IMF Approves US$638 million Extended Fund Facility and Extended Credit Facility for Benin and Concludes 2022 Article IV Consultation

Washington, DC: On July 8, 2022, the Executive Board of the International Monetary Fund approved 42-month arrangements under the Extended Fund Facility (EFF) and the Extended Credit Facility (ECF) for Benin in the amount of SDR 484.058 million (equivalent of 391 percent of quota or US$638 million). The program seeks to help address pressing financing needs (related to security, COVID-19 scars, and the war in Ukraine), support the implementation of the country’s National Development Plan centered on achieving Sustainable Development Goals (SDGs) and catalyze donor support. The new program is the first case under High Combined Credit Exposure (HCCE) since the IMF adopted the policy in 2020 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.

The Executive Board’s decision enables an immediate disbursement of SDR 108.3 million (US$143 million), which the Beninese authorities intend to use for budget support. The Executive Board today also concluded the 2022 Article IV consultation with Benin.

Benin embarked, five years ago, on a journey to modernize its economy and improve the wellbeing of its people. Significant progress in macroeconomic management and budget transparency boosted investor confidence and culminated in the sovereign’s access to the international capital market in 2019. The government has pursued its reform agenda through the COVID-19 pandemic, including digitalization of the tax system and landmark institutional reforms.

Following the Executive Board discussion, Mr. Okamura, Deputy Managing Director and Acting Chair, issued the following statement:

“Benin faces significant headwinds from a deteriorating security situation at its northern border, COVID-19-induced scars, the war in Ukraine, as well as significant climate risks, which could erode hard-won economic gains in recent years. The government has requested a new Fund-supported program to meet pressing financing needs, help catalyze further external financing, and anchor the country’s National Development Plan centered on achieving the SDGs.

“Building on Benin’s established track record in fiscal responsibility, the program is calibrated flexibly to accommodate large spending needs in the near term; it then pivots to revenue-based fiscal consolidation starting in 2023 to ensure medium-term debt sustainability. The authorities should also gradually substitute generalized fossil fuel subsidies with more targeted and cost-effective measures to protect the vulnerable. The anticipated completion of the social registry will strengthen social safety nets and help deliver targeted social assistance to the vulnerable in times of hardship.

“Revenue mobilization, the cornerstone of the authorities’ reform program, is centered on streamlining tax expenditure in the near term and will continue expanding the tax base and improving the overall efficiency of the tax system over the medium term, informed by the pending homegrown medium-term revenue mobilization strategy. This, together with improved spending efficiency and prioritization, will create much-needed fiscal space to meet Benin’s significant development and security needs while preserving debt sustainability.

“A steadfast implementation of the recently adopted AML/CFT action plan and further strengthening the rule of law and governance would foster a more broad-based, private sector-led, and inclusive growth. Continued vigilance in the banking sector and further efforts to promote financial inclusion will also be needed.

“Considering Benin’s relatively large level of income inequality, the authorities’ Fund-supported EFF/ECF is rightly focused on “development with a human face” through enhanced access to basic public services and improved state presence in vulnerable areas, consistent with the authorities’ “civilian approach” to mitigating security risks. Ongoing efforts to enhance resilience to climate change are also important. Achieving these ambitious goals will require continued commitment to clearly communicated reforms and strong technical and financial support from Benin’s development partners to complement large and front-loaded Fund support.”