Benin: Sixth Review Under the Extended Credit Facility Arrangement and Request for a Waiver of Nonobservance of a Performance Criterion-Staff Report; and Press Release

EXECUTIVE SUMMARYThis last review of Benin's ECF arrangement confirms the improved growthperformance during the program. Real GDP growth is expected to reach about5½ percent in 2014 for the third consecutive year. This performance has closed the gap in per capita GDP growth between Benin and the Sub-Saharan African (SSA) average which was about 2 percentage points on average between 2005 and 2011.Thanks to prudent fiscal policy, macroeconomic performance remains satisfactory and progress has been achieved in structural reforms. All performance criteria were met except for the ceiling on non-concessional borrowing. The implementation of the new approach to customs reform is moving ahead well despite some delays.The government is tackling emerging issues in several areas to reduce risks to the good macroeconomic performance. Weak performance of domestic revenues requires a comprehensive tax administration reform which has been initiated. While non-performing loans (NPLs) in the banking sector have risen since 2012 and might increase further due to problems in a group of companies, they do not constitute a systemic risk. Discussions are underway among the central bank, the government, and the commercial banks on how to limit any further rise in NPLs. After some delays, the government has also initiated steps to develop a new framework for cotton management with more private sector involvement.Sound policies have created fiscal space for scaling up investment to remove growth bottlenecks, but further reforms are necessary to ensure efficiency and sustainability. To preserve the authorities' achievements under this ECF arrangement, rising investment has to be accompanied by further progress in public financial management (PFM) and integrated into a medium-term framework anchored in debt sustainability. The authorities requested IMF support through a new ECF arrangement.The scaling up of investment will only lead to sustainable growth if conditions for private sector development are significantly improved. Government efforts are starting to show some results, but broad-based reforms will be necessary to enhance productivity.Staff recommends completion of the review and supports the authorities' requestfor a waiver of the performance criterion on non-concessional borrowing.