The Executive Board of the International Monetary Fund (IMF) has completed the third review of Benin’s economic performance under the program supported by an Extended Credit Facility (ECF) arrangement.
The Board's decision, which was taken on a lapse-of-time basis and enters into effect today, enables the immediate disbursement of an amount equivalent to DR 10.61million (about US$16.4 million), bringing total disbursements under the arrangement to an amount equivalent to SDR 42.45 million (about US$ 65.7 million).
Growth is projected to continue on a modest upward trend in 2012, but will be adversely affected by external spillover effects from higher gasoline prices because of the reduction of fuel subsidies in Nigeria that will dampen domestic demand and, to a lesser extent, by the ongoing global crisis. Inflation is expected to increase sharply in 2012, but the West African Economic and Monetary Union (WAEMU) convergence criterion may still be within reach in the medium term, if second-round inflationary pressures are contained.
Performance under the program was broadly satisfactory during the third review period, and the end-September performance criteria were met. The revenue target, however, was missed because of an
under performance of customs revenue owing to resistance to customs reform. The authorities implemented measures to strengthen revenue performance, and customs revenue began to recover in December 2011. Sustaining the increase of customs revenue over the medium term is critical for implementing the authorities’ program. The priority social spending target was also missed because of technical and administrative difficulties, indicating a need to intensify their monitoring.
Long-awaited customs reforms were introduced, but a stronger implementation of the structural reform agenda is needed, inter alia to enhance revenue collection and fiscal sustainability. The structural reform agenda includes further customs and tax reforms, civil service reform, and the promotion of greater private sector involvement in the energy sector—all of which would foster higher growth.
The authorities committed to maintaining the wage bill within the program envelope and to adopt wage policy decisions in the framework of civil service reform.
The financial sector has been resilient, but banks’ loan portfolio deteriorated and a few small banks do not meet strengthened capital requirements. This highlights the need for greater vigilance by the supervisory body to strengthen the soundness of the banking system.
The Extended Credit Facility (ECF) has replaced the Poverty Reduction and Growth Facility (PRGF) as the Fund’s main tool for medium-term financial support to low-income countries by providing a higher level of access to financing, more concessional terms, enhanced flexibility in program design features, and more focused streamlined conditionality. Financing under the ECF carries a zero interest rate, with a grace period of 5½ years, and a final maturity of 10 years. The Fund reviews the level of interest rates for all concessional facilities every two years.
The Executive Board takes decisions under its lapse-of-time procedure when it is agreed by the Board that a proposal can be considered without convening formal discussions.
IMF External Relations Department