Author: International Monetary Fund
Site of publication: imf.org
Type of publication: Report
Date of publication: December 2024
Benin’s steadfast reform implementation and sound macroeconomic management over the past several years have provided policy space to bolster resilience to severe shocks. The country’s reform program-anchored in the Government Actions Program “Revealing Benin” (2016-2021; and 2021-26) and supported by an ECF (2017-20) and ongoing EFF/ECF (2022-25)—is generating tangible dividends. Benin gained access to the international capital market in 2019 and has consistently been one of the first countries in Sub-Saharan Africa (SSA) to regain investors’ confidence following episodes of market freeze, with spreads now trading tightly in the range of larger sovereigns in the region (Text Figure 1a). Economic activity accelerated over the past five years, with less volatile income growth notwithstanding severe shocks (Text Figure 1b).
While aggregate social indicators have improved, important disparities have persisted across regions and income groups. The government’s infrastructure drive has led to improved access to basic public services, notably electricity, water, and sanitation. While the poverty rate also declined, it is still above the average for low-middle income countries, with some regions falling further behind (Figure 1). Disparities in social indicators were exacerbated by repeated shocks (COVID-19, food price shocks from Russia’s war in Ukraine, border closures) that disproportionately impacted some population groups. While aggregate inflation has declined significantly, low-income households still face high cost of living as prices of some key items in their consumption basket remain elevated amid pressure from illicit exports of staples to neighboring countries.
Notwithstanding these challenges, the authorities remain committed to cementing sound macroeconomic management and enhancing Benin’s socio-economic resilience, while gradually reducing their footprint in the economy. They are rebuilding policy buffers and expanding their financing options, including Eurobond issuances and insurances against natural disasters. In addition to important strides in the structural reform agenda under the EFF/ECF, the authorities are stepping up efforts to enhance resilience to climate change, supported by the Resilience and Sustainability Facility (RSF) arrangement approved by the IMF Board in December 2023.
The economy has proven remarkably resilient to shocks
- Real GDP growth is estimated at 6.4 percent (y/y) in 2023, mainly driven by agroindustry, construction, textile, and trade (Text Figure 2a). The expansion of varieties of cash crops offset disruptions in cotton production from floods and extreme heat. The service sector was buoyed by retail trade and tourism, partially compensating for the sharp drop in port activity amid the Niger border closure.
- Inflation was around 0.6 percent (y/y) during the first four months of 2024, owing to the reversal in the phase-out of fuel subsidies by the new administration in Nigeria (Text Figure 2b). Despite a good harvest in 2023, the prices of some staples (e.g., maize and rice) have surged, given higher transport costs, restriction of rice exports by India, security concerns complicating access to harvested areas in northern communities, smuggling activity from Nigeria, and demand from local poultry to substitute for imported frozen chicken.
The current account deficit slightly narrowed to an estimated 5.9 percent of GDP in 2023 (from 6.1 percent in 2022), partly driven by remittances and official transfers. Benin’s external position at end-2023 was broadly consistent with the level implied by medium-term fundamentals and desirable policies (Annex I). Despite improvements in the current account and Fund disbursements, the overall balance of payments turned sharply negative in 2023, reflecting significant private sector outflows from prepayment of imports and delayed repatriation of export receipts. The prepaid imports relate to equipment needs for companies in the cotton, telecom, and fuel sectors, for which supply constraints have delayed delivery.
Credit to the private sector in 2023 was higher than initially projected (17 percent, against 9 percent in the Third Review), buoyed by the construction, trade, and transport sectors. This trend is consistent with firms’ positive expectations for 2024 (Text Figure 3). NPLs continued to trend down (4.8 percent, y/y, at end-December 2023, from 7.2 percent at end-December 2022).
Eurobond issuance. Benin successfully issued a 14-year US$750 million Eurobond at 7.96 percent in February 2024, marking its re-entry to the international capital market (Box 1). In April, S&P Global Ratings revised Benin’s sovereign credit rating to ‘BB-‘ from ‘B+’ with a stable outlook, on the back of the country’s strong outlook, economic resilience and policy prudence. EMBI spreads declined to 538 bps as of end-May (Text Figure 1a).
Fiscal performance through end-December 2023 and into March 2024 was strong, supported by robust tax collection (Text Table 1). Tax revenues rose by 16.4 percent y/y in 2023 (0.2 percent of GDP above forecasts), supported by strong performance in corporate income taxation and taxes on goods and services, more than offsetting the drop in international taxes amidst Niger border closure. The revenue over-performance was channeled to capital spending, with restraint in current expenditure leading to a lower-than-expected fiscal deficit. Public debt increased slightly, to 54.5 percent of GDP, despite the fiscal adjustment, as preemptive issuances of the size of 1.2 percent of GDP were held as precautionary reserves in 2023. Preliminary data indicates continued strong revenue outturns into 2024Q1 and the overall balance on target.