A team from the International Monetary Fund (IMF), led by Christine Dieterich, IMF Mission Chief for Benin, visited Cotonou August 31–September 14 to conduct the 2015 Article IV Consultations. The team issued the following statement at the end of the mission:

“Benin’s macroeconomic performance has remained solid since 2014 when the Extended Credit Facility arrangement with the IMF expired. Low budget deficits in the past preserved low debt levels that now provide fiscal space for the government’s ambitious plans to scale-up public investment, aimed at removing growth bottlenecks in energy and transportation.

“Benin is expected to reach for the third consecutive year solid economic growth, projected at around 5½ percent in 2015 and 2016. This is a moderate slowdown compared to 2014, due to negative spillovers from Nigeria—Benin’s main trading partner. Inflation remains contained and is projected at around 2 percent in 2016.

“In order to dent high poverty rates, a higher and more inclusive growth is required. Poverty will only come down sustainably if the private sector can create jobs for Benin’s young and growing population. The crucial macroeconomic challenge for the coming years is how to implement the public investment scaling-up in an effective manner and without jeopardizing the government’s objective of preserving debt sustainability. This requires strong structural reforms along the following priorities. First, to ensure that investment spending delivers high-quality infrastructure, further reforms in public financial management are necessary. This includes establishing a good regulatory framework for Public Private Partnerships and improved monitoring of state-owned enterprises. Second, mobilizing more domestic tax revenues would create additional fiscal space for investment spending, but also reduce Benin’s dependence on customs revenues. Third, public infrastructure investment will not be sufficient to attract private investment unless the business environment is further improved. In that context, strengthening the financial sector is a priority to improve access to finance and its contribution to economic growth. While work on these reforms has started, faster progress in structural reforms is necessary to ensure that the scaling up of public investment translates into strong and sustainable growth.

“Fiscal policy in 2014 and 2015 has been complicated by underperforming revenues, due to the slowdown in Nigeria, as well as by delays in the privatization of the public telecom company, and by a shortfall in foreign financing. Coupled with capacity problems in budget execution, this has postponed the planned acceleration of investment. These shortfalls also resulted in government payment delays, which compromise the credibility of the budget and are damaging for the private sector.

“In order to strongly accelerate investment for the rest of 2015, the government has recently reacted to these shortfalls by increasing the placement of bonds in the regional financial market. While these show a move toward longer maturities, reducing rollover risks, the switch in the financing composition from concessional foreign to domestic financing on market terms significantly increases interest costs. Also, the size of the planned acceleration of investment is so large that investment quality may suffer. Similar trends are observed in the 2016 budget discussions, and IMF staff would advocate for a more gradual rise in public investment, which would be less expensive to finance, while reforms mature that will increase the effectiveness of the investment impulse on economic growth.

“The high level of non-performing loans since 2009 has limited the granting of commercial bank credit to the private sector. Needed provisioning led to a decline in the capital-adequacy ratio for the banking system, but more recently it has improved. However, the concentration of the banks’ loan portfolio, indicative of structural problems in the economy, remains a source of concern. Establishment of a credit bureau—legislation is pending with the National Assembly—and improvements in land registration systems would allow banks to diversify their portfolio and increase access to finance. Microfinance institutions’ (MFI) deposits and credits have been growing strongly, facilitating access to financial services. However, the important number of unlicensed MFIs warrants strengthening of the actions taken by the government, including closures of unlicensed structures. Finally, although the legal framework to combat money laundering in the financial sector is in place, its implementation needs to be strengthened, including via the judicial system.

“The IMF team met with the President, Prime-Minister, Minister of State in charge of the Economy, Finance, and Denationalization Programs, National Director of the BCEAO, and other government and central bank officials, as well as members of the Finance Committee of parliament, representatives of the financial and private sectors, NGOs, academia, and international development partners. It wishes to express its gratitude to the authorities, as well as all other interlocutors, for the constructive and candid discussions and the warm hospitality.”

¹ During an Article IV mission, an IMF team visits a country to assess economic and financial developments and policies. These consultations are known as “Article IV” consultations because they are required by Article IV of the IMF’s Articles of Agreement, to be held regularly with all IMF member countries.