Benin Taps Two IMF Facilities to Counter Headwinds and Support SDGs

Benin Taps Two IMF Facilities to Counter Headwinds and Support SDGs

July 14, 2022

Benin made significant strides in managing its economy over the past five years, but hard-won economic gains are at risk from a deteriorating regional security situation at its northern borders, COVID-19-induced scars, and higher living costs amid the war in Ukraine .

To help address pressing financing needs, support the country’s National Development Plan 2018-25 and catalyze donor support, Benin has accessed the IMF’s Extended Fund Facility (EFF) and the Extended Credit Facility (ECF) with a financial package to the tune of nearly US $650 million. At about four times Benin’s quota at the IMF, it is one of the largest Fund-supported programs in the region. This is the first case under the IMF’s High Combined Credit Exposure (HCCE) policy to support member countries experiencing exceptional balance of payment needs and with institutional capacity to implement a program in amounts exceeding the normal combined access limit for a blended EFF/ECF arrangement.

In an interview with MFI Country Focus, Romuald Wadagni, Senior Minister of State of Economy and Finance for Benin, and Constant Lonkeng, IMF Mission Chief, talk about key aspects of the new program: strengthening social protection, the rule of law and governance; bolstering revenue mobilization; and mitigating security risks.

What are the government’s main priorities under this new program and beyond?

Finance Minister Wadagni: Our main priorities are defined in the Government Action Program (PAG) 2021–2026, which is anchored in the National Development Plan (PND) 2018–25. The PAG is centered around three main pillars: (i) strengthening democracy, the rule of law, and consolidating governance; (ii) pursuing the structural transformation of the economy, in particular the integration of national and regional value chains (supported by measures to enhance the business environment); and (iii) improving the well-being of the population.

The government will pursue underway measures to promote high-potential sectors such as agriculture, tourism, the digital economy, and the knowledge economy, with a strong emphasis on technical education and vocational training. We will also complete major projects that were launched during 2016–21 to reduce Benin’s infrastructure gap, particularly in transport, energy, and water.

These initiatives will be underpinned by sound public financial management and transparency and supported by robust domestic revenue mobilization, including to consolidate macroeconomic stability and lessen debt burdens on future generations.

What is the government’s plan to strengthen the country’s social protection system?

Finance Minister Wadagni: The government has begun to expand existing social programs while introducing new ones to strengthen social safety nets. Our flagship social protection program (ARCH) aims to improve access to health services among vulnerable groups. We also seek to expand our national school feeding program (PNASI) from the current coverage of 75 percent of schools to all schools in the upcoming school year.

We will step up investment in health infrastructure and access to clean water in rural areas, as well as education, particularly among girls. Already, the government has put in place a major program to keep girls in school to strengthen their secondary, technical and vocational training. In the same vein, we will provide conditional cash transfers to more than 30,000 girls and young women attending school across all 77 municipalities of Benin. We are also strengthening assistance to disabled people and caregivers. Finally, after consultation with the unions, we will raise the minimum wage to alleviate purchasing power erosion among low-wage earners since it was last adjusted in 2014.

The program includes upfront spending to mitigate security risks. Can you elaborate?

Finance Minister Wadagni: Bordered by countries plagued by jihadist terrorism, Benin has been facing an upsurge in terrorist attacks along its northern borders since 2019. In response, the government has stepped up border security, consolidating counterterrorism and sub-regional security cooperation.

In addition, the government has adopted a far-reaching national security strategy centered on a “civilian approach” and aimed at strengthening the presence and effectiveness of the state in communities at risk, including through enhanced provision of basic public services to populations. Our strategy therefore goes beyond the traditional approach to dealing with security threats; it includes programs such as rehabilitating farm roads, improving access to microcredit, promoting agriculture and income-generating activities, providing clean water in rural areas, and supporting livestock management. The overall cost of this strategy is estimated at 630.8 billion West African CFA francs (about US$1 billion) over 2021–2026.

Left: Benin’s Senior Minister of State of Economy and Finance, Romuald Wadagni. (Photo: Serge Boya)
Right: IMF Mission Chief for Benin, Constant Lonkeng. (Photo: IMF)

What does the new MFI-supported program seek to achieve?

Constant Longeng: In the near-term, the EFF/ECF seeks to help Benin meet urgent financing needs related to COVID-19-induced scars, higher cost of living amid the war in Ukraine, and regional security risks. To this end, the program includes a financial package to the tune of nearly US$650 million over 42 months, of which US$300 million for the first six months of the arrangement (US$143 million were disbursed immediately after program approval by the IMF Executive Board on July 8). These frontloaded disbursements represent a major vote of confidence from the IMF and reflect Benin’s established track record in fiscal responsibility. This large financial support at near-zero interest rate, and at a time when market borrowing costs are high and rising, provides Benin with the opportunity to postpone until 2023 the reduction in the budget deficit that was planned in the original 2022 budget when the afore -mentioned shocks were not anticipated.

At the same time, the program aims to support Benin’s pursuit of the SDGs in the medium and long term. Revenue mobilization, the cornerstone of the government’s economic reform program, will help meet Benin’s significant development and security needs, including equitable access to basic public services, while preserving debt sustainability. Reflecting the government’s focus on social welfare, the amount of priority social spending is subject to a semi-annual floor under the program. The EFF/ECF also aims to further strengthen public financial management, the rule of law, the fight against money laundering and terrorist financing, and the governance framework. These steps are necessary to spur private sector initiatives and leverage Benin’s huge potential. The IMF is currently providing technical assistance to Benin as part of a governance diagnostic to inform reforms in that area and will also provide technical inputs into the development of a homegrown medium-term revenue mobilization strategy.

This program is the first ever under the IMF’s High Combined Credit Exposure (HCCE) policy. Can you explain its significance?

Constant Longeng: The IMF provides loans to member countries mainly through two funds: the Poverty Reduction and Growth Trust Fund (PRGT) and the General Resources Account (GRA). The amount of financing available to a member country under an IMF-supported program is normally subject to a limit that depends on the size of the country in the global economy. Benin’s new EFF/ECF is unique in that it is the first ever IMF-supported program to combine resources from the two above-mentioned funds and beyond the normal combined access limit since the IMF adopted the High Combined Credit Exposure (HCCE) policy in 2020 .

Access to a program under HCCE is dictated by three rigorous qualifying criteria, namely (i) the country must face exceptional balance of payments needs; (ii) the risks to the sustainability of public debt should be adequately contained; and (iii) the country’s institutional capacity should be robust enough to ensure reasonably strong prospects of program success. The IMF has assessed that Benin currently meets all the three criteria, an assessment that was supported by the country’s established track record in macroeconomic management and fiscal responsibility, and continued commitment to reform.

We are confident that steadfast implementation of the program will generate tangible dividends in the economy and improve the daily lives of Beninese families.

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