An International Monetary Fund (IMF) mission visited Cotonou during February 10-20, 2014 to conduct discussions on the sixth review of the program supported by the Extended Credit Facility (ECF) approved by the IMF Executive Board on June 14, 2010.1 The mission had an audience with Dr. Boni Yayi, President of the Republic of Benin. The mission also held discussions with: Mr. Jonas Gbian, Minister of Economy and Finance, and Mr. Marcel de Souza, Minister of Economic Analysis, Development, and Planning. The mission also met with representatives of the private sector, civil society, and the community of technical and financial partners. Discussions focused on recent economic developments, policy implementation under the ECF, and structural reforms.
At the conclusion of the mission, Ms. Christine Dieterich, mission chief for Benin, issued the following statement:
“Benin’s overall macroeconomic conditions were positive in 2013. According to INSAE estimates, gross domestic product (GDP) grew by 5.6 percent in 2013, largely driven by a favorable harvest and continuous improvement in the activity at the Autonomous Port of Cotonou. Delays in transporting and ginning cotton production during the 2013-2014 campaign represent a risk. However, the government has taken steps to accelerate operations in this sector. Inflation was moderate at about 1 percent, thanks in large part to low food price inflation.
“A cautious fiscal policy continues to be the cornerstone of macroeconomic stability. Despite a significant increase in public investment on the order of 1½ percentage points of GDP, the budget deficit has remained at a manageable level and debt continues to be below 30 percent of GDP, compared to an average of nearly 40 percent in sub-Saharan Africa. Customs reforms — one of the key aspects of the strategy undertaken by the government to strengthen public financial management — are proceeding at a satisfactory pace. In contrast, the persistent underperformance of domestic revenues, due in particular to the size of the informal sector, limited capacities of the tax administration, and numerous exemptions, is a source of concern. This underperformance highlights the budget’s dependence on customs revenues, which are themselves vulnerable to changes in Nigeria’s trade regime.
“The banking sector’s situation has deteriorated in recent years, due to relatively weak performance by the formal sector of the economy. Nonetheless, despite an increase in doubtful loans, overall credit grew in 2013 compared to preceding years.
“The macroeconomic outlook for 2014 is generally positive. The IMF forecasts that the real GDP growth is projected to be at about 5.5 percent, driven by port and agricultural activities. Inflation is projected to remain well below the WAEMU convergence criterion of 3 percent. Fiscal policy, as formulated in the 2014 budget law, is cautious and indebtedness is projected to remain stable. To mitigate the fiscal risks associated with State management of the cotton campaign , it is important to expedite development of a new system of management with increased private sector involvement.
“Beyond 2014, the major challenge will be to preserve the momentum of positive growth while reducing poverty. To this end, forward movement is needed on several fronts.
“First, it is essential to address Benin’s infrastructure deficits, particularly in energy and transport, where bottlenecks hamper growth. The government has undertaken to establish an ambitious investment plan in this area. However, it is important to ensure that the anticipated increase in investments does not compromise fiscal sustainability or increase the country’s exposure to exogenous shocks. In this regard, it is essential to improve public financial management.
“Secondly, improving the business climate will be essential to help boost private investment, so that the recent increase in such investment plus the anticipated increase in public investment will be reflected in inclusive, job-creating economic growth, while safeguarding fiscal sustainability.
“The mission will recommend that IMF management conclude the sixth program review. The Executive Board of the IMF could consider this review in April 2014. Approval of the review would allow the disbursement of the seventh tranche in the amount of SDR 10.61 million (about CFAF 7.8 billion).
“The mission wishes to thank the authorities for their cooperation and hospitality.”
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.