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Benin and the IMF
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Benin
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I. Introduction
1. The devaluation of the CFA franc in January 1994 strengthened the adjustment strategy initiated by Benin in 1989, enhancing the country’s external competitiveness and substantially increasing the profitability of the agricultural sector. It was accompanied by a deepening of structural reforms aimed at further liberalizing the economy and improving public sector efficiency, as part of a comprehensive adjustment program. These actions led to an acceleration of growth and an improvement in the balance of payments. The implementation of prudent fiscal and credit policies gradually brought down inflation, after the initial surge in prices that followed the pass-through of the effects of the change in the exchange rate. The adjustment program has been supported by the International Monetary Fund through the Enhanced Structural Adjustment Facility (ESAF), and by the World Bank under the third structural adjustment program (SAL III), as well as by financial assistance from other multilateral and bilateral donors. In addition, Paris Club creditors granted Benin relief on the eligible stock of debt under Naples terms.
2. In 1996, the Beninese authorities initiated a new economic and financial program covering the period 1996–99 to consolidate the reforms, achieve financial viability, secure high and sustainable economic growth, and improve the standard of living of the population. This policy framework paper reviews the outcome of the policies implemented since 1997 and draws attention to the key reforms that will be introduced during 1998–2001.
3. Economic performance was broadly satisfactory in 1997, but activities were negatively affected in 1998 by a serious power shortage that lasted from March to June. As a result, real GDP growth is expected to decline from 5.6 percent in 1997 to 4.4 percent in 1998 (Table 2). The power shortage also affected inflation, which reached 7.1 percent over the 12 months up to end-June 1998, but is expected to fall to 3.7 percent by the end of 1998. Also, there are indications that private saving could decline in 1998, reducing national saving by about 2 percentage points of GDP to 11.5 percent. In contrast, private investment is likely to remain at the same level as 1997, while public investment could drop by 2 percentage points of GDP to about 5 percent. The execution rate for the investment program fell to less than 50 percent during the first nine months of 1998 because of shortcomings in project management that were aggravated by the power shortage. The external current account deficit is expected to remain stable at about 5 percent of GDP in 1998, with an improvement in the terms of trade offsetting the slowdown in real export growth.
4. The government continued to pursue a prudent fiscal policy in 1997 and the first nine months of 1998, and most objectives were met. The primary deficit was cut to 2.5 percent of GDP in 1997, compared with a projected 3.8 percent, and the overall deficit (on a payment order basis and excluding grants) fell slightly to 4.2 percent of GDP, owing to a reduction in externally financed investment. Government revenue rose to CFAF 182 billion in 1997, as projected, owing to an increase in customs revenue; revenue, however, amounted to only 14.6 percent of GDP, instead of the targeted 15.0 percent, because of an upward revision of nominal GDP. Government expenditure contracted from 19.5 percent of GDP in 1996 to 18.8 percent in 1997, partly reflecting tight control of the wage bill and lower interest payments on external debt resulting from the reduction in the stock of debt owed to the Paris Club.
5. In the first nine months of 1998, fiscal policy was much tighter than originally planned. The revenue performance was slightly better than targeted but was accompanied by a considerable compression of nonwage outlays, in particular of investment expenditure. For 1998 as a whole, government revenue is projected to increase from 14.6 percent of GDP in 1997 to 15.3 percent, whereas expenditure is expected to decline by 2.5 percentage points of GDP to 16.3 percent despite an expected acceleration of spending toward the end of the year. Following the adoption of a performance-based compensation system for the civil service in September 1998, the government—as agreed with the trade unions—decided to raise salaries (retroactive to January 1998) to the level corresponding to the grade levels reached in 1992. Salary levels are still much lower than indicated by current grades, because salaries, but not advancement, were frozen from 1986 to 1991, and since then the gap has not been fully eliminated. Hence, the increase is a step toward a definitive resolution of that issue. Altogether, the primary deficit is expected to be eliminated, and the overall deficit on a payment order basis will narrow by 3.2 percentage points of GDP to 1.0 percent.
6. Arrears on domestic payments have remained problematic, even though settlements have totaled CFAF 85 billion since 1994. This situation reflects the ministries’ difficulties in complying with spending procedures and requirements for the timely submission of documentation to the Ministry of Finance. In addition, late updating of civil servants’ records by the Ministry of Civil Service has resulted in salary arrears and payments of back pay each year. While CFAF 15.9 billion in arrears outstanding at the budget and treasury departments should be settled in 1998, preliminary results of an inventory of overdue payments, which was conducted by outside auditors in October 1998, showed that CFAF 12 billion in arrears would remain to be cleared in 1999 and 2000.
7. In 1998, Benin has serviced all external debt. Following the stock of debt relief granted by Paris creditors under Naples terms in October 1996, the government signed all bilateral agreements in 1997, except that with Italy. Debt relief totaled CFAF 110.5 billion in 1997, or 9.8 percent of GDP, including debt cancellation totaling CFAF 53.3 billion. In September 1998, Benin was also granted debt relief by Russia (under which Naples terms were applied to the total stock of debt, including arrears, discounted by 70 percent), and it is negotiating with other non–Paris Club creditors for debt relief on terms at least as favorable. As a result, it is expected that total debt relief will amount to CFAF 43.6 billion in 1998, including CFAF 38.7 billion in debt that was not serviced during the negotiations (Table 3).
8. In addition to project financing and debt relief, the deficit in 1997 was covered by loans and grants related to the adjustment program (CFAF 17.7 billion, including IMF financial assistance), together with the proceeds from privatization. Program financing is expected to amount to CFAF 26.7 billion in 1998, which should be sufficient to cover the residual financing gap. This financing will also enable the treasury to continue to reduce its net liabilities to the domestic banking system.
9. Broad money expanded at a faster pace than nominal GDP in 1997, but this trend has been reversed in 1998 as a result of prudent monetary and credit policies. The net foreign assets of the banking system continued to increase over the 1997–98 period. Meanwhile, the net domestic assets of the banking system remained stable, as a decrease in net bank credit to the government was offset by an increase in credit to the nongovernment sector. The treasury repaid all statutory advances from the Central Bank of West African States (BCEAO), while credit to the nongovernment sector increased rapidly because repayment of credit for the cotton crop was delayed. Overall, the financial situation of the commercial banks is satisfactory, and prudential ratios have generally been observed, except for those relating to the concentration of claims and the matching of medium-term assets by medium-term liabilities. In 1998, the level of nonperforming loans was considerably lower than in 1997. The BCEAO1 continued to encourage the issuance of new financial instruments that could underpin monetary policy. In this regard, one commercial bank began issuing certificates of deposit (up to a total of CFAF 2 billion); meanwhile, the West African Development Bank issued tax-free bonds on the regional financial market amounting to CFAF 25 billion, with a nominal interest rate of 6.0 percent.
10. Since 1997, savings and loan associations have expanded their activities at a brisk pace and have become a major source of credit for microenterprises, as well as for small and medium-sized enterprises. A regional law governing their activities was adopted by the National Assembly in July 1997 and related decrees issued in February 1998. In January 1998, the Ministry of Finance created a unit in charge of supervising the associations. In addition, Benin, like other members of the West African Economic and Monetary Union (WAEMU) countries, is receiving technical assistance from a regional institution (PARMEC) responsible for the law’s implementation.
11. The authorities have pressed ahead with the implementation of the structural reforms planned for 1997 and 1998. Regarding administrative reform, a decree was issued in November 1996 to harmonize the organization of all ministries, including a separation of their political and technical functions. Secretaries general, directors of administration, and directors of planning are to be appointed in most ministries. As regards the civil service, the Ministry of Civil Service has updated personnel records based on information collected through a census of permanent civil servants conducted in April 1997. Following a study completed in February 1997 on the promotion system for the civil service, the government, with financial assistance from the World Bank, extended the scope of the analysis to all aspects of the compensation and incentives system. This broader study resulted in the adoption of a strategy and an action plan for overhauling the current system, the implementation of which is under way. In particular, the National Assembly adopted a law in September 1998 replacing the automatic promotion system by a performance-based system.
12. The government continued to implement its divestiture program in 1998. In the transportation and infrastructure sector, the authorities in April 1998 ended the monopoly of the public enterprise (SOBEMAP) in charge of the country’s port. With respect to the petroleum sector, the authorities revised the divestiture strategy for SONACOP (the public enterprise distributing petroleum products), with 55 percent of the capital to be sold to domestic or foreign private investors and 10 percent reserved for sale to employees. A public offering was made on July 4, 1998, and the winning bids will be selected by December 31, 1998. In addition, private operators have already purchased 25 percent of the enterprise’s gas stations. In July 1998, the government announced its intention to privatize the management of the electric power and water utilities of the Benin Water and Power Company (SBEE); it will shortly undertake a study to reform these sectors. In the insurance sector, the areas of fire, accident, and miscellaneous risks were liberalized in November 1997. Since then, several new companies have received operating licenses from the Ministry of Finance, and one of them acquired the insurance portfolio of SONAR, the public insurance enterprise, which was liquidated in March 1998.
13. Over the past few years, considerable progress has been made in stabilizing the economy and reducing financial imbalances. However, the situation remains fragile and vulnerable to changes in the regional and international environment. For these reasons, the government is aware of the need to continue and deepen the policies introduced during recent years, so as to preserve competitiveness achieved through the devaluation of the CFA franc, diversify the economy, and increase employment. In this respect, the government will promote development in three areas: the diversification and intensification of agriculture, the processing of locally produced raw materials, and, in view of Benin’s geographic position, the promotion of the country as a regional center for business activities between the WAEMU member countries and Nigeria, on the one hand, and between the landlocked countries in the region and the rest of the world, on the other. For this strategy to succeed, particular attention will be devoted to policies aimed at (i) reducing internal and external imbalances; (ii) creating a favorable environment for promoting investment and employment in the private sector; (iii) accelerating regional economic integration; (iv) strengthening administrative institutions while pursuing decentralization to ensure a greater participation of the population in local economic development; (v) developing human resources; (vi) promoting the participation of women in the development process; (vii) reducing poverty; and (viii) protecting the environment.
14. Within this broad framework, the government will continue to implement macroeconomic policies and structural reforms designed to achieve the following medium-term objectives: (i) a real GDP growth of 5½ percent per annum; (ii) an inflation rate of less than 3 percent per year; and (iii) narrowing of the external current account deficit to less than 4.5 percent of GDP by the year 2001. The authorities are also committed to raising living standards as rapidly as possible; hence, they will seek to define and implement policies and reforms that could raise real growth to more than 6 percent per year. Another objective of the government is to achieve a minimum level of social services by ensuring food security, access to basic education, and primary health care for all.
IV. Macroeconomic Policies and Financial Reforms
15. The main objectives of fiscal policy are to promote access to basic public services by improving public resource management, and to increase government saving so as to reduce the proportion of investment financed by external resources. Particular attention will be paid to developing budgetary procedures appropriate for the management of the local institutions that will come into operation in 1999 following the National Assembly’s recent approval of legislation on devolution. For the central government, the objective is to maintain the primary deficit (total revenue, excluding grants, minus total expenditure, excluding interest payments) at 2 percent of GDP through 2001 and to increase allocations for health, education, and public investment. To that end, it is planned that total government revenue will increase by almost 1 percentage point to 16 percent of GDP by 2001, and total spending will be maintained below 19 percent of GDP by reducing the share of nonpriority spending.
16. To attain the revenue objective, the government intends to increase the productivity of tax administration and broaden the tax base. In particular, it will seek to better balance government revenue obtained from the cotton sector, transit activities, and dividends from public enterprises with revenue obtained from the rest of the economy. The government also intends to adopt appropriate measures to compensate for any possible revenue losses that could result from the introduction of the common external tariff and the new import classification in the WAEMU. The authorities will thus strengthen the domestic tax department, in order to increase the domestic tax contribution to government revenue.
17. The measures for increasing the efficiency of the customs department include (i) establishing a system for monitoring tax exemptions; (ii) strengthening the coordination among the customs department, the port of Cotonou, and the preinspection services; (iii) restructuring and computerizing the main border offices and the offices responsible for collecting taxes on petroleum products; (iv) revising the customs code, particularly provisions pertaining to exemptions; (v) creating a database on import value and updating customs list prices for border offices, to be used as a reference for customs officials determining import values; and (vi) improving coordination with the domestic tax department. As regards the latter department, the programmed measures aim at (i) increasing the department’s operating budget; (ii) strengthening the management of the unit in charge of taxing large enterprises; and (iii) reorganizing tax audits. In addition, specific measures have been inserted in the 1999 budget law, including the unification of the rates for the advance payment of the profit tax collected on imports (and is deductible from profit tax payments), and the improvement of the simplified tax reporting system.
18. The government intends to implement a prudent wage policy in order to increase budget allocations for health and education, in accordance with the 1996 public expenditure review. To this end, the authorities will limit the wage bill to 4.5 percent of GDP by the year 2001; they will also implement a new promotion and compensation system for civil servants over the next three years, as described in para. 25. In addition, the share of budgetary resources used to finance public investment will increase from 7.2 percent of tax receipts in 1998 to more than 15 percent in 2001.
19. Achieving these objectives will require a strengthening of budget monitoring and execution. Consequently, the government intends to continue to improve the reliability and availability of data, to harmonize spending classifications, and to comply with the delays allowed for the payment of suppliers. Budget management will also be strengthened at the level of the sectoral ministries to ensure that budget allocations and execution actually reflect the government’s priorities. Moreover, government outlays carried over from one year to the next will be eliminated through the following actions: (i) utilization of budget appropriations only within the fiscal year; (ii) compliance with budgetary appropriations; and (iii) increased budget allocations for public utilities and hospitalization costs. The government will also strengthen monitoring of the public investment program in order to increase the execution rate and ensure that social sector and infrastructure priorities are observed.
20. The government will ensure that monetary policy, which is defined and conducted at the regional level by the central bank, will remain prudent and consistent with the balance of payments objectives. In this respect, the treasury will use BCEAO’s statutory advances as a liquidity management instrument, whereas budget financing requirements could be partially met by issuing government bonds. As regards banking supervision, the government will ensure that the WAEMU Banking Commission regularly audits all commercial banks. The government will also support the timely adoption of regional laws on payment instruments, exchange regulations, forged currency, and usury.
21. The government will encourage the development of the regional financial market. In this context, it will facilitate the participation of local companies in the regional stock exchange that became operational in September 1998. It will also support the development of new instruments by financial institutions to mobilize private saving and finance small and medium-sized enterprises. The government will also support the unit in charge of monitoring savings and loan associations by training staff and providing appropriate resources for its operations.
V. Structural and Sectoral Policies
22. As set forth in the resolutions adopted during the National Economic Conference in December 1996, the government intends to continue implementing reforms aimed at bringing the public administration closer to the population, and making its operations more transparent and efficient. This objective will be achieved by giving budget execution responsibilities to local representatives of the central government and creating local municipalities. Under the five devolution laws adopted by the National Assembly in 1998, 77 financially autonomous municipalities will be managed by democratically elected representatives under the supervision of the central government’s representative (the préfet). Municipal budget procedures and the sources of revenue are defined by one of the laws; the resources include taxes on real estate, land, tourism, and motor vehicles, as well as central government subsidies for capital investment, which will be subsequently replaced by borrowing. In addition, the authorities will prepare quarterly reports on the execution of municipal budgets, which will be consolidated with the central government’s financial operations. Three agencies are responsible for implementing the reform: one (Direction Générale de l’Administration Territoriale) will supervise the implementation of the reform, a second (Mission de Décentralisation) will prepare and issue reform-related regulations, and a third (Maison des Collectivités Locales) will provide municipalities with technical and logistic support. The first municipal elections will be organized in the first quarter of 1999, and municipalities will become operational in the second quarter of that year. In addition, the government intends to organize a round table meeting in 1999 to seek the support of its development partners on the implementation of the territorial administration reform.
23. In order to improve the management of public resources and to promote good governance, the authorities will strengthen the role and increase the resources of the government auditing agencies. Consequently, the auditing department of the Supreme Court will be restructured into an independent audit court (Cour des Comptes) and provided with the necessary human and financial resources. To enable the court to fulfill its responsibilities, the treasury and budget departments will produce annual budget execution reports, with technical assistance from Benin’s development partners. In addition, the government will annually submit a law certifying budget execution (loi de règlement) to the National Assembly. As regards the General Inspectorate of Finance (IGF), the recommendations of its audit reports will be effectively enforced, and its ability to carry out its mandate will be improved by the provision of adequate offices and staff training. During 1998–2000, the anti-corruption agency (Cellule de Moralisation de la Vie Publique) will implement its action plan, focusing on information, education, and communication, and it will cooperate with nongovernmental organizations concerned with fighting corruption. Finally, the government will organize a regional seminar on good practices in public sector financial management, as proposed by the international institutions.
24. To improve the functioning of the administration, the government intends to overhaul the civil service. It plans to create a unified personnel database, implement a new promotion and compensation system, and update the civil service statute. The purpose of the unified personnel database is to facilitate personnel management by consolidating all information on civil servants in one file that will be accessible to all ministries. The first steps for the Ministry of Civil Service will be to verify the accuracy of the April 1997 census data before end-March 1999 and then keep this information up-to-date. The information will be used to prepare a semiannual report on civil service employment, starting at the end of June 1999. Meanwhile, with the financial support of development partners, the Ministry of Civil Service will install a computerized system compatible with that of the payroll department in the Ministry of Finance, and their databases will be merged by end-August 1999.
25. The reform of the civil service compensation system aims at establishing a performance-based, transparent, and equitable system. Performance will determine promotions, and, to a large extent, pay raises. Increases in the wage bill will be based on budgetary constraints, recruitment needs, and the overall economic situation. By end-March 1999, the government will adopt new wage scales based on 1998 salaries, together with a more transparent, simple, and efficient benefits system, and a system for assessing performance. During 1999, the government will also review current positions and prepare job descriptions; this review will be used in setting annual objectives and assessing individual performance. The new compensation system will be implemented in January 2000, and merit-based salary increases will be introduced in January 2001.
26. The government will continue to withdraw from activities in the productive and service sectors. By March 31, 1999, it will complete the sale of 55 percent of the capital of SONACOP. In addition, the authorities will liberalize the prices of petroleum products by end-July 1999. Based on the study to revitalize the textile industry, the government will adopt in December 1998 a divestiture strategy for the two public enterprises in the sector (SITEX and COTEB) that will take account of the agreement signed with a foreign bilateral creditor to finance capacity expansion of SITEX. Management of the Hôtel de la Croix du Sud and Hôtel de la Plage are being privatized. For the former, invitations to bid have been issued, and the successful bidder will be chosen by December 31, 1998. The privatization of the management of the Hôtel de la Plage is awaiting a judicial decision for public ownership. The government has completed negotiations on the privatization of the management of the cement enterprise (Société des Ciments d’Onigbolo) and the sugar enterprise (Société Sucrière de Savè), which are primarily owned by the governments of Benin and Nigeria. The contracts should be signed by end-December 1998.
27. In order to strengthen the competitiveness of Benin's economy, the government will assess and prepare a strategy to improve the performance of the other public enterprises. This analysis will lead to the adoption of a supplementary privatization program in the first half of 1999. The enterprises that will remain under public ownership will be restructured, and their management will be improved. The government will designate the agency responsible for monitoring their performance by end-June 1999.
28. To promote a sound and sustainable development of the private sector, four major categories of actions are being undertaken, with a view to (i) improving the legal and regulatory environment for private enterprises; (ii) strengthening the dialogue between the government and the private sector; (iii) reforming the financial institutions that support the development of private enterprises; and (iv) promoting and diversifying exports of manufactured goods and eliminating obstacles to export development.
29. First, to improve the legal and regulatory environment for enterprises, the government subscribes to the regional initiative for harmonizing business legislation (the OHADA reforms) and has begun to reform the judicial system. The government is committed to a rapid implementation of the OHADA reforms, which are crucial in establishing private sector confidence. The planned measures include (i) revising national legislation to bring it in line with the new regional legislation; (ii) preparing, publishing, and disseminating the implementation texts, particularly a commercial registry; and (iii) providing additional training for judges and clerks of the court on the provisions of the regional legislation. Finally, Benin, as a member of WAEMU, will take part in the preparation of the regional investment code. To complement the regional reform of business law, the government will prepare and implement a plan for reorganizing the judicial system, which will include the following: (i) introducing a program for training and recruiting judicial officers (i.e., judges and clerks), and increasing the capacity of other judicial functions (lawyers, notaries, and bailiffs); (ii) revising the legal status of judges; (iii) reallocating budget resources from the Ministry of Justice to the various courts; (iv) reorganizing clerks’ offices, in particular, through their computerization; and (v) improving judicial infrastructure by constructing a court of appeals in Cotonou. A center for legal documentation will be established to disseminate information on legislation and judicial decisions, and to promote transparency.
30. Second, to foster the dialogue with the private sector, the government, with the assistance of its development partners, will strengthen existing institutions, such as the Chamber of Commerce and Industry of Benin and the Chamber of Agriculture, and it will encourage the creation of new organizations, such as the National Chamber of Crafts. The development of private enterprises will be facilitated by (i) extending the services of the one-stop window system (Centre de formalités des entreprises) for fulfilling administrative formalities required to establish an enterprise; (ii) developing an information center for investors; and (iii) improving the information available on industries.
31. Third, the government will continue to assist small and medium-sized enterprises through several institutions created for that purpose (such as CAPEPE, PADME, PAPME, and the CAMPUS-Bénin program) and through programs supporting their development. Without its direct financial involvement, the government will restructure existing financial institutions for small and medium-sized enterprises into sustainable and financially autonomous institutions, with majority private equity and access to commercial lines of credit. The government will prepare a strategy for developing the microfinance sector and strengthen the unit responsible for overseeing savings and loan institutions at the Ministry of Finance. It will also encourage the establishment of an association of microfinance professionals (the ALAFIA network). In order to increase financing available to small and medium-sized enterprises, the government encourages the establishment of a development fund that will be privately managed and will receive concessional funding from the African Development Bank and the West African Development Bank. The government will ensure that the fund remains financially autonomous over the medium term.
32. Finally, the government plans to promote the development and diversification of exports. It will establish a consultative mechanism with the private sector to review the regulatory, institutional, and economic environment affecting exports. Technical studies will be conducted to identify existing constraints to exports and minimize them. Moreover, the government will encourage the creation of both an exporters’ association to improve the export capacity of Beninese enterprises and a commercial export information center. Particular attention will be paid to improving telecommunications and upgrading the port of Cotonou to increase Benin’s competitiveness. Such measures will also enhance the benefit from the export processing zone, whose establishment is included in the 1999 budget law. However, before adopting the related decrees, the government will study the export processing zone’s impact on tax revenue and ensure that this impact is consistent with the regional reforms, particularly the measures envisaged in the common external tariff and the draft regional investment code.
D. Agricultural Sector
33. The principal objectives of the agricultural policy are to raise the standard of living of the population, and to increase the contribution of the sector to economic development by expanding and diversifying production, and improving productivity and external competitiveness. The priorities are as follows: (i) focusing the government’s intervention on core functions and improving their efficiency; (ii) strengthening private institutions in the sector, such as producers’ organizations and nongovernmental organizations; (iii) improving public agricultural services and infrastructure management in collaboration with rural communities; (iv) diversifying agricultural exports; (v) alleviating food insecurity, especially in the most vulnerable areas and between crop seasons; (vi) protecting the environment through the sustainable management of natural resources; and (vii) promoting the economic integration of women and youth through better access to resources and technology.
34. To achieve these objectives, and in accordance with the recommendations of the 1997 public expenditure review, the government intends to (i) prepare action plans to strengthen public institutions, develop rural infrastructure, improve the management of natural resources, and support the fishing industry; (ii) delegate budget appropriations for all current outlays to technical departments and regional centers for rural development (CARDERs); (iii) prepare a multiyear budget, including public investment, that is consistent with the government’s overall budget framework; and (iv) oversee the budget of public enterprises in the sector. To support women’s activities in agriculture, the government will promote strategic crops, vegetable crops, and oil palms. All the activities and projects that the government plans to implement will be consistent with the broad strategy objectives proposed in the program to support the agricultural sector (PASA) that is currently under preparation.
35. Given the importance of cotton production in the economy, the government began to liberalize the sector by authorizing the operation of private ginning companies and the private distribution of inputs to producers by private operators. This partial liberalization, carried out within a strongly regulated environment, did not expose private operators to market conditions, and thus did not result in an increase in productivity, as expected under the reform. Following studies and consultations with development partners, the government is determined to continue the liberalization of the cotton industry in line with the broad objectives of its economic reform policy and to solve the problems that have been noted, which distort competition and impede efficient management of the sector. The government is confident that this strategy will serve producers and Benin’s economy well.
36. As a first step, the government has involved producer representatives in the preparation of the specifications for input contracts for the 1999/2000 crop year. In order to ensure transparency in the choice of input suppliers, producers and government representatives will be involved in all stages of the process for awarding contracts. For that purpose, producers have established a countrywide purchasing cooperative, to which, in 1999, the government will transfer full responsibility for organizing input purchases for the 2000/2001 crop year. In order to ensure the success of this operation, the government has requested that, as of January 1999, development partners provide the cooperative with the required technical assistance.
37. The current cotton crop year (1998/99) is a year of transition from administrated to market-determined prices. The government has introduced an auction mechanism for the purchase of seed cotton by private ginning enterprises from the public enterprise SONAPRA, which will continue to hold a monopsony on the purchase of seed cotton from producers. At the same time, the government has, despite the fall in world market prices for cotton, increased the producer price to CFAF 225 per kilogram while maintaining the producers' share in SONAPRA’s after-tax profit.
38. As part of its economic reform policy, and to increase producers’ income, the government will fully liberalize the purchase of seed cotton at the beginning of the 2000/2001 crop year, which will allow all ginning companies, including SONAPRA, to compete. The success of this policy will depend on the strengthening of producers’ and private operators’ organizations and the establishment of new credit guarantee mechanisms. Hence, the government has requested, beginning in January 1999, the assistance of development partners to strengthen producers’ organizations, so that these organizations can carry out their new role and meet their increased responsibility; and establish a professional association of producers, ginning operators, and banks. Once established, the association will, if necessary with the assistance of other institutions, elaborate new mechanisms for crop financing, particularly input credits, which are currently guaranteed by SONAPRA. Progress made in this area will be assessed at the end of June 1999.
39. As recommended by previous studies, the government has decided to open the capital of SONAPRA to private investors and to reorganize the sector. However, given the profound changes foreseen in the sector in the coming years, the government intends to review the various options and the timing of SONAPRA's privatization, and has requested the assistance of development partners to carry out this review for the first quarter of 1999. SONAPRA will be privatized only after its monopsony on seed cotton purchase has been abolished, and in the context of the sector’s global reform strategy.
40. The government has begun to reorganize forestry institutions in order to increase population involvement in natural resource management. In this context, the commercial and industrial activities of the National Timber Office (ONAB) will be privatized during the first quarter of 1999, while the forest management activities of the office will be restructured.
E. Transportation and Infrastructure
41. The government will continue to implement the transport sector strategy, including the recommendations of the 1997 public expenditure review. The Joint Benin-Niger Railway and Transport Organization (OCBN) will be restructured to focus on the most competitive activities, settle arrears, and dismantle the arrangement to share road transport. The authorities have agreed to have a private enterprise operate the railroad under a long-term management contract, and implementation is awaiting the agreement of the government of Niger. Once there is an agreement with that government, a study will determine the terms of the management contract. Given the importance of the port of Cotonou for the national economy and the West African region, its competitiveness will be enhanced through more efficient management. The envisaged measures include (i) connecting all public operators involved in port operations to the port of Cotonou’s computerized management system (PORTWARE); (ii) implementing the action plan for improving port management and establishing criteria to monitor the performance of port operations; and (iii) restructuring port expenses by containing salaries, making adequate provisions for maintenance, reducing external borrowing, and containing capital expenditures. Moreover, the government has decided to create an autonomous agency to manage the airport in Cotonou, as recommended by a feasibility study.
42. The government's road transportation strategy consists of (i) strengthening the management of the sector and increasing the participation of small and medium-sized enterprises in road maintenance; (ii) reducing obstacles to the free movement of goods and people; and (iii) improving road safety. To achieve these goals, the Department of Roads and Infrastructure (DROA) is being restructured by adding qualified personnel, hiring contractuals to supervise execution of the regular and long-term road maintenance programs, and introducing a performance-based bonus system for the staff. The government also plans to (i) diversify the sources of financing for the Road Fund, particularly by levying tolls on rehabilitated paved roads; (ii) simplify contracting procedures for small and medium-sized enterprises; (iii) convert the Department of Public Works (DMTP) into a semipublic enterprise; (iv) improve the road network by resuming the priority programs for rehabilitation and for regular and long-term maintenance; (v) prepare an action plan to reduce roadblocks, in liaison with transport companies and other road users; and (vi) improve road safety by intensifying traffic controls, improving traffic patterns, redesigning road intersections, and creating lanes for motorcycles.
43. With regard to rural roads, the government has launched a pilot operation to test a new national strategy for maintaining them. Based on the results of this operation and after consultations with the Road Fund, local communities, and donors, the authorities will elaborate a coherent program for the rehabilitation and construction of rural roads.
F. Mining and Energy
44. The government intends to increase the mining sector’s contribution to job creation, export growth, and fiscal revenue. Hence, it will pursue the policy of encouraging foreign investment adopted in 1997. Moreover, the authorities will formulate a strategy for the sector and adopt an action plan that will include a revision of the mining code and other regulations to bring them in line with international standards. Work will also continue on preparing a land register and a system to manage geological information.
45. With regard to public utilities, the government’s objectives are to improve water and electricity supply, foster private investment, and take steps to avoid a repetition of the power shortage in March–June 1998. Consequently, the government has adopted a two-pronged approach. First, by July 1999, it will adopt a strategy to reform the water and energy sectors that will specify a new legal, regulatory, and institutional framework. Second, on the basis of a study scheduled to begin in January 1999, the government will adopt and implement a strategy to privatize the management of the water and electricity company (SBEE) by end-December 1999. Meanwhile, the authorities will continue to strengthen the management of the SBEE.
G. Postal and Telecommunications Services
46. In consultation with its development partners, the government will resume the liberalization of telecommunications services and the restructuring of postal and related financial services. The objective is to privatize telecommunications in 2000, and hence, telecommunications will be separated from postal and financial services by October 1999. Accordingly, by February 1999, the government will adopt strategies to open telecommunications to private investors, and to restructure the postal and financial services. The new legal and regulatory frameworks for the two sectors will be adopted by July 1999; for telecommunications, the new framework will end the monopoly of the Office of Post and Telecommunications (OPT), and specify how the sector will be supervised. By the same date, the government will prepare an action plan aimed at improving the efficiency of the postal service and ensuring its financial viability.
H. Regional Integration
47. The government will actively participate in a number of initiatives aimed at accelerating the economic and financial integration of member countries of WAEMU. The priorities will be to implement the common external tariff, harmonize domestic indirect taxation, adopt a regional investment code, implement a common set of business laws (the OHADA reforms), and harmonize the legal and accounting framework for public finances. In particular, the government will take the necessary steps to implement the common external tariff on January 1, 2000, and to reduce the customs duties applicable to industrial goods produced within WAEMU according to the agreed timetable. However, in view of the low tariffs currently applied in Benin, the government has begun to negotiate with the WAEMU Commission a gradual implementation of the new customs classification for key products, so as to attenuate the impact of a large increase in effective protection, which would have a negative impact on economic activity.
A. Health and Family Planning
48. The health sector strategy was discussed with development partners at the 1995 round table meeting; it aims at reaching the following targets: (i) reducing the mortality rate among children 0–5 years old from 98 per 1,000 in 1996 to 60 per 1,000 by the year 2016; (ii) increasing the rate of contraceptive use to 4.5 percent by the year 2000; (iii) ensuring immunization coverage of 90 percent of children under the age of 5 years by the year 2000; and (iv) reducing the incidence of malnutrition and infectious and parasitic diseases.
49. To attain these objectives, the government will seek to improve (i) the quality, effectiveness, and coverage of services; (ii) the management of the health sector; and (iii) coordination among all sector participants. On the first point, the authorities intend to strengthen basic health facilities by establishing health districts and incorporating a minimum package of services into priority programs designed to combat infectious and parasitic diseases and AIDS. The government will also streamline regulations on medicine, define medical and administrative staff profiles more precisely, strengthen personnel management, define and implement a financial policy for the health sector, including a cost recovery system for health care and medicine, establish and apply standards for health care practice, and implement the national population policy adopted in May 1996. Moreover, the government will continue its efforts to eradicate harmful traditional practices, in particular those affecting women's health. In the coming years, the government will continue to integrate the activities of the private medical services into the National System of Health Information and Management, so as to better measure the impact of reforms on health indicators.
50. Second, to improve health sector management, the government will strengthen the capacities for planning, budgeting, and budget execution at the Ministry of Health. In order to meet the sector’s long-term personnel requirements, the government will establish a scheme that will, while observing budgetary constraints, enable contractuals to become permanent civil servants on the basis of performance evaluations. Third, the government will revitalize the national entities in charge of coordinating and monitoring sectoral programs (CNEEP and CDEEP), and the local organizations implementing health programs and comanaging health facilities. The authorities will also create a favorable environment for the development of an efficient private sector (including pharmacies, curative services, and laboratories) by adopting regulations for its activities and establishing norms and standards for health care.
51. To promote the role of women, the government will allocate additional resources to the department in charge of women's issues in the Ministry of Social Protection and the Status of Women. In addition, it will prepare an action plan to enhance the economic and social role of women and promote the adoption of a family code and the dissemination of modern laws.
B. Education
52. The education sector strategy, which was defined at a round table meeting in May 1997, aims at improving access and equity, bolstering quality and efficiency, and increasing planning and management capacity. For primary education, the objectives are to achieve a gross enrollment rate of 75 percent by 2000, reduce regional and gender inequalities, and lower the repetition rate.
53. To improve the coverage, quality, and effectiveness of education, the government will increase the number of classrooms, recruit and train teachers, and provide additional teaching materials. The government will complete the school infrastructure inventory at the primary and secondary levels in order to prepare a comprehensive school construction and rehabilitation plan consistent with a strategy to minimize cost. It will also provide local communities with methods and guidelines to maintain school buildings, which should lengthen their durability; this measure will also promote greater local involvement in the management of the school system. In addition, given the shortage of classrooms and teachers, the government will study, and experiment with, cost-saving measures, such as double-shift and multigrade systems.
54. It is projected that the number of teachers required will increase by 30 percent over the 1997–2000 period, from 15,300 to 18,200 in primary education, and from 3,500 to 5,500 in secondary education. As current programs are unable to train sufficient teachers, the government will adopt a plan to expand teachers’ training school (ENIs), which have reopened in 1998. The salary cost of recruiting additional teachers is estimated at CFAF 2 billion in 1999 and 2000. In addition, and taking into account budget constraints, the government will study the possibility of recruiting high-performing contractual teachers to replace permanent teachers who leave education. The Ministry of Education will be responsible for the selection, assignment, and performance assessment of the contractual teachers placed in schools.
55. To improve the quality and efficiency of education, the government will increase the supply of teaching materials and revise examinations. The cost of teaching materials, which is estimated annually at CFAF 4 billion for primary education and CFAF 0.6 billion for secondary education, will be borne by the government budget, parents' contributions, and donors' assistance. In the long-term, the authorities will increase the domestic production of textbooks that support the new programs, and the Ministry of Education will be given the resources to evaluate the textbooks to be locally published. Examinations are being reviewed with the objectives of (i) reducing the repetition rate from 27 percent in 1996 to 22 percent in 2000 without lowering education requirements, and (ii) cutting their cost. In the short term, the authorities will enforce provisions governing repetitions and promotions.
56. The government will focus on reducing regional and gender inequalities. Regions where enrollments are low will be given priority for construction and rehabilitation of schools, and teachers’ posting. To increase the girls’ enrollment rate to 43 percent by 2000, the government will prepare a medium-term action plan in 1999 based on a comprehensive review of all initiatives to promote girls’ education.
57. To meet the strong demand for qualified technical personnel, the government intends to develop technical education and vocational training. The core of the strategy includes (i) increasing enrollment capacity; (ii) creating programs reflecting trends in the labor market; (iii) promoting labor force development through the adoption of appropriate legislation and the establishment of training and apprenticeship fund by end-1999; (iv) rationalizing the apprenticeship system; and (v) establishing a policy for monitoring and supporting private technical education. By end-1999, the government will formulate a policy for, and assess the cost of, developing technical education and vocational training.
58. In order to improve and strengthen the sector management and planning capacity, the government will continue to implement the recommendations of the 1996 public expenditure review. These measures will be complemented by an assessment of personnel in management and planning, together with the development of a plan for redeploying and training administrative staff. At the same time, the authorities will ensure that the computer system for the financial management system is effectively utilized, and they will install a computer system for personnel management at the Ministry of Finance. As regards higher education, the results of an audit of the National University of Benin will be discussed at a national seminar in December 1998 to identify and implement the reforms required over the next three years.
C. Poverty Alleviation and Promotion of Employment
59. In order to reduce poverty, the government will continue to implement the structural and sectoral reforms designed to maintain high and sustainable economic growth, and to implement the strategy for ensuring a minimum standard of social services. This strategy comprises three main areas: (i) maintaining access to a minimum level of social services; (ii) promoting employment; and (iii) strengthening the national capacity for formulating and implementing social policies. The government will create conditions for the self-organization of local communities so they can have access to a minimum level of social services, including: (i) basic education; (ii) food security; (iii) primary health care; (iv) capacity for generating income; and (v) participation in economic integration. For this purpose, the government will implement the national community development program that was adopted in June 1998. It aims at establishing 7,000 community development units, with their own programs, to provide access to a minimum level of social services. The authorities will seek the assistance of development partners to develop new programs to meet needs not taken into account under current sectoral programs. The areas of concern include the construction, rehabilitation, and equipping of social infrastructure, in addition to the supply of water in villages and essential drugs, and the construction of rural roads. Implementation of the community development program has begun with the selection of 100 pilot units that will be put in place during 1999. On the basis of an evaluation of these pilot tests, the program will be gradually broadened to the rest of the country.
60. In addition to implementing a policy that encourages private initiatives, the government, with support from its development partners, will continue to promote employment. This policy will focus on implementing (i) income-generating microprojects; (ii) professional development; (iii) labor-intensive work programs; and (iv) community projects in rural areas.
61. The strengthening of domestic capacities for formulating, executing, and monitoring social policies is supported by development partners through the Social Fund and the technical unit concerned with the social dimension of development. To deepen the analysis of poverty in Benin, the government will continue to conduct budget consumption surveys in rural areas and small-scale surveys of households, so as to monitor the living conditions of the most vulnerable groups. The government is committed to implementing the social policies agreed on at the 1995 United Nations summit ("20/20 initiative"), calling for developing countries to allocate 20 percent of their budget to essential social services, and for developed countries to assign 20 percent of official development assistance to these same services.
62. As regards the environment, the government intends to reduce the pressure on natural resources resulting from population growth, and to improve living conditions in both rural and urban areas. The national environmental action plan adopted in 1993 calls for a better understanding of environmental problems and an improved conservation and management of the country’s natural resources. This plan includes (i) institutional strengthening; (ii) development of an efficient information system, in addition to a monitoring and evaluation capacity; (iii) introduction of an environmental impact policy; (iv) preparation and implementation of an environmental training program; (v) upgrading of urban infrastructure and services through better planning, rehabilitation, and waste management; and (vi) control of pollution and the reduction of coastal erosion.
63. To implement and make the plan sustainable, the government has created the Beninese Agency for the Environment (ABE), the activities of which are supported by development partners through the environmental management project. ABE interventions are focused on natural resource protection and environmental improvement. It will work with national-level and district-level agencies to help municipalities in developing and implementing a local environmental program. Following the adoption of the environmental law on July 31, 1998, the authorities have been preparing the regulatory framework and related legislation for environmental management. In addition, as provided for in the law, the National Commission for Sustainable Development will be established to promote synergy between environmental activities and national development policy.
64. To improve living conditions in the main urban areas, the government will implement an urban infrastructure rehabilitation and sanitation program. With regard to natural resource management, the government will extend its participatory approach, which consists of involving organized rural communities in sustainable and responsible management practices. In addition, the government has decided to close the Sémé oil field by December 31, 1998, since the installation represents a considerable danger to the environment and maritime safety. The government will seek international assistance to finance the dismantling of the installations.
65. The maintenance of the external competitiveness, as well as the measures intended to strengthen productivity and stimulate economic activity, are expected to lead to an improvement in Benin’s external position over the program period. The volume of exports is projected to increase by 5 percent per year, with the growth in cotton exports slowing down. The volume of imports is expected to increase at a rate slightly higher than that of real GDP, owing to the increase in investment. At the same time, the terms of trade should improve with a rebound in the international price of cotton. Hence, the external current account deficit is expected to decline from 4.9 percent in 1998 to 4.5 percent in 2001.
66. Taking into account the projected inflows of project-related concessional loans and grants, private capital, and the resources available from the Fund under the ESAF arrangement, there remains an estimated financing gap of CFAF 89.6 billion for the period 1998-2001, including CFAF 81.7 billion for 1998-99. Identified external program assistance for 1998-99 amounts to 38.1 billion, comprised of CFAF 9.0 billion from the World Bank, CFAF 16.1 billion from the European Union, and CFAF 13.0 billion from bilateral donors and lenders. In addition, Benin was granted CFAF 36 billion in debt relief on its stock of debt to Russia, and the government has requested relief on the stock of debt (including arrears) owed to non-Paris Club creditors, which is estimated at CFAF 7.0 billion.
67. Benin’s external debt amounted to US$1,380 million at end-1997, equivalent to 64.4 percent of GDP. The shares of the multilateral, bilateral, and short-term debt in the total are 67 percent, 32 percent, and 1 percent, respectively. The debt owed to IDA constitutes 34 percent of the total external debt. The debt service due after debt relief was the equivalent of 13.3 percent of exports of goods and services in 1997. Although continuing to be a heavy burden, it is expected that external debt servicing will gradually decline as a result of the macroeconomic policies that will be implemented, sustained economic growth, and borrowing on highly concessional terms. The net present value of the debt-to-export ratio should fall from 150.8 percent in 1998 to 117.9 percent in 2001, and to less than 100 percent in 2005.
68. In support of Benin’s adjustment program implemented over the past ten years, the international community contributed not only financial resources but also technical assistance. Many bilateral and multilateral public institutions, as well as nongovernment organizations, supported reforms in a broad range of areas, such as public administration (budget procedures, tax administration, civil service, governance, and more generally administrative reform), social sectors (education, health, and poverty alleviation), and the environment, as well as productive sectors (rural development, in particular the cotton sector, transportation, energy, and more generally the divestiture program). Technical assistance played a key role in the strengthening of economic and financial management and the development of social programs, which were crucial for the acceleration of real GDP growth, the reduction of internal and external imbalances, and the improvement in the standard of living. During the program period, the government, in collaboration with Fund and World Bank staffs, will assess areas where technical assistance needs remain large, and continue to seek support from the international community to fulfill all Benin’s technical assistance requirements.