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Project Description
8. The focus of this supplemental financing operation is to safeguard the implementation of critical reforms in
fiscal and debt management, energy and digital economy achieved under DPO1. It does so by providing immediate
support to close an unexpected financing gap, providing fiscal sustainability and continued commitment to reform
implementation in face of a severe economic, fiscal and social crisis due to the COVID-19 pandemic.
9. The COVID-19 pandemic and economic crisis have significantly increased risks to achieving the development
outcomes (as measured by the results indicators) targeted by programmatic DPO series. As policy and financing
constraints divert resources towards crisis management, an extended economic and fiscal fallout could derail the
development objectives of the programmatic DPO series. In the absence of sufficient financial support, domestic
revenue mobilization and debt management may be weakened; the financial viability of the energy sector may be
placed at risk; and progress on the digital development sector may be delayed. The proposed Supplemental Financing
(SF) would play a key role in addressing the short-term liquidity needs of the GoB in order to provide the necessary
breathing space to protect structural reforms
The proposed operation will contribute to closing the unexpected financing gap of 1.7 percent of GDP in 2020.
The financing gap comes at a time when financing options are drastically reduced. Tightening global and regional
financial markets have increased the costs of bond issuance. In Benin, the volume of bids in government bond auctions
in the regional market has declined sharply and Eurobond spreads have risen substantially (by 600 basis points). This
underscores the critical need for external concessional borrowing to avoid short term liquidity pressures and a
disorderly macroeconomic adjustment. The Sixth Review of the IMF Extended Credit Facility (ECF) is scheduled for May
15, 2020 and includes a request for augmenting the quota by 61.4 percent (US$104 million). Other donors are also
planning to provide budget support while UN agencies, the WHO and the private-sector are already providing support
in kind or grants.
11. The program supported by the two-DPO programmatic series remains on track and its reforms are highly
relevant for supporting the Government’s response to COVID-19. Pillar 1 supports domestic revenue mobilization to
create fiscal space and increase the tax base thus improving the efficiency of countercyclical fiscal policies.
Achievements in tax policy and tax administration will prove to be an important buffer in the current context. While
tax revenue targets might be derailed temporarily owing to the crises, ongoing reforms should help recovery in the
medium-term. There has been significant progress on debt management, and commitment remains to ensure an
adequate framework to monitor guarantees to SOEs. Reforms in Pillar 2 have supported the improvement of the
financial sustainability of the electricity sector with a significant reduction in technical and commercial losses, and of
the operational deficit of the electric utility (SBEE, Société Beninoise d’Energie Electrique). Maintaining the pace of
reforms and focusing on reverting any possible temporary fallout, including the possible buildup of arrears, will be
crucial under the series. Under Pillar 3, there has been important gains on broadband penetration and the development
of online public services. These have proven essential in the context of the current crisis which limits face-to-face
interactions. The GoB had taken significant steps towards completion of the indicative triggers before the shock, and
despite the challenging environment, it remains strongly comitted to the program development objectives. |
