IMF Executive Board Concludes 2015 Article IV Consultation with Benin

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The FINANCIAL — On December 11, 2015, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with Benin.

For the third consecutive year, Benin is expected to reach solid economic growth in 2015 at around 5 percent, despite recent headwinds from the economic slowdown in Nigeria—Benin’s major trading partner. In 2016, increased public investment is expected to keep real GDP growth at about 5½ percent, with inflation to remain subdued. The medium-term outlook is also positive overall, but subject to significant risks, including a further slowdown in Nigeria and delays of structural reforms that could weaken growth dynamics, according to IMF.

Low debt levels help accommodate the government’s ambitious plans to further scale up investment over the medium term. To implement investment plans for 2015 despite revenue shortfalls, the government has sharply increased the amount of bonds issued in the regional financial market to support higher investment spending prior to the February 2016 elections. Reliance on the regional financial market for budget financing has been facilitated by the regional central bank’s (BCEAO) accommodative monetary policy.

Executive Board Assessment

Executive Directors commended the authorities’ prudent policies, which have contributed to a solid macroeconomic performance. Nevertheless, higher, sustainable, and more inclusive growth is required to reduce poverty against the backdrop of a more challenging environment, including the economic slowdown in neighboring Nigeria. Directors emphasized the need for further progress in improving fiscal policy management and faster implementation of structural reforms to enhance the business environment and foster greater diversification.

Directors agreed that the authorities’ plan to scale up infrastructure investment is well placed to strengthen growth, and that prudent fiscal policy in the past provides some space to finance higher investment. However, they recommended a more gradual and prioritized approach to raising investment. This would provide more time to further improve public financial management, which is crucial to ensure high-quality investments with a strong impact on economic growth. Directors also recommended caution regarding the sharp increase in domestic financing, stressing that the higher fiscal costs of such financing compared to concessional financing, as well as the associated macro-financial risks from sovereign-bank linkages, need to be closely monitored.

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Directors supported the authorities’ efforts to undertake structural fiscal reforms and called for their timely implementation. In view of rising debt to finance investment, they stressed that internal revenue mobilization, through a further deepening of customs and tax reforms, will be crucial to ensure fiscal sustainability over the medium term. Further improvements in debt management, including broadening the coverage to include the debt of state-owned enterprises, will also be important to monitor risks.

Directors called for further improvements in the business environment and the financial market infrastructure to strengthen the foundation for more diversified, private sector-led growth. Accelerating the establishment of a credit bureau and reforming property titles, would go a long way in improving financial inclusion and supporting private credit growth, while pressing ahead with judicial reform would facilitate contract enforcement and financial deepening. Directors noted that improvements to the business environment, together with timely payment of government obligations to banks and private companies, would help bring down high non-performing loans. They also called for stronger supervision in view of loan concentration risks, and for action to improve oversight of the microfinance sector to preserve its role in facilitating access to financial services for low-income households.

Directors looked forward to continued efforts to improve the quality and timeliness of economic data, in particular fiscal and external sector data.


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