Benin taps into two IMF facilities to counter headwinds and support SDGs
July 14, 2022
Benin has made significant progress in managing its economy over the past five years, but the hard-won economic gains are threatened by the deteriorating regional security situation on its northern borders, the scars induced by COVID-19 and the rising cost of living during the war in Ukraine.
To help meet urgent financing needs, support the country’s 2018-25 National Development Plan and catalyze donor support, Benin has accessed the Expanded Financing Facility (EFF) and the Extended Credit Facility (ECF) from the IMF with a financial package of nearly 650 million dollars. With approximately four times Benin’s IMF quota, it is one of the largest IMF-supported programs in the region. This is the first case under the IMF’s High Combined Credit Exposure (HCCE) policy aimed at supporting member countries with exceptional balance of payments needs and with the institutional capacity to implement a program whose amounts exceed the normal combined access limit for a joint EFF/ECF agreement.
In an interview with IMF Country Focus, Romuald Wadagni, Minister of State for the Economy and Finance of Benin, and Constant Lonkeng, IMF Mission Chief, discuss the key aspects of the new program: strengthening social protection, the rule of law and governance; strengthen revenue mobilization; and mitigate security risks.
What are the government’s main priorities under this new agenda 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 built around three main pillars: (i) the strengthening of democracy, the rule of law and the consolidation of governance; (ii) the continuation of the structural transformation of the economy, in particular the integration of national and regional value chains (supported by measures to improve the business environment); and (iii) improving the well-being of the population.
The government will continue the measures underway to promote high-potential sectors such as agriculture, tourism, the digital economy and the knowledge economy, with particular emphasis on technical education and vocational training. We will also complete the major projects that were launched between 2016 and 2021 to reduce Benin’s infrastructure deficit, particularly in transport, energy and water.
These initiatives will be underpinned by sound public financial management and transparency and supported by strong domestic revenue mobilization, notably to consolidate macroeconomic stability and ease the debt burden of 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 are also looking to expand our National School Feeding Program (PNASI) from the current coverage of 75% of schools to all schools in the next school year.
We will step up investment in health infrastructure and access to drinking water in rural areas, as well as education, especially for girls. Already, the government has implemented 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 school girls and young women in the 77 communes of Benin. We are also strengthening support for people with disabilities and carers. Finally, after consultation with the unions, we will raise the minimum wage to mitigate the erosion of the purchasing power of low wages since its last increase in 2014.
The program includes upfront expenses to mitigate security risks. Can you elaborate?
Finance Minister Wadagni: Bordered by countries plagued by jihadist terrorism, Benin has faced an upsurge in terrorist attacks along its northern borders since 2019. In response, the government has strengthened border security, consolidating the fight against terrorism and cooperation sub-regional security.
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 by improving the delivery of public services. basic to the people. Our strategy therefore goes beyond the traditional approach to security threat management; it includes programs such as the rehabilitation of agricultural roads, the improvement of access to microcredit, the promotion of agriculture and income-generating activities, the supply of drinking water in rural areas and support for livestock management. The overall cost of this strategy is estimated at 630.8 billion West African CFA francs (about $1 billion) over the period 2021-2026.
What is the objective of the new program supported by the IMF?
Constant Lonken: In the short term, the EFF/ECF seeks to help Benin meet urgent funding needs related to the scars induced by COVID-19, the rising cost of living amid the war in Ukraine and the risks for regional security. To this end, the program includes a financial envelope of nearly 650 million dollars over 42 months, including 300 million dollars for the first six months of the agreement (143 million dollars were disbursed immediately after the approval of the program by the IMF Executive Board on July 8). These advance disbursements represent a major vote of confidence from the IMF and reflect Benin’s established track record of fiscal responsibility. This significant financial support at a near zero interest rate, and at a time when borrowing costs in the market are high and rising, offers Benin the opportunity to postpone until 2023 the reduction of the budget deficit which was planned in the original 2022 budget when the above-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, a cornerstone of the government’s economic reform agenda, will help meet Benin’s important development and security needs, including equitable access to basic public services, while preserving debt sustainability. Reflecting the government’s emphasis on social protection, 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 the financing of terrorism, and the governance framework. These steps are necessary to stimulate private sector initiatives and take advantage of Benin’s enormous potential. The IMF is currently providing technical assistance to Benin as part of a governance diagnostic to inform reforms in this area and will also provide technical inputs for the development of a local 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 meaning?
Constant Lonken: The IMF lends to member countries primarily through two funds: the Poverty Reduction and Growth Trust (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 the resources of the two aforementioned 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 the HCCE is dictated by three rigorous qualification criteria, namely (i) the country has exceptional balance of payments needs; (ii) the risks weighing on the sustainability of public debt must be suitably contained; and (iii) the country’s institutional capacity must be robust enough to ensure reasonably strong prospects for program success. The IMF assessed that Benin currently meets all three criteria, an assessment that was underpinned by the country’s established track record of macroeconomic management and fiscal accountability, and its continued commitment to reform.
We are convinced that the constant implementation of the program will generate tangible dividends in the economy and improve the daily life of Beninese families.