently adopted Anti Money Laundering/Combating the Financing of Terrorism (AML/CFT) action plan and further strengthening the rule of law and governance.
• Financial sector: continued vigilance in the banking sector and further efforts to promote financial inclusion.
• Development focus: Fund-supported EFF/ECF is focused on “development with a human face” through enhanced access to basic public services and improved state presence in vulnerable areas, consistent with the authorities’ “civilian approach” to mitigating security risks.
• Climate resilience: ongoing efforts to enhance resilience to climate change are important.
• Conditional support: achieving program goals requires continued commitment to clearly communicated reforms and strong technical and financial support from Benin’s development partners to complement large and front-loaded Fund support.

Risks and External Environment

• Identified headwinds: deteriorating security situation at northern border, COVID-19-induced scars, the war in Ukraine, and significant climate risks, which could erode recent economic gains.
• Program purpose includes catalyzing further external financing and anchoring the National Development Plan.

Excerpts from Executive Board Statement (Mr. Okamura, Deputy Managing Director and Acting Chair)

• Benin faces significant headwinds from a deteriorating security situation at its northern border, COVID-19-induced scars, the war in Ukraine, as well as significant climate risks.
• The program is calibrated flexibly for near-term spending needs and pivots to revenue-based consolidation starting in 2023.
• Revenue mobilization will be centered on streamlining tax expenditure in the near term and expanding the tax base over the medium term.
• Implementation of the AML/CFT action plan and strengthened rule of law and governance will foster private sector-led, inclusive growth.
• Given Benin’s relatively large level of income inequality, the program is rightly focused on development with improved access to basic public services and state presence in vulnerable areas.

Benin: Selected Economic Indicators (Percent of GDP unless otherwise indicated)

• National Income and Prices
  • Real GDP growth (%): 2021: 7.2; 2022: 5.7; 2023 (Proj.): 6.2
  • Inflation, average (%): 2021: 1.7; 2022: 5.0; 2023 (Proj.): 1.8
• Central Government Finance
  • Total revenue: 2021: 13.2; 2022: 13.4; 2023 (Proj.): 13.9
  • of which: Tax revenue: 2021: 11.0; 2022: 11.5; 2023 (Proj.): 12.0
  • Total expenditure and net lending: 2021: 19.9; 2022: 19.8; 2023 (Proj.): 19.3
  • Overall balance (commitment basis, including grants): 2021: -5.7; 2022: -5.5; 2023 (Proj.): -4.3
  • Basic primary balance (payment order basis) 1: 2021: -1.5; 2022: -1.1; 2023 (Proj.): -0.5
• Money and Credit
  • Credit to the private sector (% change): 2021: 9.2; 2022: 5.6; 2023 (Proj.): 10.3
  • Broad money (M2) (% change): 2021: 16.4; 2022: 10.8; 2023 (Proj.): 7.3
• Public Debt (End Period)
  • Total public debt: 2021: 49.9; 2022: 51.6; 2023 (Proj.): 52.0
  • External public debt: 2021: 36.5; 2022: 37.5; 2023 (Proj.): 37.6
  • Domestic public debt: 2021: 13.5; 2022: 14.1; 2023 (Proj.): 14.4
• External Sector
  • Current account balance, including official transfers: 2021: -4.4; 2022: -6.2
  • Terms of trade (minus = deterioration) (%): 2021: -2.7; 2022: -2.3

1/ Total revenue (excluding grants) minus current primary expenditure and capital expenditure financed by domestic resources.

IMF Executive Board Approves US$638 million Extended Fund Facility and Extended Credit Facility for Benin and Concludes 2022 Article IV Consultation

References

• IMF Mission Chief for Benin describes the program (in French)
• Benin and the IMF
• IMF Policy Advice -- A Factsheet
• Press Releases
• PRESS CENTER
• https://www.imf.org/en/home