BENIN: IMF FIFTH REVIEW

UNCLAS COTONOU 000658 SIPDIS DEPT FOR AF/W ACOOK; DLOCKHART STATE PLEASE PASS TO DEPT OF TREASURY DHALL E.0.12958: NA TAGS: ECON EIND EINV BN SUBJECT: BENIN: IMF FIFTH REVIEW ¶1. SUMMARY: From September 10-24, an IMF team conducted the fifth annual review of Benin's economic performance up until June 2008. On September 24, the team shared its generally favorable conclusions and some concerns which continue to threaten the GOB's efforts at sustained growth with international donors. End summary. ¶2. The team provided a positive assessment of the country's continued economic growth and efforts to maintain it above 5%. IMF mission experts interpreted an increase in port activities, infrastructure construction undertaken to host the recent CENSAD summit and other infrastructure investments as sources of the increased growth. They underscored that GOB encouragement of farmers to diversify and produce more food crops to curb the food crisis will be instrumental in maintaining positive growth. ¶3. The IMF mission noted with satisfaction that budgetary revenue far exceeded IMF expectations, although the country experienced a net deficit in budgetary expenses justified by necessary subsidies to cushion the impact of the recent food crisis on the population. The team commended the GOB for following IMF recommendations to discontinue such subsidies as the crisis wore off to allow the market to regulate prices, noting that only importers benefit from such measures. The team urged international donors to implement planned budgetary support totaling 19 billion FCFA (40 million dollars) as soon as the country meets donor requirements. The IMF requested that the GOB continue its tightened fiscal policy and encouraged it to maintain its tough line vis-a-vis union leaders who want across-the-board double digit salary increases (13.5 percent.) ¶4. The team noted with satisfaction that the GOB implemented structural reform, selecting the successful bidder for the divestiture of the cotton parastatal, Sonapra, and starting the process of selling government majority shares in Continental Bank Benin. It further commended the GOB for committing experts to assess Benin Telecoms and its Onigbolo Cement Plant assets. It encouraged the GOB to speed up the structural reform of remaining parastatals. ¶5. The team underscored a number of challenges the GOB needs to overcome to avoid a slow-down of growth. The GOB must deal with the country's high inflation rate - presently above 15.4%. It must alleviate an endemic shortage of electricity and increase the consumers' electricity tariff levied by electricity parastatal SBEE, whose deficit is growing. Adherence to budgetary procedure and transparency in fiscal and contracting policy must improve in 2009. According to the IMF mission, the GOB must take measures to improve budgetary absorption capacity, currently estimated below 40 percent. BOUSTANI