Press Release No. 12/19

Press Release No. 12/19
January 23, 2012

An International Monetary Fund (IMF) mission visited Cotonou during January 9–23, 2012 to conduct discussions on the third review of a program supported by the Extended Credit Facility (ECF), which was approved by the IMF Executive Board on June 14, 2010.¹ The second review was concluded by the Executive Board on September 7, 2011 (see Press Release No. 11/326) allowing the disbursement of a third tranche of SDR 10.61 million (about US$16.90 million). The mission met with H.E. Dr. Boni Yayi, President of Benin; Mr. Pascal Koupaki, Prime Minister; Mr. Marcel de Souza, Minister of Economic Analysis, Development, and Planning; Ms. Adidjatou Mathys, Minister of Economy and Finance;

and other senior officials. The mission also met with members of the National Assembly, and representatives of labor unions, banks, and the business and donor communities. Discussions focused on recent economic developments, including those in neighboring Nigeria that are relevant for Benin, policy implementation under the ECF, and structural reforms.

At the conclusion of the mission, Mr. Mario de Zamaróczy, mission chief for Benin, issued the following statement:

“Economic growth in 2011 is estimated at 3.1 percent, 0.7 percentage point below earlier estimates, among others because of a slowdown in port activities that hampered commercial activity. In 2012, growth is projected to remain moderate, despite an expected improvement in port activities, dragged down by the global economic slowdown and by the increase in the price of imported gasoline from Nigeria. The partial elimination of fuel subsidies in Nigeria will have a negative effect this year in Benin on household real income and growth. Annual average inflation, which in 2011 was below the 3 percent convergence criterion of the West African Economic and Monetary Union (WAEMU), is projected to be elevated in 2012, as a result of the above-mentioned fuel price hike. Despite the rise in non-traditional exports, the external current account deficit, excluding grants, deteriorated slightly in 2011 because of higher international fuel prices. It is expected to narrow in 2012 reflecting strong cotton exports. As a result, the overall balance of payments is expected to turn from a small deficit (0.1 percent of GDP) in 2011 to a small surplus (0.6 percent of GDP) in 2012.

“Revenue performance during the second half of 2011was weaker than expected, and as a result, the end-year cumulative revenue target was missed by a margin of 1.3 percent of GDP. However, the monthly revenue target for December was met. To preserve the stability of public finances, the authorities responded to the shortfall in revenue by compressing expenditure and with savings from the wage bill. The elimination of a number of ghost employees, a review of allowances and entitlements, and the postponement of some recruitments kept the wage bill below target. As a result, and according to preliminary data, the performance criteria on the primary fiscal balance and net domestic financing were met at end-September and the corresponding benchmarks at end-December. However, the indicative targets on priority social spending were missed by a wide margin in September and December, reflecting weaknesses in the monitoring process of these expenditure categories. The authorities intend to strengthen procedures for protecting the execution and timely disbursement of priority social expenditure in 2012.

“The mission observed that the 2012 budget adopted by the National Assembly in December broadly supported a stable macroeconomic environment. Objectives therein include a significant increase in the revenue-to-GDP ratio to create fiscal space for public investment and social spending.

“The mission noted the launch of the one-stop-window at the Port of Cotonou, the installation of a scanner in the port, and the implementation of an enhanced program of import value verification. These reforms met with some initial resistance and start-up problems, but going forward, they are expected to improve revenue collection and the efficiency of the port.

“The mission noted that several important structural measures are still behind schedule, including a study on wage policy in the civil service, and several measures related to the computerization of customs offices. The mission urged the authorities to accelerate the completion of these and other overdue reforms. It also discussed new structural measures to come, including fiscal and financial measures.

“Staff will propose to IMF management to recommend consideration of the completion of the third review under the ECF in the Spring of 2012 to the Executive Board, provided monthly revenue targets for January and February are met, and adequate progress is made in the implementation of belated structural measures.

“The mission thanks the authorities for their hospitality.”

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¹ The ECF is the IMF’s main tool for medium-term financial support to low-income countries. Financing under the ECF currently carries a zero percent interest rate, with a grace period of 5½ years, and a maturity of 10 years.