Benin: IMF Executive Board Completes Fifth Review Under the Extended Credit Facility Arrangement and Approves Us$22 Million Disbursement for Benin

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Benin's three-year arrangement under the Extended Credit Facility (ECF) for SDR111.42 million (about US$154.2 million or 90 percent of the country's quota at the time of approval of the arrangement) was approved on April 7, 2017 (see Press Release No.17/124). It aims at supporting the country's economic and financial reform program and focuses on raising living standards and preserving macroeconomic stability.

On December 13, 2019, the Executive Board of the International Monetary Fund (IMF) completed the 5th review of the three-year arrangement with Benin on a lapse of time basis. [1] The completion of the review enables a disbursement of SDR15.917 million (about US$22 million), bringing total disbursements under the arrangement to SDR 95.502 million (about US$132.2 million). In completing the review, the Executive Board also approved Benin's request for a four-month technical extension and the introduction of adjustors to the end-December 2019 quantitative performance criteria (QPCs) on revenue, basic primary balance, and net domestic financing.

Program implementation continues to be very satisfactory. All end-June 2019 QPCs and the September 2019 structural benchmark were met. The macroeconomic and structural policies outlined by the authorities are adequate to pursue the program's objectives, and risks to program implementation are deemed manageable.

Benin's economic performance remains strong despite a less supportive external environment and the border closure with Nigeria. Real GDP is expected to slow down to 6.4 percent in 2019. However, growth should bounce back in 2020 and remain sustained over the medium term, buttressed by vigorous cotton production, construction, and port activity.

The 2020 draft budget targets a fiscal deficit of 1.8 percent of GDP, with a fiscal adjustment of ¼ percent of GDP relative to 2019. This adjustment, based on revenue mobilization and a rationalization of the wage bill, is expected to protect capital and social spending. Maintaining the fiscal deficit below 3 percent of GDP in 2020 and beyond, in line with the WAEMU regional deficit norm, is key to put the debt ratio on a firm downward trajectory.

The significant increase in the share of external debt in total debt in the past two years warrants caution. The recent debt reprofiling operation and the Eurobond issuance have contributed to lowering borrowing costs, diversifying the financing structure, and extending debt maturity. However, these operations can also generate new vulnerabilities that will need to be mitigated through an enhanced debt management strategy and continued capacity improvements at the debt management office.

[1] The Executive Board takes decisions under its lapse of time procedure when it is agreed by the Board that a proposal can be considered without convening formal discussions.

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