Press Release No. 03/41

The Executive Board of the International Monetary Fund (IMF) today completed the fourth review of Benin's performance under the three-year SDR 27 million (about US$37 million) Poverty Reduction and Growth Facility (PRGF) arrangement (see Press Release No. 00/43). This decision will entitle Benin to the release of SDR 4.04 million (about US$5.5 million), which will bring total disbursements under the program to SDR 22.96 million (about US$31 million).

The PRGF is the IMF's concessional facility for low-income countries. PRGF-supported programs will in time be based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners, and articulated in a Poverty Reduction Strategy Paper (PRSP). PRGF loans carry an annual interest rate of 0.5 percent, and are repayable over 10 years with a 5 ½-year grace period on principal payments.

After the Executive Board's discussion of Benin, Anne Krueger, First Deputy Managing Director and Acting Chair, made the following statement:

"The Beninese authorities have continued to make good progress in implementing their Fund-supported economic program in 2002. All the program's quantitative performance criteria for end-September were met, and the four structural benchmarks were observed by end-December 2002. Economic growth remained robust; inflation continued to be moderate; although the external current account deficit widened, as a result of a sharp drop in the world cotton price. Progress was also made in the implementation of structural reforms in 2002. The civil service reform, however, continued to stall, and spending on health and education remained below target.

"Looking ahead, the authorities intend to continue to vigorously implement the ambitious economic framework underpinning the poverty reduction strategy that was adopted in December 2002. They are committed to pursuing prudent macroeconomic policies and implementing the structural reform agenda. The primary fiscal objective for 2003 is to pursue fiscal consolidation while increasing social spending, by broadening the tax base and limiting nonpriority outlays.

"Structural reforms are crucial to achieve sustained high economic growth and reduce poverty. The authorities attach high priority to private sector development, and to broadening the production base in order to reduce the economy's vulnerability. Reform will focus on divesting public utilities; enhancing the cotton sector reform, through the privatization of the state-owned ginning company (SONAPRA); strengthening public resource management and the financial sector; and promoting good governance. Further efforts are needed to garner broad public support for civil service reform.

"The authorities' poverty reduction strategy was prepared through a broad consultative process, and sets out a credible policy framework for reducing poverty. The authorities are encouraged to deepen their analysis of the poverty situation and of their strategy for private sector-led growth, and to reinforce mechanisms to monitor implementation and evaluate outcomes.

"Benin has satisfied the conditions for reaching the completion point under the enhanced HIPC Initiative. The debt sustainability analysis based on end-2001 data indicates that the ratio of the net present value of Benin's external debt to exports would decline steadily and remain below the 150 percent threshold from 2005 onwards. Some risks remain, however, owing to Benin's dependence on a single commodity," Ms. Krueger stated.