June 16, 2008
The Executive Board of the International Monetary Fund (IMF) today completed the fourth review of Benin's economic performance under the Poverty Reduction and Growth Facility (PRGF) arrangement and increased access to financial assistance under the arrangement by 150 percent to help the country deal with rising food and oil prices. The Board agreed to augment the SDR 6.19 million (about US$10 million) arrangement with SDR 9.29 million (about US$15 million). The completion of the review enables the disbursement of an amount equivalent to SDR 10.17 million (about US$16.4 million), including the augmented amount.
The three-year PRGF arrangement was approved on August 5, 2005 (see Press Release No.05/190) and subsequently extended to August 4, 2009.
In completing the review, Mr. Murilo Portugal, Deputy Managing Director and Acting Chair, stated:
"Supported by prudent fiscal policies and external debt relief, economic growth in Benin has picked up and inflation remains low. However, an increasingly less favorable external environment is likely to complicate the task of raising growth further and reducing poverty faster. Rising food and fuel prices have further worsened Benin's terms of trade, pushed up inflation sharply, and adversely affected vulnerable social groups.
"The authorities are cognizant of the need to consolidate Benin's recent gains in macroeconomic stability, as underscored in the country's Growth Strategy for Poverty Reduction (GSPR). Nonetheless, in this difficult environment the authorities are allowing a temporary increase in the fiscal deficit in 2008, through tax cuts and subsidies, to smooth adjustment to higher food and fuel prices. These measures will be replaced by well-targeted safety net measures in due course. Over the medium term, full pass-through of food and fuel price increases to consumers will be key to helping the economy adjust and to foster a positive agricultural supply response. The Fund is increasing the resources it makes available to help the authorities to smooth this adjustment.
"The underlying fiscal performance continues to improve with the implementation of measures to increase revenue and contain spending. Especially noteworthy have been the efforts to improve governance in the revenue agencies and to strengthen tax and customs administration. The government's infrastructure rehabilitation program is rebounding, although capital outlays remain constrained by absorptive capacity limitations. To address these limitations, the authorities are strengthening the government's expertise in project design and implementation. Preservation of fiscal and debt sustainability will require continued prudent debt management, especially reliance on highly concessional external financing. These fiscal reform efforts will create increased fiscal space for poverty reduction and growth-supporting expenditures.
"The structural reform program is moving slowly. The authorities are encouraged to accelerate implementation of reforms in key sectors in order to reduce core economic vulnerabilities. A major element of the 2008 structural reform agenda is the completion of a comprehensive reform strategy for the cotton sector. Also critical are actions to advance with the restructuring of the state-owned telecommunications and electricity companies. Reforms in the judicial and land tenure systems will continue to support efforts to facilitate access to credit for small- and medium-sized enterprises," Mr. Portugal said.
The PRGF is the IMF's concessional facility for low-income countries. It is intended that PRGF-supported programs are 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). This is intended to ensure that PRGF-supported programs are consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5½-year grace period on principal payments.
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