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IMF Executive Board Concludes 2010 Article IV Consultation with Benin

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Public Information Notice (PIN) No. 10/78

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

On June 14, 2010, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Benin.


Following a period of strengthening growth in Benin, the global economic crisis halved real gross domestic product (GDP) growth in Benin in 2009. Weaker demand for exports, a decline in cotton prices and lower inflows of foreign direct investments reduced real GDP growth to 2.7 percent in 2009, compared with 5 percent in 2008. The deceleration was aggravated by the decline in cotton production and floods in the south, while non-cotton agriculture production and transportation continued to grow, as domestic demand was supported by the fiscal stimulus. Inflation declined to an average 2.2 percent in 2009, from 8.0 percent in 2008, reflecting a good harvest and the decline in international food and fuel prices. A sharp decline in transit trade and weaker cotton exports widened the current account deficit excluding grants to 10.8 percent of GDP in 2009. These developments accompanied by a decline in foreign direct investments turned the overall balance of payments into a deficit of 1.6 percent in 2009, from a surplus of 1.6 percent the previous year. The real effective exchange rate in December 2009.appreciated by 1.1 percent year-on-year.

Supported by higher liquidity, broad money expanded at a slightly higher rate than nominal GDP. Following the reduction in reserve requirements from 15 to 9 percent in June 2009, banks increased credit to the private sector by 11 percent at end-2009 despite an increase in government borrowing. At the same time, commercial banks' asset quality improved, the ratio of nonperforming loans declining from 6.5 percent in 2008 to 5.7 percent in 2009. Four banks, however, continue to have negative capital and further corrective actions are needed to ensure that all banks comply with prudential regulations.

Against the backdrop of lower customs collections, the authorities sought to provide a strong fiscal stimulus in the first half of 2009, but were forced to tighten policies thereafter due to financing constraints. Revenue collections declined by 1 percent of GDP in 2009, as a consequence of the deceleration of import growth and the increase in exemptions that led to a 7 percent decline in customs receipts. During the first half of the year, expenditures increased strongly as a result of large awards of bonuses to civil servants and a surge in investment spending. Despite efforts to redress the situation during the second half of the year, the overall fiscal deficit (excluding grants) more than doubled from 3.5 percent of GDP in 2008 to 7.3 percent of GDP in 2009. The deficit was financed through additional external donor support, domestic borrowing, and a carryover of expenditure commitments to 2010.

The implementation of structural reforms is moving forward, albeit with some delays. The authorities have recently privatized key public enterprises, including awarding the concession of the container terminal of the Port of Cotonou to a private operator. The sale of a majority stake in Benin Telecom has been launched and is expected to be completed in the third quarter of 2010. The electricity company is being restructured ahead of its privatization scheduled for end-2011. Tax and customs administration and public finance management are being strengthened.

Benin's short-term prospects remain relatively weak. Real GDP growth is expected to grow by 3.2 percent in 2010, based on a moderate fiscal stimulus to support economic activity. Inflation should remain below 3 percent-the convergence criterion set by the West African Economic and Monetary Union. The authorities are committed to pursuing a more prudent fiscal policy in 2010, which will bring about a moderate adjustment in the overall fiscal deficit to 5.9 percent of GDP. The public wage bill will need to be limited in order to leave adequate fiscal space for priority social and investment spending. This will be facilitated by the structural reform agenda, including further measures to strengthen revenue collection and public financial management. Efforts to further improve external competitiveness and the business climate are continuing, including improving infrastructure, strengthening customs administration, and modernizing the public administration; and second generation reforms aimed at improving land registration, property rights and the financial and judiciary systems.