Memorandum
on Economic and Financial Policies for
2001/02
October 5, 2001
I. Introduction
1. Discussions on the second review
of the medium-term program supported
by a Fund arrangement under the Poverty
Reduction and Growth Facility (PRGF)
were held in Cotonou during July 19-August 2,
2001 and in Washington during August
20-23, 2001. The discussions covered
progress made in program implementation
since September 2000, the outlook
for the remainder of 2001 and for 2002,
and measures planned for the next twelve
months, including key elements of the
2002 budget. The government of Benin
reaffirms its commitment to implement
all the policies described in the present
document, which supplements the memorandum
on economic and financial policies prepared
in June and December 2000.
II. Program Implementation,
September 2000-June 2001
2. The program for 2000 and 2001 was
prepared in the context of the medium-term
strategy for 2000-03, which aims at achieving
sustainable economic growth, reducing
poverty, and maintaining financial viability
by strengthening macroeconomic policies
and liberalizing the economy.
3. In 2000, the economic situation
was broadly in line with the program
as revised during the first review in
October 2000. Real GDP grew by 5.8 percent,
compared with a target of 5.3 percent,
mainly on account of higher-than-expected
food production. Average inflation was
contained at 4.2 percent, and the
current account deficit, including current
transfers, was equivalent to 8.0 percent
of GDP in 2000, instead of the 7.3 percent
projected in the program, largely because
of delays in the disbursement of grants
tied to the adjustment program. Nevertheless,
a surplus was recorded in the overall
balance of payments, enabling Benin to
contribute CFAF 57.1 billion to
the international reserves of the Central
Bank of West African States (BCEAO).
4. The program benchmarks for end-December
2000 and the quantitative performance
criteria for end-March 2001 were met.
However, the civil service database maintained
by the Ministry in charge of the Civil
Service was merged with the payroll database
in September 2001 instead of March
2001 (structural benchmark). Also, the
indicators concerning expenditure on
education and health at end-December
2000 and end-March 2001 were not observed,
owing to problems encountered in starting
some projects and in implementing a new
computerized public expenditure management
system.
A. Government Finance
and Fiscal Reforms
5. In 2000, the overall fiscal balance,
on a payment order basis and excluding
grants, recorded a deficit equivalent
to 3.5 percent of GDP as programmed.
Including grants, the deficit amounted
to 1.8 percent of GDP, instead of
0.1 percent as targeted, on account
of delays in the disbursement of external
grants. Given these delays, net bank
credit to the government increased slightly
instead of declining as planned. Total
revenue reached 16.6 percent of
GDP, or much better than the target of
15.9 percent of GDP set in the program,
owing to a strengthening of tax collection
and the implementation of a common external
tariff in the West African Economic and
Monetary Union (WAEMU). However, government
expenditure was also higher than anticipated,
reaching 20.1 percent of GDP, as
spending on goods and services and investment
projects accelerated toward the end of
the year. The wage bill was kept below
the ceiling set in the program at 4.8 percent
of GDP, while outlays for education and
health were only 80 percent of the
budget appropriations, which included
CFAF 3.5 billion in interim
assistance under the enhanced Initiative
for Heavily Indebted Poor Countries (HIPC
Initiative). The government implemented
its action plan to settle identified
domestic arrears and reached an agreement
with Italy to settle arrears on short-term
debt amounting to CFAF 14.8 billion.
Moreover, the government has started
an audit of the utilization of HIPC resources
in 2000, which is to be completed
by end-2001.
6. In the first half of 2001, the
fiscal situation was greatly affected
by the difficulties, which were somewhat
expected, encountered in implementing
a new computerized expenditure management
system (SIGFIP). Indeed, these difficulties
slowed budget execution until April 2001
and led the Beninese Treasury to pay
urgent expenses by using exceptional
procedures. As a result, only 34 percent
of total expenditure was executed at
end-June 2001. In particular, spending
for health and education was only at
30 percent of the level budgeted
for the year. Nevertheless, the government
has taken steps to speed up social sector
spending for the rest of this year. Also,
the government has decided to offset
overspending on the elections, equivalent
to 49 percent of the budgeted amount,
by cutting nonpriority current outlays.
On the revenue side, the outcome for
the first six months of the year was
close to the objective, with total revenue
amounting to the equivalent of 7.3 percent
of GDP, as a strong performance on domestic
tax collection largely offset a shortfall
in customs receipts. The low level of
spending and the disbursement of external
aid in early 2001, instead of at end-2000,
led to a much greater than expected improvement
in net bank credit to the government
during the first six months of this year.
7. To make SIGFIP fully operational,
the government has started implementing
a series of actions, some of them recommended
by a technical assistance mission from
the International Monetary Fund. The
measures include (i) enhancing user
training, (ii) strengthening technical
assistance to operate and expand the
system, (iii) integrating foreign-financed
expenditure into the system, and (iv) introducing
specific budgetary lines in the 2001
supplementary budget to monitor outlays
financed by HIPC Initiative resources.
In addition, by end-December 2001,
the government will link SIGFIP with
the treasury's computer system and ensure
that SIGFIP is able to monitor and provide
information on the budget under the traditional
format, as well as under the format of
program budgets.
B. Money and Credit
Developments
8. Broad money expanded by 21.3 percent
in 2000, with the net foreign assets
and the net domestic assets of the banking
system contributing equally to the increase.
In addition, credit to the economy grew
by 25.5 percent during the year as banks
increased lending to the cotton, trade,
and industry sectors. Over the first
six months of 2001, net domestic
assets declined by 6.4 percent relative
to the beginning-of-period money stock,
mainly on account of a contraction
in net bank credit to the government.
Meanwhile, credit to the nongovernment
sector increased by 13.7 percent
in the 12 months to June 2001.
9. The financial situation of two
of the five banks weakened in the second
half of 2000 as a result of a rapid increase
in lending and weaknesses in bank management
and internal control procedures. This
weakening led to a deterioration of the
banks' solvency, as they were unable
to observe key prudential ratios, particularly
the capital adequacy ratio, at end-December
2000. At the same time, the situation
of nonbank financial institutions remained
weak, with two of the three small leasing
companies facing serious difficulties.
However, the measures taken since the
second quarter of 2000 to restructure
the largest cooperative bank, FECECAM,
have started to bear fruit. In particular,
FECECAM's management has been streamlined,
and debt-collection procedures have been
improved, so that the volume of outstanding
nonperforming loans has fallen.
C. Structural Reforms
10. After ending the monopoly of the
state cotton enterprise (SONAPRA) on
the marketing of seed cotton, the government
is working on gradually bringing competition
into the cotton sector. In this context,
the World Bank helped the Interprofessional
Cotton Association to set up an autonomous
agency (Centrale de Sécurisation
des Paiements et des Recouvrements, or
CSPR) which manages the distribution
of cottonseeds to ginning mills and ensures
crop credit repayments to commercial
banks. As a result, the 2000/01 cotton
harvest was generally satisfactory. However,
the CSPR was unable to pay all producers
because SONAPRA and a private ginning
enterprise did not fully pay for cottonseeds.
11. Other structural reforms ground
to a standstill during the months preceding
the March 2001 presidential election.
Little progress was made in the discussions
on the privatization scheme for SONAPRA
and on the government divestiture program
for the telecommunications company (OPT),
the water and electricity distribution
company (SBEE), and the Autonomous Port
of Cotonou (PAC). In particular, the
National Assembly has yet to adopt the
laws and regulatory frameworks that are
required for the liberalization of these
sectors. Similarly, the National Assembly
has yet to amend the 1998 law on the
compensation system for the civil service,
as required by the Constitutional Court.
The implementation of the decentralization
policy was also delayed, as the local
elections were postponed to a date to
be announced.
12. The government continues to participate
actively in the initiatives aimed at
strengthening regional integration within
the WAEMU and the Economic Community
of West African States (ECOWAS). For
this purpose, the government intends
to bring the regulatory framework for
economic activity progressively in line
with the regional laws. As regards government
finance, regional laws on the government
chart of accounts and the budget nomenclature
are being implemented. Also, the government
has submitted to the National Assembly
amendments to two articles of the Constitution
that are contrary to some provisions
of the fundamental regional law on the
budget. With respect to governance, the
WAEMU code of good conduct has been published,
and training for its implementation will
take place as scheduled by the WAEMU.
In addition, the draft common investment
code of the union is under discussions
among WAEMU member countries. Lastly,
the government has submitted to the WAEMU
Commission a multiyear economic program
consistent with the union's convergence
criteria. At end-2000, Benin observed
all the core criteria for macroeconomic
convergence, except for the one on inflation,
as the union target of 3 percent
was exceeded slightly.
I. Medium- and Long-Term
Framework
13. Studies on Benin's long-term prospects,
carried out after broad consultations
with various social groups in the country,
revealed that the national vision for
Benin in 2025 was that of a model country,
well governed, united, and at peace,
with a prosperous and competitive economy,
an expanding cultural influence, and
improved social well-being. With this
vision of the future in mind, the new
government has prepared an Action Program
covering the five years of the President's
term of office. The main focus of this
Action Program is to (i) consolidate
democracy and good governance; (ii) strengthen
the physical bases of the economy; (iii) improve
competitiveness; (iv) stabilize the macroeconomic
framework; (v) improve infrastructure
and ensure balanced development; (vi) intensify
the fight against poverty; (vii) take
into account young people's views and
the gender dimension when addressing
development issues; (viii) strengthen
national unity and solidarity initiatives;
and (ix) promote the expansion of
Benin's international influence and African
integration.
14. In the context of its Action Program
for 2001-06, the government is actively
preparing a poverty-reduction strategy
paper (PRSP), which will cover the period
2002-04. Accordingly, the first four
years of the government's Action Program
will be consistent with the PRSP and
the medium-term expenditure framework
(MTEF). In addition, as part of its efforts
to strengthen fiscal management, the
government, with World Bank assistance,
has already started preparing program
budgets in the areas of health, education,
rural development, environment, and transportation
sectors. The MTEF and the program budgets
will be approved by the government and
submitted to the National Assembly by
end-October 2001.
15. Based on the findings of a national
seminar on the acceleration of Benin's
economic growth, held in May 2001,
the government's objectives are to achieve
a real GDP growth of 7 percent by 2004,
while keeping inflation below 3 percent
a year on average. Such an ambitious
objective forcefully demonstrates the
government's determination to implement
as soon as possible policies and structural
reforms that can contribute to a steady
acceleration of growth. To ensure the
sustainability of this strategy over
time, the government will also gradually
bring the external current account deficit
to below 7 percent of GDP and reduce
the burden of the external debt relative
to GDP. With this objective in mind,
the government will make every effort
to strengthen the competitiveness of
the economy, so as to enable Benin to
gain a larger share of regional and international
trade and increase private investment
in the productive sectors.
II. Policies and
Measures Planned for the Remainder of
2001
and the First Half
of 2002
16. The second year of the program
supported by the PRGF covers the period
from July 1, 2001 to June 30, 2002.
The macroeconomic framework for 2001
that was presented in the memorandum
of December 26, 2000 was only slightly
modified to reflect recent developments.
The real GDP growth target for 2001 was
revised from 5 percent to 5.8 percent
to take account of the increase in food
production and in secondary sector activity,
while the targets for inflation (3 percent)
and for the external current account
deficit (6.9 percent of GDP) were kept
unchanged. For 2002, the growth
target was also raised, from 5.6 percent
to 6 percent, to take account of
higher growth projected in the secondary
sector, especially in textiles, construction,
and public works, as well as in the tertiary
sector (mainly trade and transportation).
With world petroleum product prices stabilizing
and sufficient rainfall for normal growth
in food production, inflation is expected
to continue falling to 2½ percent
in 2002. However, the external current
account deficit is expected to reach
7 percent of GDP, in view of the
deterioration in the terms of trade,
resulting from the drop in cotton price
on the world markets. Nevertheless, the
overall balance of payments position
should remain in surplus.
A. Fiscal Policy
and Budget Reform
17. In view of the fiscal outturn
at end-June 2001, the government intends
to accelerate budget execution and continue
to improve tax collection during the
rest of 2001. As a result, the overall
fiscal deficit, on a commitment basis
and excluding grants, is estimated at
4.1 percent of GDP, or 0.3 percentage
point below the program target. The overall
balance, including grants, should record
a deficit of less than 1 percent
of GDP, as expected. Further improvement
in tax administration will keep total
revenue at 16½ percent of GDP, as
in 2000, but ½ of 1 percent
above the program target. To that end,
the government will make every effort
to collect, by end-November 2001,
CFAF 2.8 billion in customs duties
owed by the company distributing petroleum
products, SONACOP. On the expenditure
side, the government will speed up budget
execution, mainly by improving SIGFIP
operations. Also, transfers will be increased
by CFAF 7.1 billion to take into
account payments owed to WAEMU and additional
interim assistance obtained in the context
of the HIPC Initiative (CFAF 3.1 billion),
which will be used to increase transfers
to local health centers, the teaching
hospital, and the university. Hence,
the target for total expenditure has
been slightly raised to 20.6 percent
of GDP. The wage bill will be kept within
budget limit, at 4.6 percent of
GDP, taking into account the planned
recruitments in the social sectors, as
well as the government's decision to
increase wages to the level corresponding
to the grades on the job ladders that
civil servants reached in 1996. The total
of other expenditure and current transfers
will be kept at their initial level,
notwithstanding the overruns in the cost
of the recent elections. Similarly, the
authorities intend to execute the investment
program fully. Investment outlays include
the purchase of an airplane for the president,
an issue that has been discussed with
Fund staff since 1998. The government
will consult Fund staff before finalizing
any transaction and finance the purchase
only from budget appropriations included
in the Finance Law and from external
resources that observe the concessionality
conditions agreed in the program (loan
with a grant element of at least 35 percent).
Budget appropriations have been voted
for this purpose since 1999, and those
for 1999 and 2000 have been carried forward
in accordance with the law, since they
have not been utilized. Hence, total
budget appropriations for this purpose
amount to CFAF 9 billion, including
a grant of CFAF 3.7 billion
received for such purchase in 1998.
18. The 2002 budget will reflect
the government's policy and priorities
as defined in its Action Program and
the PRSP under preparation. The broad
thrust of the budget will be (i) the
preparation of program budgets and unified
budgets by a number of ministries; (ii) an
improvement in revenue collection; (iii) an
increase in capital expenditure and operating
expenditure for the social sectors and
economic infrastructures; and (iv) a
strengthening of capacity building to
manage and use the available resources.
19. In this context, the government
set the target for the overall fiscal
deficit (on a payment order basis, excluding
grants) at 4.2 percent of GDP in
2002, or slightly above the level envisaged
under the medium-term program, in order
to accommodate higher capital spending.
In addition, the basic fiscal balance
(excluding externally-financed investment)
will record a surplus, so that Benin
will continue to observe the main WAEMU
convergence criteria. The overall fiscal
deficit is to be financed by secured
grants and external loans on concessional
terms.
20. The government does not plan to
introduce new tax measures in 2002
but intends to raise total revenue slightly
to 16.7 percent of GDP by a further
strengthening of tax administration.
In particular, it will (i) continue
to reinforce the department in charge
of the taxation of large enterprises;
(ii) interconnect the computers
in the tax and customs departments; (iii) interconnect
the computers of the customs department
with those of the preshipment inspection
enterprise; (iv) intensify customs
valuation audits; and (v) computerize
the monitoring of tax exemptions. In
addition, the government will collect
the dividends owed by SONACOP to the
state for the first six months of 1999,
prior to the enterprise's privatization.
21. Total expenditure is projected
to rise slightly to 20.9 percent
of GDP in 2002. The wage bill is to be
kept stable at 4.5 percent of GDP
(CFAF 85.8 billion). Before
end-2001, the government will request
the National Assembly to revise the law
on the new compensation system, as required
by the Constitutional Court, so as to
implement it by early 2002. If the National
Assembly fails to revise the law, the
government will consult with Fund and
World Bank staff on the approach it intends
to pursue in order to implement the new
compensation system. In addition, the
government has decided to keep the size
of the civil service unchanged, instead
of maintaining the current practice of
recruiting two civil servants for any
three leaving the service. This action
will contain the needs for personnel
in ministries, pending the introduction
of the staffing plans that will be prepared
in the context of the reform of the administration.
Additional teachers and health personnel
will be hired at the local level and
will be financed by transfers financed
with some of the resources obtained in
the context of the enhanced HIPC Initiative.
22. The government intends to increase
in 2002 current nonwage expenditure by
5 percent for ministries in charge
of education, health, social protection,
agriculture, environment, transportation,
water, and electricity, and by 3 percent
for the others. Transfers, excluding
scholarships and pensions, will be kept
in 2002 at their 2001 level. Budget appropriations
for public investment have been set at
of 8.5 percent of GDP, or ½ percentage
point higher than the level projected
for 2001. The execution rate of investment
is also expected to improve from 80 percent
in 2001 to 90 percent in 2002. The
government intends to discuss the composition
of the investment program with Fund and
World Bank staff once it is available.
23. The government will pursue the
settlement of government liabilities
stemming from the financial difficulties
that Benin encountered during the 1980s.
To that end, it will complete payments
of private deposits left in liquidated
banks (CFAF 5.2 billion) by March 2002.
In addition, by end-December 2001, the
authorities will make an inventory of
all claims that civil servants may have
made on the government as a result of
the measures taken during the 1980s.
If such an inventory were compiled, the
government will discuss with Fund staff
a financial package to settle them during
the next review of the program.
24. In 2002, the government intends
to reinforce measures taken in recent
years to improve budget execution. To
that end, it will (i) deepen the
budget reforms, (ii) make SIGFIP
fully operational, (iii) strengthen the
financial and physical controls of outlays
for infrastructure, (iv) increase
the use of autonomous agencies to execute
infrastructure projects, and (v) seek
development partners' support to streamline
loan and grant disbursement procedures.
The government will also pursue its ongoing
efforts to prepare economic and functional
classifications of government expenditure.
These classifications, together with
the increased use of program budgets,
would help reduce the amount of current
outlays shown as capital expenditure.
Also, the government intends to
evaluate the system of cash advance accounts
(comptes de régisseurs) during
the first quarter of 2002, in order to
increase the proportion of expenditure
that is executing following the regular
spending procedures. In addition, the
remaining balance of those cash advance
accounts will be transferred to the treasury
by end-December 2001, and expenditure
already committed will be cancelled,
with the possibility of carrying them
over to fiscal year 2002.
B. Outlook for Money,
Credit, and the Financial System
25. Monetary policy, which is conducted
at the regional level by the BCEAO, will
be consistent in 2001-02 with the objectives
of price stability and balance of payments
viability. In light of anticipated trends
in economic activity and financial intermediation,
broad money is expected to grow by 10½ percent
in 2001 and 9.5 percent in 2002.
Net domestic assets are expected to decline
in 2001, owing to the contraction in
net bank credit to the government, which
will be only partially offset by the
increase in credit to the nongovernment
sector. In 2002, net domestic assets
should recover, as the contraction in
net bank credit to the government should
slow and credit to the nongovernment
sector could rise by 13.9 percent.
As a consequence, the net foreign assets
of the banking system are expected to
continue to increase during the 2001-02
period.
26. The government is determined to
correct the weaknesses of Benin's financial
system and strengthen the management
of financial institutions. Already, as
recommended by the regional banking commission,
the management of two banks has been
replaced, and the government intends
to work with the banks' shareholders
in order to increase their capital by
end-2001 to the level required by the
new prudential norms. By end-2001, the
government will also propose a plan for
the sale of the shares of the bank in
which the public sector controls a majority
of the capital. In addition, the government
will ensure that all financial institutions
observe the prudential ratios, especially
those related to capital adequacy. As
regards nonbank financial institutions,
the government has decided to withdraw
the license of one institution and enhance
surveillance over the other two, in order
to have them comply with the new prudential
ratios by end-2001.
27. For microfinance institutions,
the government will reinforce the unit
in charge of their supervision by end-2001.
The unit will exercise a closer surveillance
over the two major networks, FECECAM
and FENACREP, and subsequently over all
microfinance institutions. Based on the
audit carried out by an international
firm, the government will ensure, with
the support of external partners, that
FECECAM's restructuring proceeds as planned.
Finally, the government will pursue its
efforts to collect the outstanding claims
of the liquidated banks.
C. Other Structural
Reforms
28. The government will continue to
apply the new adjustment mechanism for
petroleum product prices. It will assess
its functioning by end-2001 and study
in particular the impact of the growing
volume of sales in the informal sector,
which imports petroleum products from
neighboring countries. For kerosene,
the government will limit the subsidy
to CFAF 4 billion in 2002,
as was the case in 2001. Also, the
government has decided to liberalize
the price of cement by end-2001.
29. Given the size of the structural
financial deficit of the pension fund
for the civil service (FNRB), which is
currently covered by budgetary transfers,
the government will carry out an actuarial
study of the fund and formulate a strategy
by end-June 2002 for eliminating
its financial deficit over the medium
term. Meanwhile, the government will
establish a database of retired personnel
by end-December 2001.
30. For the telecommunications company
(OPT), the government will complete a
financial audit of its 2000 accounts
by end-December 2001. Once the National
Assembly has passed the laws on the postal
services and telecommunications sector,
the government will adopt the decree
splitting the two branches, create a
new telecommunications company by November
2001, and set up the regulatory agency
by February 2002. The government will
request bids for the privatization of
the telecommunications company by end-February 2002,
and select the successful bidder by July 2002.
31. Regarding the water and electricity
company (SBEE), the government will adopt
a privatization strategy by September
2001, as recommended by the national
seminar on the reform of the water and
electricity sectors. The main feature
of the strategy to be defined by December
2001 will be the separation of the water
and electricity sectors. The government
intends to request World Bank assistance
for financing studies on the separation
of the two sectors, the privatization
of the resulting entities, and the revision
of the legal and regulatory frameworks.
The government will then (i) submit
the draft law to the National Assembly
by end-March 2002, (ii) set up the
regulatory agency in March 2002,
(iii) launch the bidding process
by June 2002, and (iv) choose the
winning bid by November 2002. In
addition, the government will propose
a plan by end-October 2001 for restoring
the company's finances, which are suffering
from a difficult cash-flow situation
and a balance sheet weakened by an accumulation
of losses over the past years.
32. The government will review, in
cooperation with the World Bank, the
options that an international consulting
firm suggested for the privatization
of SONAPRA. It will adopt a privatization
strategy by December 2001 and complete
the transaction by end-November 2002.
In conformity with the objective of accelerating
growth, the government will also withdraw
from public enterprises in the textile
sector and, to that end, will prepare
a divestiture strategy by end-December 2001.
33. To intensify private sector involvement
in the management of the Autonomous Port
of Cotonou (PAC), the government will
adopt one of the options that a consulting
firm is supposed to recommend in the
coming months. It will then define how
the option will be implemented before
end-June 2002.
34. To promote good governance, the
government has prepared a draft national
anticorruption strategy after consultation
with civil society. It intends to adopt
the draft strategy by end-December 2001,
after discussing it further with civil
society in September 2001. In addition,
the authorities have adopted regulations
governing relations between government
agencies and the population, as well
as manuals of administrative procedures
for use by government departments.
III. Monitoring
of the Program
35. Program monitoring will be carried
out on the basis of the accompanying
Technical Memorandum of Understanding
and the quarterly quantitative benchmarks,
indicators, and structural benchmarks
established for the period July 1, 2001-June 30,
2002, and through a midterm review. The
quantitative limits for end-September
2001, end-March 2002, and end-June 2002
are benchmarks for program monitoring;
those for end-December 2001 are program
performance criteria, the observance
of which is a condition for making the
fourth disbursement under the arrangement
under the PRGF. The quantitative benchmarks
and the performance criteria include
(i) a ceiling on net bank credit
to the government; (ii) the nonaccumulation
of new external payments arrears by the
central government (on a continuous basis);
(iii) a ceiling on new nonconcessional
foreign debt with a maturity of one year
or more, contracted or guaranteed by
the central government; and (iv) a
ceiling on new short-term foreign borrowing,
with the exception of regular trade financing.
The quarterly ceilings on net bank credit
to the government will be adjusted downward
(or upward), depending on the amount
by which exceptional external assistance,
excluding eventual debt relief, exceeds
(or falls short of) program estimates,
as indicated in the attached Table 1.
The reduction of verified government
domestic payments arrears has not been
retained as a benchmark or a performance
criterion since the government settled
outstanding amounts in the first quarter
of 2001, except for those still subject
to legal proceedings.
36. Four measures will serve as structural
benchmarks for end-December 2001: (i) submitting
amendments to the law on a new pay scale
and compensation system for the civil
service to a vote of the National Assembly;(ii) completion
of an inventory of civil servants' outstanding
claims on the government; (iii) agreement
between the government and Fund staff
on an action plan to privatize the remaining
state-controlled bank; and (iv) reconciling
the end-2000 account balances of the
treasury, budget department, externally-financed
public investment project, and agencies
that are included in the financial operation
of the central government.
1. This technical memorandum of understanding
defines the quantitative and structural
performance criteria and benchmarks for
the program supported by the Poverty
Reduction and Growth Facility (PRGF).
It also sets out the frequency and deadlines
for data reporting to the staff of the
International Monetary Fund (IMF) for
program-monitoring purposes.
2. Unless otherwise indicated, the
government is defined as the central
government of the Republic of Benin and
does not include local authorities, the
central bank, or any other public entity
with autonomous legal personality that
is not included in the table of government
financial operations (TOFE).
3. The definitions of "debt"
and "concessional borrowing"
for the purposes of this memorandum of
understanding are as follows:
4. Net bank credit to the government
is defined as the balance between the
liabilities and claims of the government
vis-à-vis the central bank and
commercial banks. The scope of net credit
to the government is that used by the
Central Bank of West African States (BCEAO)
and is consistent with established Fund
practice in this area. It implies a broader
definition of government than that specified
in paragraph 2. Claims of the government
include the CFA franc cash balance, postal
checking accounts, subordinated debt
(obligations cautionnées),
and all deposits with the BCEAO and commercial
banks of public entities, with the exception
of industrial or commercial public entities
(EPIC) and public enterprises, which
are excluded from the calculation. Government
debt to the banking system includes all
debt to these same financial institutions.
5. At end-June 2001, net bank credit
to the government as defined above stood
at CFAF -39.6 billion.
6. The ceilings on the net credit
to the government vis-à-vis the
banking system will be adjusted downward
(upward) by the amount by which disbursements
on budgetary assistance exceed (fall
short of) the amount programmed; the
required correction in case of shortfall
of budgetary assistance will be limited
to CFAF 17 billion at end-December 2001,
end-March 2002 and end-June 2002. Budgetary
assistance is defined as grants, loans,
and debt relief (excluding project loans
and grants, IMF resources, and debt relief
under the HIPC Initiative). In the context
of the program, cumulative (since end-June
2001) external budgetary assistance is
expected to reach CFAF 30.6 billion
at end-December 2001, and to stay
at that level at end-March 2002 and end-June
2002.
7. The ceiling on net bank credit
to the government will be adjusted downward
by the amount by which proceeds from
privatization exceed the amount programmed
for restructuring expenditure. In the
context of the program, cumulative restructuring
expenditure (since end-June 2001) is
expected to reach CFAF 5 billion at end-December
2001, CFAF 10.6 billion at end-March
2002, and CFAF 10.6 billion at end-June
2002.
8. The ceiling on net bank credit
to the government will also be adjusted
downward by the amount of underspending
on projects financed by HIPC Initiative
resources. Targets for cumulative spending
on projects financed by the HIPC Initiative
(since end-June 2001) are CFAF 12.5
billion at end-December 2001, CFAF 15.5
billion at end-March 2002, and CFAF 21.4
billion at end-June 2002.
9. The ceiling on net credit to the
government is established as follows:
CFAF -51.0 billion as at December
31, 2001, CFAF -55.0 billion
as at March 31, 2002, and CFAF -57.0 billion
as at June 30, 2002. The ceiling
is a performance criterion as at end-December 2001
and a benchmark as at end-March 2002
and at end-June 2002.
10. Provisional data on net credit
to the government, including a detailed
list of the bank account balances of
other public entities, will be transmitted
on a monthly basis within the four weeks
following the end of the month. The definitive
data will be provided within an additional
four weeks after the provisional data
have been reported.
11. External payments arrears are
defined as the sum of (i) external
payments due, (ii) unpaid-for external
liabilities of the government, and (iii) foreign
debt held or guaranteed by the government.
The definition of external debt provided
in paragraph 3(a) applies here.
12. Under the program, the government
will not accumulate external payments
arrears, with the exception of arrears
arising from debt under renegotiation
or being rescheduled. The performance
criterion on the nonaccumulation of external
payments arrears will be monitored on
a continuous basis throughout the program
period.
13. This performance criterion applies
not only to debt as defined in Point 9
of the Guidelines on Performance Criteria
with Respect to Foreign Borrowing (Executive
Board Decision No. 6230-(79/140),
amended by Executive Board Decision No.
12274-(00/85) (8/24/00) but also to commitments
contracted or guaranteed (including lease-purchase
agreement) for which no value has yet
been received. The definition of external
debt excludes bonds issued in the regional
market and disbursements under the PRGF
arrangement.
14. The concept of "government"
for the purposes of this performance
criterion includes government as defined
in paragraph 2, public institutions
of an administrative nature (EPA), public
institutions of a scientific and/or technical
nature, public institutions of a professional
nature, public institutions of an industrial
and/or commercial nature (EPIC), and
local governments.
15. Nonconcessional external borrowing
will be zero throughout 2001/02 (July-June).
16. Information on any borrowing (including
terms of loans and creditors) contracted
or guaranteed by the government shall
be transmitted each month within four
weeks following the end of the month.
17. The definitions in paragraphs 13
and 14 also apply to this performance
criterion.
18. Short-term external debt is debt
with a contractual term of less than
one year. Import-related loans and debt
relief operations are excluded from this
performance criterion.
19. In the context of the program,
the government and public enterprises
will not contract, guarantee, or secure
short-term nonconcessional external debt.
20. As of June 30, 2001, the government
of Benin has no short-term external debt.
21. The quantitative benchmarks for
the program comprise quarterly minimum
spending targets for health and education.
This includes both current capital and
expenditures, including foreign-financed
investments. The floor for health expenditure
is on an accumulated basis (since
end-June 2001) CFAF 30.0 billion
for end-December 2001; CFAF 40.2
billion for end-March 2002; and CFAF
50.5 billion for end-June 2002. The floor
for education expenditure is on an accumulated
basis (since end-June 2001) CFAF 48.2 billion
for end-December 2001; CFAF 68.1 billion
for end-March 2002; and CFAF 87.9 billion
for end-June 2002.
22. The program also includes indicators
on total government revenues, the primary
government expenditure, and the civil
service wage bill.
23. Government revenues are defined
as those that appear in the government
financial operations table (TOFE).
24. Quantitative performance indicators
for total government revenues are set
at CFAF 288.8 billion at end-December
2001; CFAF 363.4 billion at end-March
2002; and CFAF 438.0 at end-June
2002 (cumulative since end-December 2000).
25. The government shall report its
revenues to IMF staff each month in the
context of the TOFE.
26. Primary government expenditure
is defined as total government expenditure
minus interest payments, externally financed
investment expenditure, and net lending.
27. The floors for the performance
indicators for primary government expenditure
are set at CFAF 260.1 billion at
end-December 2001; CFAF 321.7 billion
at end-March 2002; and CFAF 390.6 billion
at end-June 2002 (cumulative since end-December
2000).
28. The authorities will report monthly
to IMF staff, in the context of the TOFE,
provisional data on primary government
expenditure. These data will be taken
from the balances of treasury accounts
for the items that are used to calculate
this balance. The final data will be
provided as soon as the final balances
for these accounts are available, but
not later than four weeks after the reporting
of the provisional data.
29. The wage bill includes
all public expenditure on wages, bonuses,
and other benefits or allowances granted
civil servants employed by the government,
the military, and other security forces,
and includes all similar expenditure
with respect to special contracts and
other permanent or temporary employment
with the government. The wage bill excludes,
however, wages paid under externally
funded projects and transfers to local
communities for the payment of salaries
of teachers and health personnel.
30. The quantitative performance indicators
for the wage bill are set at CFAF 80.8 billion
at end-December 2001; CFAF 101.3 billion
at end-March 2002; and CFAF 123.8 billion
at end-June 2002 (cumulative since end-December
2000).
31. The government shall report the
wage bill to IMF staff each month in
the context of the TOFE.
32. By December 31, 2001 at the
latest, the government will submit amendments
to the law on a new performance-based
compensation mechanism that were required
by the Constitutional Court to be voted
on by the National Assembly.
33. By December 31, 2001, the
government will complete an inventory
of outstanding claims of civil servants
on the government.
34. By December 31, 2001, the government
will agree with Fund staff on an action
plan to privatize the remaining state-controlled.
35. By December 31, 2001, the government
will reconcile the end-2000 account balances
of the treasury, budget department, externally-financed
public investment projects, and agencies
that are included in the financial operations
of the central government.
35. Required public finance is as
follows:
36. The following data will be transmitted
on a monthly basis or, as specified below,
within eight weeks of the end of the
month:
37. External sector data requirements
are as follows:
38. The following requirements will
apply to real sector data:
39. Documentation of all measures
undertaken by the government will be
transmitted to the IMF's African Department
within ten working days after the day
of implementation. Any official studies
pertaining to the economy of Benin, will
be submitted within two weeks of publication.
