Press Release No. 99/2

REVISED - Press Release: IMF Approves Second Annual ESAF Loan for Benin

January 11, 1999

The International Monetary Fund (IMF) has approved the second annual loan for Benin under the Enhanced Structural Adjustment Facility (ESAF)¹, in an amount equivalent to SDR 9.06 million (about US$13 million) in support of the government’s economic and financial program for 1998-99. The loan is available in three installments, the first of which will be available on January 15, 1999.

Background

Benin’s economic and financial performance improved markedly under the first-year ESAF program. Despite the stagnation of cotton production and the disruptive effects of a serious power shortage in the second quarter for 1998, real GDP growth is estimated at 5.6 percent in 1997 and is projected at 4.4 percent in 1998. After slowing to 2.4 percent in 1997, inflation picked up again in 1998 and was expected to reach 3.7 percent by the end of the year. Preliminary indicators suggest that national saving is likely to decline by about 2 percentage points of GDP in 1998, owing to a drop in private saving. This decline is to be matched by a similar fall in total investment, resulting from difficulties in implementing the public investment program.

The government has pursued a prudent fiscal policy over the past two years. In 1997 the primary deficit fell to 2.5 percent of GDP, compared with a target of 3.8 percent, and the overall deficit (on a payment basis and excluding grants) was reduced to 4.2 percent. Revenue is estimated to increase to 15.3 percent of GDP in 1998 from 14.6 percent, while expenditure is projected to decrease to 16.3 percent from 18.8 percent.

Medium-Term Strategy and Program for 1998-2001

To consolidate the progress made over the past few years, the government intends to rigorously implement economic and structural reforms and make up for recent delays. The medium-term strategy for 1998-2001 aims at further reducing financial imbalances, keeping the economy on the path of sustained growth and job creation, and diversifying the productive base. The principal objectives are to achieve an average real GDP growth of 5.5 percent per annum, keep inflation below 3 percent, and reduce the external current account deficit to levels that can be covered without recourse to exceptional financing. To maintain high real GDP growth, total investment should rise by about 3 percentage points of GDP between 1998 and 2001. Public investment is expected to recover to 7 percent in 2001 from 4.7 percent in 1998, with priority given to the education and health sectors and to infrastructure development.

In order to achieve this medium-term strategy the authorities’ economic and financial program for 1998-99 is designed to promote access to basic public services by improving public resource management, and to increase government saving so as to reduce the share of investment financed by external resources. To attain the revenue objective of 15.3 percent of GDP, the government intends to strengthen tax administration and broaden the tax base. On the expenditure side, the government will focus on improving budget management in individual ministries, as well as investment-project execution, in order to ensure an adequate utilization of budget appropriations. This is expected to increase total expenditure by 1½ percentage points of GDP to 18 percent.

Structural Reforms

The authorities will give a new thrust to the implementation of structural policies in 1999. To revitalize public administration and strengthen civil service management the government will implement a civil service reform comprising a new performance-based promotion and compensation system and the decentralization of the public administration by assigning more responsibilities to municipalities. To increase foreign and private domestic investment, the government is determined to broaden the divestiture program including the restructuring and privatization of a number of public enterprises and the liberalization of the telecommunications utilities and cotton sectors. The government will provide an improved regulatory framework to promote sound and sustainable development of the private sector.

Addressing Social Needs

A priority of the government will be to cushion the impact of the adjustment policy on the most vulnerable groups of the population by improving access to essential services and continuing the implementation of its strategy for addressing social dimensions of development. This strategy comprises four main areas: strengthen national capacities to design and implement social policies; improve the knowledge and capacity to monitor living conditions; promote community development through micro projects; and foster job creation.

The Challenge Ahead

Benin has made considerable progress 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. Particular attention will be devoted to policies aimed at reducing internal and external imbalances; creating a favorable environment for the development of the private sector; accelerating regional economic integration; strengthening administrative institutions while pursuing decentralization to ensure a greater participation of the population in local economic development; developing human resources; promoting the participation of women in the development process; reducing poverty; and protecting the environment.

Benin joined the IMF on July 10, 1963. Its quota² is SDR 45.3 million (about US$64 million) and its outstanding use of IMF resources currently totals SDR 66 million (about US$93 million).