IMF Executive Board Concludes 2019 Article IV Consultation with Benin
June 24, 2019
On June 21, 2019, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV Consultation [1] with Benin. At the same time, the Board also completed the 4th Review of Benin’s economic performance under a three-year program supported by the IMF’s Extended Credit Facility (ECF) arrangement; a press release on this was issued separately.
The short-term outlook of the Beninese economy is favorable. Preliminary estimates suggest that economic activity grew by 6.7 percent in 2018, mainly due to strong port and agriculture activity. Annual consumer price index (CPI) inflation stood at 1 percent. The current account deficit narrowed from 10.0 percent of GDP in 2017 to 8.3 percent of GDP in 2018, primarily because of a significant increase in cotton exports. The fiscal deficit declined to 4.0 percent in 2018 with the scaling down of public investment. Financial vulnerabilities have nonetheless become more apparent, as the banking sector exhibits relatively low profitability and capital adequacy.
Looking ahead, medium-term prospects remain strong. Growth is projected above 6 ½ percent between 2019 and 2024. CPI inflation and fiscal deficit are expected to stay below their regional norms over the forecast horizon. The public debt ratio should start declining from 2019 after five years of increases as a result of continued fiscal consolidation and strong economic growth. The current account should also keep improving, assuming the continued expansion of agricultural production and adherence to deficit targets.
Risks are tilted to the downside. In the short term, risks could arise from political discontent following the April 2019 Parliamentary elections; lower-than-expected growth in Nigeria (which would weaken Benin’s exports, fiscal position, and activity); and further deterioration of bank profitability (which may weigh on credit provision). In the medium term, growth prospects are heavily dependent on the ability to revive private investment and attract foreign investors.
Executive Board Assessment [2]
Executive Directors agreed with the thrust of the staff appraisal. They commended Benin’s macroeconomic performance over recent years, noting that growth was strong without signs of inflationary pressures. Directors concurred that, while the medium‑term outlook remains favorable, achieving development objectives will require a deep transformation of the Beninese economy. Directors, therefore, underscored the need to continue to steadfastly implement policies and structural reforms that foster macroeconomic stability, preserve debt sustainability and promote inclusive and private-sector led growth.
Directors welcomed the authorities’ commitment to comply with the WAEMU 3 percent of GDP deficit ceiling in 2019. They emphasized the importance of adhering to the medium‑term fiscal consolidation plan to ensure debt sustainability and foster external stability at the regional level. Directors also advised the authorities to advance their revenue mobilization efforts, notably in the area of value added tax and excises, in order to create budgetary space for social spending and prevent additional cuts to public investment.
Directors commended the authorities for putting public debt ratio on a downward path. They noted that the recent Eurobond issuance would diversify the financing mix and create opportunities to lengthen debt maturity. Nonetheless, they also observed that greater access to non-concessional external financing may generate medium-term vulnerabilities that will need to be monitored and mitigated carefully. Thus, they encouraged the authorities to keep enhancing their debt management framework.
Directors emphasized the need to accelerate the structural transformation of the economy. Growth should be more stable and inclusive to bring down poverty and generate the tax revenues needed to finance development projects. Greater participation of the private sector is also warranted to sustain growth in the context of the fiscal deficit reduction. As such, Directors stressed the importance of continuing to improve the business environment and infrastructure, while diversifying the economy away from traditional sectors and preventing a premature deindustrialization. Directors supported the authorities’ efforts to improve access to education and health. Finally, they recommended to reinforce the anti-corruption framework, and address financial sector vulnerabilities, especially the weak bank profitability.
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Table 1. Benin: Selected Economic and Financial Indicators, 2017–24 |
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2017 |
2018 |
2019 |
2020 |
2021 |
2022 |
2023 |
2023 |
2024 |
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|
Act. |
EBS/18/364 |
Est. |
EBS/18/364 |
Prog. |
Projections |
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National income |
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|
GDP at current prices |
5.9 |
7.4 |
7.6 |
8.4 |
8.3 |
8.6 |
8.7 |
8.7 |
8.7 |
8.7 |
8.7 |
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GDP at constant prices |
5.8 |
6.5 |
6.7 |
6.5 |
6.7 |
6.7 |
6.7 |
6.7 |
6.7 |
6.7 |
6.7 |
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GDP deflator |
0.0 |
0.9 |
0.9 |
2.0 |
1.6 |
1.9 |
1.9 |
1.9 |
1.9 |
1.9 |
1.9 |
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Consumer price index (average) |
0.1 |
1.0 |
1.0 |
2.0 |
1.7 |
2.0 |
2.0 |
2.0 |
2.0 |
2.0 |
2.0 |
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Consumer price index (end of period) |
3.0 |
1.0 |
0.0 |
2.0 |
1.7 |
2.0 |
2.0 |
2.0 |
2.0 |
2.0 |
2.0 |
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Central government finance |
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Total revenue |
26.6 |
8.2 |
8.9 |
8.9 |
8.1 |
10.0 |
8.7 |
8.7 |
8.7 |
8.7 |
8.7 |
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Expenditure and net lending |
21.3 |
2.1 |
-0.9 |
2.3 |
6.9 |
6.0 |
6.5 |
7.2 |
7.7 |
7.4 |
7.4 |
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External sector |
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Exports of goods and services |
23.9 |
18.4 |
21.3 |
18.5 |
18.3 |
15.4 |
13.5 |
11.5 |
10.6 |
10.5 |
10.5 |
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Imports of goods and services |
18.4 |
10.4 |
9.8 |
11.8 |
11.7 |
11.5 |
9.8 |
10.4 |
8.3 |
8.5 |
8.5 |
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Terms of trade (minus = deterioration) |
1.0 |
0.6 |
0.9 |
0.9 |
0.8 |
5.0 |
2.0 |
0.6 |
0.9 |
1.9 |
1.9 |
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Nominal effective exchange rate (minus = depreciation) |
… |
… |
… |
… |
… |
… |
… |
… |
… |
… |
… |
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Real effective exchange rate (minus = depreciation) |
… |
… |
… |
… |
… |
… |
… |
… |
… |
… |
… |
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Money and credit |
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|
Net domestic assets |
7.3 |
-10.4 |
-3.4 |
-4.1 |
-10.3 |
… |
… |
… |
… |
… |
… |
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Domestic credit |
-2.1 |
-1.5 |
9.3 |
14.1 |
7.6 |
… |
… |
… |
… |
… |
… |
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Net claims on central government |
-3.3 |
-2.8 |
-2.7 |
7.2 |
0.6 |
… |
… |
… |
… |
… |
… |
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Credit to the nongovernment sector |
1.2 |
1.3 |
12.0 |
6.9 |
7.0 |
… |
… |
… |
… |
… |
… |
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Broad money (M2) |
1.0 |
6.9 |
5.5 |
8.4 |
8.3 |
… |
… |
… |
… |
… |
… |
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National accounts |
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Gross investment |
28.4 |
25.5 |
28.4 |
26.2 |
28.4 |
28.3 |
28.7 |
29.0 |
29.3 |
29.7 |
29.7 |
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Government investment |
9.1 |
8.2 |
7.7 |
7.2 |
7.2 |
6.6 |
6.5 |
6.3 |
6.1 |
6.0 |
6.0 |
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Nongovernment investment |
19.2 |
17.2 |
20.7 |
19.0 |
21.2 |
21.7 |
22.2 |
22.7 |
23.2 |
23.7 |
23.7 |
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Gross domestic saving |
15.9 |
14.2 |
17.8 |
15.9 |
18.8 |
19.3 |
20.5 |
21.2 |
22.1 |
23.8 |
23.8 |
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Government saving |
2.3 |
2.6 |
2.9 |
3.0 |
2.7 |
2.9 |
3.1 |
3.2 |
3.2 |
3.4 |
3.4 |
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Non-government saving |
13.6 |
11.6 |
14.8 |
12.9 |
16.1 |
16.4 |
17.3 |
18.0 |
18.8 |
20.4 |
20.4 |
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Gross national saving |
18.4 |
16.6 |
20.1 |
17.8 |
20.6 |
21.2 |
22.1 |
23.0 |
23.9 |
24.5 |
24.5 |
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Consumption |
84.1 |
85.8 |
82.2 |
84.1 |
81.2 |
80.7 |
79.5 |
78.8 |
77.9 |
76.2 |
76.2 |
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Government consumption |
11.5 |
11.3 |
11.0 |
10.7 |
11.0 |
11.1 |
10.9 |
10.8 |
10.8 |
10.8 |
10.8 |
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Non-government consumption |
72.6 |
74.6 |
71.2 |
73.4 |
70.2 |
69.6 |
68.7 |
68.0 |
67.2 |
65.5 |
65.5 |
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Central government finance |
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Total revenue (excluding grants) |
17.5 |
17.7 |
17.8 |
17.7 |
17.7 |
18.0 |
18.0 |
18.0 |
18.0 |
18.0 |
18.0 |
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Expenditure and net lending |
24.5 |
23.3 |
22.5 |
22.0 |
22.3 |
21.7 |
21.3 |
21.0 |
20.8 |
20.6 |
20.6 |
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Primary balance 1 |
-5.0 |
-3.4 |
-2.6 |
-1.8 |
-2.1 |
-1.4 |
-1.0 |
-0.7 |
-0.5 |
-0.4 |
-0.4 |
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Basic primary balance 2 |
-1.5 |
0.4 |
0.3 |
1.9 |
1.6 |
1.7 |
2.1 |
2.4 |
2.4 |
2.5 |
2.5 |
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Overall fiscal deficit (commitment basis, excl. grants) |
-6.9 |
-5.6 |
-4.8 |
-4.2 |
-4.5 |
-3.8 |
-3.3 |
-3.1 |
-2.9 |
-2.6 |
-2.6 |
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Overall fiscal deficit (commitment basis, incl. grants) |
-5.9 |
-4.7 |
-4.0 |
-2.7 |
-3.0 |
-2.5 |
-2.0 |
-1.7 |
-1.5 |
-1.3 |
-1.3 |
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Central government debt3 |
54.3 |
54.4 |
56.1 |
53.8 |
54.1 |
52.0 |
49.8 |
47.8 |
46.0 |
44.2 |
44.2 |
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of which domestic arrears stock |
0.3 |
0.2 |
0.1 |
0.0 |
0.0 |
0.0 |
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External sector |
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Balance of goods and services |
-12.5 |
-11.3 |
-10.6 |
-10.3 |
-9.6 |
-9.0 |
-8.2 |
-8.0 |
-7.4 |
-6.9 |
-6.9 |
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Current account balance (incl. grants) |
-10.0 |
-8.9 |
-8.3 |
-8.4 |
-7.8 |
-7.1 |
-6.5 |
-6.2 |
-5.6 |
-5.1 |
-5.1 |
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Current account balance (excl. grants) |
-10.3 |
-9.2 |
-8.5 |
-8.8 |
-8.2 |
-7.5 |
-6.9 |
-6.5 |
-5.9 |
-5.4 |
-5.4 |
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Overall balance of payments |
3.2 |
6.1 |
3.7 |
4.3 |
6.4 |
4.2 |
4.4 |
4.5 |
4.6 |
4.8 |
4.8 |
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Nominal GDP (billions of CFA francs) |
5,382 |
5,783 |
5,792 |
6,269 |
6,272 |
6,812.3 |
7,402 |
8,045 |
8,747 |
9,509 |
9,509 |
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Nominal GDP (millions of US$) |
9,265 |
10,456 |
10,432 |
11,184 |
10,934 |
11,876 |
12,904 |
14,025 |
15,249 |
16,577 |
16,577 |
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Total non-financial public sector debt (percent of GDP) 4 |
54.4 |
54.6 |
56.8 |
54.0 |
54.7 |
52.5 |
50.3 |
48.3 |
46.4 |
44.6 |
44.6 |
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of which government guarantees (percent of GDP) |
0.2 |
0.2 |
0.6 |
0.2 |
0.6 |
0.5 |
0.5 |
0.4 |
0.4 |
0.4 |
0.4 |
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Population (millions) |
11.2 |
11.4 |
11.5 |
11.7 |
11.8 |
12.1 |
12.5 |
12.8 |
13.2 |
13.6 |
13.6 |
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Nominal GDP per capita (U.S. dollars) |
829 |
915 |
908 |
954 |
926 |
978 |
1033 |
1093 |
1156 |
1222 |
1222 |
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Sources: Beninese authorities; IMF staff estimates and projections. |
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1 Total revenue (excluding grants) minus current primary expenditure, capital expenditure, and net lending. |
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2 Total revenue (excluding grants) minus current primary expenditure and capital expenditure financed by domestic resources. |
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3 Includes arrears stock. |
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4 Data include central government debt, government guarantees, and domestic arrears. |
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[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. Staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
[2] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm.
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