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Staff Report for the 2008 Article IV Consultation, Fourth Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility, and Request for Augmentation of Access

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International Monetary Fund
Published Date:
July 2008
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Appendix I—Relations with the Fund

(As of April 30, 2008)

I. Membership Status: Joined: July 10, 1963; Article VIII

II. General Resources Account:

SDR Million%Quota
Quota61.90100.00
Fund holdings of currency59.7296.48
Reserve Position2.193.53
Holdings Exchange Rate

III. SDR Department:

SDR Million%Allocation
Net cumulative allocation9.41100.00
Holdings0.021.23

IV. Outstanding Purchases and Loans:

SDR Million%Quota
PRGF Arrangements3.525.69

V. Latest Financial Arrangements:

TypeDate of ArrangementExpiration DateAmount Approved (SDR Million)Amount Drawn (SDR Million)
PRGFAug 05, 2005Aug 04, 20096.193.52
PRGFJul 17, 2000Mar 31, 200427.0027.00
PRGFAug 28, 1996Jul 16, 200027.1816.31

VI. Projected Payments to Fund1/

(SDR Million; based on existing use of resources and present holdings of SDRs):

Forthcoming
20082009201020112012
Principal0.180.44
Charges/Interest0.210.270.270.270.27
Total0.210.270.270.450.71

When a member has overdue financial obligations outstanding for more than three months; the amount of such arrears will be shown in this section.

When a member has overdue financial obligations outstanding for more than three months; the amount of such arrears will be shown in this section.

VII. Implementation of HIPC Initiative:

Enhanced
I.Commitment of HIPC assistanceFramework
Decision point dateJul 2000
Assistance committed by all creditors (US$ Million) 1/265.00
Of which: IMF assistance (US$ million)24.30
(SDR equivalent in millions)18.40
Completion point dateMar 2003
II.Disbursement of IMF assistance (SDR Million)
Assistance disbursed to the member18.40
Interim assistance11.04
Completion point balance7.36
Additional disbursement of interest income 2/1.66
Total disbursements20.06

Assistance committed under the original framework is expressed in net present value (NPV) terms at the completion point, and assistance committed under the enhanced framework is expressed in NPV terms at the decision point. Hence these two amounts can not be added.

Under the enhanced framework, an additional disbursement is made at the completion point corresponding to interest income earned on the amount committed at the decision point but not disbursed during the interim period.

Assistance committed under the original framework is expressed in net present value (NPV) terms at the completion point, and assistance committed under the enhanced framework is expressed in NPV terms at the decision point. Hence these two amounts can not be added.

Under the enhanced framework, an additional disbursement is made at the completion point corresponding to interest income earned on the amount committed at the decision point but not disbursed during the interim period.

VIII. Implementation of Multilateral Debt Relief Initiative (MDRI):

I.MDRI-eligible debt (SDR Million)1/36.06
Financed by: MDRI Trust34.11
Remaining HIPC resources1.95
II.Debt Relief by Facility (SDR Million)
Eligible Debt
Delivery DateGRAPRGFTotal
January 2006N/A36.0636.06

The MDRI provides 100 percent debt relief to eligible member countries that qualified for the assistance. Grant assistance from the MDRI Trust and HIPC resources provide debt relief to cover the full stock of debt owed to the Fund as of end-2004 that remains outstanding at the time the member qualifies for such debt relief.

The MDRI provides 100 percent debt relief to eligible member countries that qualified for the assistance. Grant assistance from the MDRI Trust and HIPC resources provide debt relief to cover the full stock of debt owed to the Fund as of end-2004 that remains outstanding at the time the member qualifies for such debt relief.

IX. Safeguards Assessments:

The Central Bank of West African States (BCEAO) is the common central bank of the countries of the West African Economic and Monetary Union, which includes Benin. The most recent safeguards assessment of the BCEAO was completed on November 4, 2005. The assessment indicated progress has been made in strengthening the bank’s safeguards framework since the 2002 assessment and identified some areas where further steps would help solidify it.

The BCEAO now publishes a full set of audited financial statements and improvements have been made to move financial reporting closer to International Financial Reporting Standards (IFRS). Furthermore, an internal audit charter has been put in place, mechanisms for improving risk management have been established, and follow-up on internal and external audit recommendations has been strengthened.

The results of continuous safeguards monitoring indicate that while certain vulnerabilities remain in internal control systems and legal structure, there has been some progress in other areas, including through: (i) improving the external audit process by adopting a multi-year audit program; (ii) establishing an audit committee; (iii) expanding disclosures on financial positions of WAEMU countries with the Fund in the notes to the annual financial statements; and (iv) further strengthening of the effectiveness of the internal audit function.

X. Exchange Arrangement:

Benin is a member of the West African Economic and Monetary Union (WAEMU) and has no separate legal tender. The union’s common currency, the CFA franc, is pegged to the Euro at a rate of CFAF 655.957 = EUR 1, consistent with the official conversions rate of the French franc to the Euro and the previous fixed rate of the CFA franc to the French franc of CFAF 100= F 1. On April 28, 2006, the rate of the CFA franc in terms of SDR was CFAF 769.68 = SDR 1.0. Effective January 1, 2007, the exchange arrangement of the WAEMU countries has been reclassified to the category of conventional pegged arrangement from the category of exchange arrangement with no separate legal tender. The new classification is based on the behavior of the common currency, whereas the previous classification was based on the lack of a separate legal tender. The new classification thus only reflects a definitional change, and is not based on a judgment that there has been a substantive change in the exchange regime or other policies of the currency union or its members. The exchange system common to all member countries of the WAMU is free of restrictions on payments and transfers for current international transactions subject to Fund jurisdiction.

XI. Article IV Consultations:

The last Article IV consultation discussions were held in Cotonou during August 9–23, 2006. The staff report (CR/07/6; 01/04/07) and selected issues paper were discussed by the Executive Board, and the 2006 Article IV consultation concluded, on November 27, 2006.

XII. ROSC Assessment:

An FAD mission conducted the fiscal module of a Report on Observance of Standards and Codes (ROSC) in May 2001. The mission recommended the adoption of a three-year action plan containing measures to improve expenditure management. The mission also identified a list of actions to be taken quickly to ensure that the authorities were able to monitor budget execution. The ROSC fiscal transparency module for Benin was circulated to the Board on June 6, 2002 (CR/02/217).

XIII. Technical Assistance

A. Headquarters
DepartmentType of AssistanceTime of DeliveryPurpose
FADResident expertSeptember 1989-September 1994Advising Minister of Finance on tax reform
FADResident expertNovember 1990-November 1992Advising Minister of Finance on budgetary procedures
STATechnical assistanceFebruary 4-17, 1998Formulating a strategy to improve statistical organization and management of the Central Bank of West African States.
FADTechnical assistanceSeptember 7-22, 1998Advising Minister of Finance on tax administration.
STATechnical assistanceApril 17-28, 2000Devising new questionnaires for balance of payments statistics and reactivating the banking settlements reporting system.
FADTechnical assistanceApril 25-May 5, 2000Advising Minister of Finance on tax administration
STATechnical assistanceMay 7-11, 2000Improving the collection, compilation, and dissemination of data on monetary and financial statistics
FADTechnical assistanceMay 16-29, 2001Preparing a fiscal transparency module of a ROSC and assessment of capacity to monitor HIPC Initiative resources.
FADTechnical assistanceSeptember 11-25, 2002Helping the authorities strengthen domestic revenue and customs administrations.
FADTechnical assistanceAugust 23 –September 3, 2003Evaluating public expenditure management reforms and monitoring capacity of poverty- reducing expenditures.
FADTechnical assistanceOctober 22 –November 5, 2003Evaluating the implementation of the action plan to strengthen domestic revenue and customs administrations
STATechnical assistanceNovember 11-November 24, 2004Assessing the quality of balance of payment statistics.
LEGTechnical assistanceApril 24-26, 2006Providing in-depth training on the AML/CFT framework
FADTechnical assistanceOctober 10–23, 2006Review of status of implementation of reforms to modernize the tax and customs administrations
FADTechnical assistanceOctober 30–November 13, 2006PFM diagnostic and preparation of a reform action plan
B. AFRITAC West
FADTechnical assistance2006, 2007Customs Administration
FADTechnical assistance2006, 2007Public Expenditure Management
FADTechnical assistance2006, 2007, 2008Tax Administration
MCMTechnical assistance2006, 2007Bank Supervision and Regulation
MCMTechnical assistance2007, 2008Public Debt and Debt Sustainability
STATechnical assistance2006Government Finance Statistics
STATechnical assistance2007, 2008Multisector Statistics
STATechnical assistance2006National Accounts Statistics
STATechnical assistance2006, 2008Real Sector Statistics

XIV. Resident Representative:

Mr. Yao has been the Resident Representative since September 26, 2005.

Appendix II—Relations with the World Bank Group

Partnership in Benin’s development strategy

1. Benin’s revised poverty reduction strategy paper (PRSP) was finalized in April 2007 and discussed at the Bank and Fund Boards in June 2007. The PRSP provides a framework for aligning donor assistance programs, including those of the Bank and the Fund, with the country’s poverty reduction efforts.

2. Public expenditure management reform has been an important focus of the Bank’s assistance program. In close collaboration with the Fund and other donors, the Bank has provided technical and financial assistance to the government’s reform efforts in this area. The Bank has also been in the lead in helping Benin strengthen the provision of basic social services, most importantly in the education and health sectors, pursuing a divestiture program in the utility and infrastructure sectors, and enhancing the competitiveness of the cotton sector.

IMF-World Bank collaboration in specific areas

3. Common objectives and joint support for Benin’s PRSP and the Initiative for Heavily Indebted Poor Countries (HIPC Initiative) processes have increased collaboration between the Fund and Bank in recent years. The Bank and Fund teams are closely coordinating their policy advice to the authorities. There is also close coordination in the determination of structural conditionality

4. Private sector development and infrastructure. The Bank has supported Benin’s program for economic growth through different projects. Assistance for the privatization of the telecommunications company and for improving the Cotonou port operations is provided through the Private Sector Development Project. The Bank supports private participation in the electricity branch of the SBEE through the Energy Services Delivery Project which was approved by the Bank’s Board on July 6, 2004. The privatization of SONAPRA’s ginning mills, along with reforms aimed at liberalizing the sector and strengthening the capacity of producers is supported by the Cotton Sector Project.

5. Fiscal policy and fiduciary framework. Fiscal consolidation was a key objective of the Fund-supported PRGF arrangement. The Bank is focusing on improving the efficiency, transparency and accountability of public expenditures. In addition, the Bank is helping to strengthen Benin’s fiduciary framework through analytical and advisory activities (AAA), such as the updates of the Country Procurement Assessment Report (CPAR) and Country Financial Accountability Assessment (CFAA), and the governance and anti-corruption survey. The PRSC series also supports a comprehensive action plan for fiduciary and public procurement reform.

6. Poverty reduction strategy. Together with other external development partners, the Bank and Fund have jointly provided assistance to the government in the preparation of Benin’s revised PRSP. The PRSP was discussed at Bank and Fund Boards in June 2007, together with a joint staff assessment prepared by Bank and Fund staffs. Both institutions will continue to jointly advise the authorities on the refinement, implementation, monitoring, and evaluation of the strategy. The latest PRSP progress report was circulated to Bank and Fund Boards in June 2008.

7. Debt sustainability. The Bank and the Fund jointly supported the government’s efforts to reach the HIPC Initiative completion point in March 2003 and qualification for the MDRI. In the context of the new PRGF program, Bank and Fund staffs regularly update the debt sustainability analysis for Benin, in close collaboration with the authorities.

8. Financial sector policy. The Fund has supported the government’s efforts to strengthen Benin’s financial sector. As part of the Private Sector Development Project, the Bank has been providing support to two major microfinance institutions. A financial sector review was completed and the report was released in July 2004.

World Bank strategy

9. The overriding objective of the Bank’s Country Assistance Strategy (CAS) discussed at its Board on July 3, 2003 is to help Benin reverse the recent trends of limited poverty reduction and improve economic growth. Progress in reducing poverty and attaining the Millennium Development Goals (MDGs) requires further deepening of cotton sector reforms, strengthening efforts toward diversifying the economy, making tangible progress in the social sectors, building effective and responsive public institutions, promoting gender equality, and strengthening collaboration with the private sector and civil society. The CAS describes a program of financial assistance and nonlending services as the Bank’s contribution to addressing these challenges, and it supports the implementation of the PRSP. A new CAS is scheduled to be prepared in 2008 based on the revised PRSP.

10. To advance public sector management reforms aimed at increasing efficiency in the use of public resources, the Bank will continue its support of Benin’s public expenditure reform through financial and technical support. Annual single-tranche PRSCs are envisaged to remain a key vehicle for Bank support to the country. A first PRSC was presented to the Bank’s Board in March 2004, the second in June 2005, the third in November 2006 and the fourth in June 2007. The series is expected to continue to support the PRSP pillars, with components on economic growth, service delivery, and governance.

11. PRSP implementation monitoring has fostered collaboration between the Bank and other development partners, including civil society organizations. Donors have signaled their willingness to align their assistance programs to the PRSP and some of them have engaged in budget support operations, in close coordination with the Bank’s PRSC preparation process.

Benin: Status of World Bank Portfolio(In millions of U.S. dollars, as of April 30, 2008)
ProjectEffectiveness DateOriginal Principal (IDA)Undisbursed (IDA)
Competitiveness and Growth
Opportunity ProjectNot yet Effective25.025.0
GEF Com. Based CoastalNot yet effective4.34.3
HIV/AIDS Multisector1/09/0835.034.9
Cotton Sector Reform9/12/0218.03.00
Energy Service Delivery4/25/0545.039.3
National CDD5/2/0550.029.5
2nd Decentralized Cities3/8/0635.019.3
GEF Forests & Adj. Land3/27/076.05.3
Malaria3/16/0731.022.3
Total249.3182.9

12. As of April 30, 2008, the Bank lending portfolio consists of nine operations, including 2 GEF operations and the newly approved Competitiveness and Growth Opportunity Project. Net commitments reach US$249.3 million with an undisbursed balance of US$182.9 million (see table above).

Prepared by World Bank Staff. Questions may be asked to Ms. Antonella Bassani, Acting Country Director for Benin, (202) 473-1468; or Ms. Nancy Benjamin, Economist for Benin, (202) 473-0189.

Appendix III—Statistical Issues

(As of May 1, 2008)

1. Economic data are broadly adequate for both program monitoring and surveillance, despite weaknesses in the areas of national accounts, public finance, monetary statistics, and balance of payments. Benin has participated in the General Data Dissemination System (GDDS) since 2001. Most sectoral metadata are due to be updated. STA technical assistance (funded by the Japanese government) is being offered to the eight member countries of the West African Economic and Monetary Union (WAEMU) to assist with implementation of plans for the improvement of their statistical systems. A Fund regional statistical advisor initiated a program of assistance in government finance statistics, which is now managed by the West Africa Regional Technical Assistance Center (AFRITAC West). A real sector statistics improvement program, conducted in collaboration with the regional statistical office AFRISTAT initiated in May 2002, is currently being implemented.

Real sector statistics

2. The country participates in WAEMU’s harmonization of statistical methodologies through the multilateral surveillance process, currently seeking regional improvements in the area of national accounts. Under the GDDS project for the AFRITAC West countries to implement the 1993 SNA, a statistical register and an industrial production index are being developed. In April 2008, an AFRITAC West mission coincided with the finalization of the national accounts estimates for 2001. During the mission, a revised work program, including actions to accelerate the compilation of the revised accounts, was discussed with the authorities. The national accounts estimates for the new base year are to be disseminated by end-2008. Consumer prices are measured using the WAEMU harmonized consumer price index.

Government finance statistics

3. Monthly and annual government finance statistics are compiled by the Ministry of Finance (MoF) with a one to three month lag for monthly data, based on information provided by the budget, customs, tax, and treasury directorates. The MoF prepares a monthly reconciliation of spending commitments made by the budget directorate and payments made by the treasury. However, no final budget or treasury accounts are published at the end of the fiscal year. Data compilation and reporting have been strengthened as a result of a series of AFRITAC West/STA technical assistance missions and training during the period 2005 to the present. The authorities provided data for publication in the 2006 and 2007 issues of the Government Finance Statistics Yearbook (GFSY) The coverage of these data are limited to the “Budgetary Central Government,” but covering only eight of the principal ministries and other units of central government.

Monetary and financial statistics

4. Monetary and financial statistics are compiled and disseminated by the regional Central Bank of West African States (BCEAO). In response to AFR and STA request, the BCEAO made substantial revisions in 2005 to the estimates of banknotes in circulation in member states resulting from cross-border banknote movement. These revisions were due to changes in the method to estimate currency in circulation in the WAEMU countries. The revised method, based on updated sorting coefficients (initially established in 1990), has been applied retroactively from December 2003. The BCEAO is using sorting coefficients to evaluate the amounts of currency issued by each country, which in turn, are used to estimate currency in circulation and to adjust the net foreign assets of each member country.

5. In August 2006, as part of the authorities’ efforts to implement the MFSM’s methodology, the BCEAO reported to STA test monetary data for June 2006 for all member countries using Standardized Report Forms (1SR-central bank, 2SR-other depository corporations, and 5SR-monetary aggregates). In response to STA’s comments on the test data, the BCEAO has recently provided clarifications but only on the form 1SR. STA’s efforts to advance the work on SRFs is supported by AFR in the context of its surveillance work with the WAEMU.

Balance of payments

6. Since December 1998, the responsibility for compiling and disseminating balance of payments statistics has been formally assigned to the BCEAO by area-wide legislation adopted by the countries participating in the WAEMU. The national agency of the BCEAO in Cotonou is responsible for compiling and disseminating balance of payments statistics, and the BCEAO headquarters in Dakar for delineating the methodology and calculating the international reserves managed on behalf of the participating countries.

7. Data consistency has significantly improved over the past few years, with a full transition to the Balance of Payments Manual, Fifth Edition (BPM5). The BCEAO national agency typically disseminates balance of payments statistics with a more than one year lag, exceeding GDDS guidelines. The BCEAO also compiles and disseminates the annual data of the international investment position data with an 18-month lag.

8. Regarding trade data, the ASYCUDA customs computer system is now installed in all main border customs houses; ASYCUDA ++ is installed in the port and at the airport. The interconnection between the computer systems of the main departments of Customs has not been completed yet and the monitoring of import data needs to be stepped up.

9. Further improvement in the data for services and transfers (especially workers’ remittances) will depend on the intensification of the contacts with reporting bodies. The authorities’ commitment to strengthen the human and technical resources should be enhanced.

10. Concerning the financial account, the foreign assets of the private nonbanking sector are still not well covered, especially the assets of WAEMU residents, which are obtained through partial surveys of residents’ foreign assets. The organization of an exhaustive annual survey of foreign direct investment transactions is still at a very preliminary stage. The BCEAO has recently updated the compilation of commercial bank data on payments involving nonresidents; however these data are not used to produce annual balance of payments estimates, but rather to assess existing information.

11. A technical assistance mission in November 2004 found that human resources devoted to balance of payments statistics by the national agency of the BCEAO are insufficient, but that the reporting system was well developed and consistent. Regarding trade in goods, and the recording of informal transactions, the statistical adjustments to Customs data appear methodologically sound; however, the hypotheses and reference bases on which they rest are largely untested. Other weaknesses in the current account concern the underestimation of transportation services and overestimation of current transfers. In the financial account, the coverage of direct investment is poor while unsorted banknotes impacts on the compilation of net external assets in the balance of payments and international investment position statistics.

Poverty data

12. Major methodological weaknesses remain regarding poverty data. In particular, the methodology used in the household surveys raises concerns about the treatment of the nonfood expenditure share in the calculation of the poverty line, the division of the country into 12 agro-ecological zones, and the comparability of poverty statistics across urban and rural areas and across time. The authorities are implementing an action plan to address these methodological issues. The authorities have completed a modular survey of household living conditions to update the poverty profile in the context of the preparation of the second PRSP.

External debt

13. The Caisse Autonome d’Amortissements (CAA) is responsible for signing international loan agreements, maintaining the debt database, and servicing the government’s external debt obligations. Since 1995, the CAA has been using the Commonwealth Secretariat Debt Recording and Management System (CS-DRMS) to record and manage the debt. For the majority of creditors, the CAA’s database is fairly comprehensive and up-to-date, and contains accurate stock data, as well as projected debt-service flows, on a loan-by-loan basis. For a small number of creditors, however, regular statements are not received.

Benin: Table of Common Indicators Required for Surveillance(As of May 1, 2008)
Date of latest observationDate receivedFrequency of Data6Frequency of Reporting6Frequency of publication6
Exchange RatesCurrentCurrentDDM
International Reserve Assets and Reserve Liabilities of the Monetary Authorities107/0710/07MMM
Reserve/Base Money12/073/08MMM
Broad Money12/073/08MMM
Central Bank Balance Sheet12/073/08MMM
Consolidated Balance Sheet of the Banking System12/073/08MMM
Interest Rates21/082/08MMM
Consumer Price Index03/0803/08MMM
Revenue, Expenditure, Balance and Composition of Financing3 - General Government4NANANANANA
Revenue, Expenditure, Balance and Composition of Financing3- Central Government12/063/07MMA
Stocks of Central Government and Central Government-Guaranteed Debt5NANANANANA
External Current Account Balance200612/07AAA
Exports and Imports of Goods and Services200612/07AQA
GDP/GNP200603/08AAA

Includes reserve assets pledged or otherwise encumbered as well as net derivative positions.

Both market-based and officially determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.

Foreign domestic bank and domestic nonbank financing.

The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.

Including currency and maturity composition.

Daily (D); Weekly (W); Monthly (M); Quarterly (Q); Annually (A); Irregular (I); Not Available (NA).

Includes reserve assets pledged or otherwise encumbered as well as net derivative positions.

Both market-based and officially determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.

Foreign domestic bank and domestic nonbank financing.

The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.

Including currency and maturity composition.

Daily (D); Weekly (W); Monthly (M); Quarterly (Q); Annually (A); Irregular (I); Not Available (NA).

Decision point - point at which the IMF and the World Bank determine whether a country qualifies for assistance under the HIPC Initiative and decide on the amount of assistance to be committed.

Interim assistance - amount disbursed to a country during the period between decision and completion points, up to 20 percent annually and 60 percent in total of the assistance committed at the decision point (or 25 percent and 75 percent, respectively, in exceptional circumstances).

Completion point - point at which a country receives the remaining balance of its assistance committed at the decision point, together with an additional disbursement of interest income as defined in footnote 2 above. The timing of the completion point is linked to the implementation of pre-agreed key structural reforms (i.e., floating completion point).

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