Author (s): African Development Bank Group (AfDB)
The African Development Bank Group is a development and finance institution which focuses on sustainable economic development, social progress, and poverty reduction.
Economic performance and outlook
Real GDP growth rose from 4% in 2016 to an estimated 5.5% in 2017. The next two years look similarly promising, with growth projected at 6.1% in 2018 and 6.5% in 2019. Economic performance in 2016–17 was principally the result of reforms taken under the 2016–21 Government Action Plan, known as Benin Revealed, to increase public investment in infrastructure, agriculture, tourism, and basic services. This positive outlook is also due to substantial increases in agricultural production, especially in cotton (estimated at 450,000 tons in 2016), an increase in electricity production, and economic recovery in Nigeria, an important trading partner.
Macroeconomic evolution
The budget deficit crept up from 5.6% of GDP in 2016 to an estimated 5.9% in 2017. With the government expressing interest in reining in spending, the deficit is projected to decline to 4.8% in 2018 and 3.1% in 2019. The tighter fiscal policy that took effect in 2017 aims to achieve the 3% target for the budget deficit set by the West African Economic and Monetary Union (WAEMU). According to an International Monetary Fund (IMF) debt sustainability analysis, Benin moved from a low risk to a moderate risk of debt distress.
Public debt increased from 50.3% of GDP in 2016 to 53.4% in 2017 due to higher spending related to implementation of the Government Action Plan. Government efforts to mobilize resources through a bond issue, as well as technical and financial partnerships, are expected to reduce public debt to 51.5% of GDP from 2019 onward. Due to WAEMU’s policy of price stability, good performance in agriculture, and weak oil prices, inflation is likely to remain below the 3% target. The current account deficit worsened from 7.3% of GDP in 2016 to an estimated 9.5% in 2017 but is projected to improve slightly in 2018 and 2019.
Tailwinds
In April 2017, the IMF approved a three-year $151 million arrangement to help implement Government Action Plan reforms by encouraging investment while preserving debt sustainability. The reforms are expected to allow Benin to diversify its economy by improving processing activities in agriculture through the development of agro-industry and modernization of the livestock, fisheries, and tourism industries. Political stability, as demonstrated by the relatively smooth presidential election in 2016, and stronger public-private partnerships have increased the country’s attractiveness for investment. The Economic Community of West African States Common External Tariff, introduced in in January 2015, presents an opportunity for Benin to expand its production base and reap benefits from the West African market.
Headwinds
Uncertainty about the effects of climate change on agriculture and dependence on the Nigerian economy constrain growth projections. Nigeria introduced trade restrictions during its recession that affected Benin; if not lifted, they will fuel additional uncertainty. Despite efforts at reform and investment, Benin remains plagued by a lack of infrastructure, poor economic and financial governance, and private-sector difficulties. Although Benin was one of the 10 best business reformers in 2015/16, its ranking of 151 out of 190 countries in the World Bank’s 2018 Doing Business report shows that much remains to be done to improve the business climate. With a poverty rate of 40.1% in 2015, persistent unemployment, and a Human Development Index value of 0.485, inclusive growth remains a major challenge.
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