Benin is seeking support from the International Monetary Fund (IMF), to help cushion it from a widening fiscal deficit and slowing economic growth caused by the sharp deceleration in its giant West African neighbour Nigeria linked to falling oil prices.
“The government found a difficult macroeconomic and treasury situation upon assuming office in April 2016. In particular, while fiscal policy was generally sound in earlier years, the fiscal deficit increased to around 8.5 percent of GDP in 2015, with continued spending overruns in the first quarter of 2016,” IMF said in a statement.
“This widening of the fiscal deficit was financed by large bond issuances in the regional financial market, adding significantly to future debt service. Worse, during the last quarter of 2015 and first of 2016, contracts were signed for off-budget projects close to 24 percent of GDP. These loans are expensive and have short maturities,” Christine Dieterich, who headed the IMF mission to the West African nation that ended on Saturday said in a statement.
2015 growth is estimated to have decelerated to around 5 percent, as the slowdown in Nigeria – Benin’s main trading partner – kicked in.
For 2016, with Nigerian growth decreasing further, Benin’s growth is expected to be in the range of 4.5 to 5 percent.
Furthermore, poverty has worsened since 2011 compared to the household survey of 2015. Inflation has remained subdued despite a recent rise on account of higher food and fuel prices, IMF added.
With oil exports accounting for 90 percent of foreign exchange earnings and about 70 percent of government revenues, Nigeria, Africa’s biggest economy, has been hit hard by a rapid drop in global crude prices since last year.
Cotton magnate Patrice Talon who became Benin’s president after winning 65% of the second round vote held in March has promised to diversify the country’s economy which relies mainly on agriculture and uplift it from poverty.