INTERNATIONAL DEVELOPMENT ASSOCIATION INTERNATIONAL MONETARY FUND BENIN Joint World Bank-IMF Debt Sustainability Analysis July 2019 Prepared jointly by the staffs of the International Development Association (IDA) and the International Monetary Fund (IMF) Approved by Marcello Estevão (IDA) and Dominique Desruelle and Maria Gonzalez (IMF) Benin: Joint Bank-Fund Debt Sustainability Analysis Risk of external debt distress: Moderate Overall risk of debt distress Moderate Granularity in the risk rating Some space to absorb shock Application of judgment No Benin remains at moderate risk of external debt distress. The rating is unchanged from the previous November 2018 DSA. All the projected external debt burden indicators remain below their thresholds under the baseline, but the ratio of the present value (PV) of external debt to exports exceeds its threshold in the case of an extreme shock to exports.1 With regard to total public and publicly guaranteed (PPG) debt (external plus domestic), the overall risk of debt distress remains also moderate. The public debt-to-GDP ratio is below its prudent benchmark in the baseline scenario; however, the PV of public debt-to-GDP rises very slightly above its benchmark from 2024 until the end of the projection period under the real GDP shock scenario. Other factors motivating the overall rating include: the past evolution of domestic debt, the relatively high debt service burden, as well as the existence of contingent liabilities. Medium-term fiscal consolidation, sound public investment management, and enhanced debt management capacity are needed to reduce debt vulnerabilities. 1 Under the revised Debt Sustainability Framework for Low-Income Countries, Benin’s Composite Indicator is 3.0 based on the April 2019 WEO and the 2017 CPIA, corresponding to the medium debt-carrying capacity. PUBLIC DEBT COVERAGE Text Table 1. Subsectors of the Public Sector 1. In the Debt Sustainability Analysis (DSA) of Benin, public debt covers both the debt of the central government as well as the guarantees provided by the central government.2 The DSA classifies external and domestic debt based on the currency criterion, given data constraints that prevent the use of the residency criterion. Debt to the IMF owed by the Central Bank is included in external debt. 2. The authorities completed an audit about the stock of unpaid claims held by the private sector on the government in January 2019. The authorities found a stock of arrears to suppliers of 0.3 percent GDP. This amount of arrears was added to the 2019 debt stock. The current fiscal projections also assume a gradual clearance of the arrears over 2020-22 at a pace of 0.1 percent of GDP per year. 3. Due to methodological constraints, the debt of State-owned enterprises (SOEs) and subnational governments are not included in the baseline analysis but are captured in the contingent liability shock. SOEs can entail contingent liabilities for the government and create fiscal risks. 3 It is important to have an exhaustive overview of the situation of SOEs debt in Benin. The authorities have made progress in the area of monitoring in past years, by collecting financial information 2 Government domestic arrears are also included see below. 3 In the context of the Government Action Program, the authorities are contemplating several key projects of infrastructure, including some conducted through SOEs. For instance, the government has recently started discussions with the Chinese authorities to build a new international airport. At this stage, the amount, financing scheme, and calendar are unknown. When information is available, this project will be reflected in the DSA to the extent that it impacts public debt and, more generally, fiscal sustainability. 2 on SOEs. They recently produced an estimate of 0.9 percent of GDP for the non-guaranteed commercial debt of 13 state-owned companies at end-2018.4 Also, to address contingent liability risks, the authorities are in the process of adopting a new law on SOEs that aims at improving their governance and indirectly their economic and financial performance. In the context of the current DSA, the contingent liability shock was increased by 0.9 percent of GDP (to reflect the new information on SOE debt), which comes on top of the standardized 2 percent of GDP shock. Further work is needed to properly incorporate SOEs in the DSA. This will entail (i) reconciling various sources of information on guarantees and non- guaranteed debt to come up with a total amount of SOEs debt; and (ii) assessing the scope for consolidating the general government fiscal accounts with the financial statements of the SOEs (both on the revenue and expenditure sides). BACKGROUND ON DEBT 4. Benin’s public debt has been increasing rapidly since 2014. Total public debt (external plus domestic) increased from 30.5 percent in 2014 to 56.8 percent in 2018.5 The increase was primarily due to higher domestic debt, which tripled over three years, growing from 10.6 percent of GDP in 2014 to 32.4 percent of GDP in 2017. Such a rise in the domestic debt was essentially driven by the scaling-up of public investment. Over 2015-17, the authorities have increasingly relied on the domestic and regional financial market to finance public investment projects at non-concessional terms. With the debt reprofiling, the stock of domestic debt declined in 2018, and is estimated at 30.3 percent of GDP. As for external debt, the increase was relatively small over the 2014-18 period (6.7 percent of GDP), reaching 26.5 percent of GDP in 2018. 5. The debt service burden is relatively high in Benin. The ratio of debt service to revenue stands at 65 percent in 20186 and is expected to decrease to around 45 percent on average in the medium term and 21 percent in long run. By comparison, the debt service is projected to account for 28 percent of revenue, on average, in WAEMU countries and 21 percent in all low-income developing countries in 2018.7 6. Financial conditions in the regional financial system have eased due to Eurobond issuances and despite a firmer monetary policy. Between early 2017 and end-2018, the BCEAO reduced its refinancing volume to banks by about 24 percent. Regional liquidity nonetheless gradually improved in the wake of the Eurobonds issued by Côte d’Ivoire and Senegal—equivalent to 87 percent of the WAEMU’s aggregate fiscal deficit in 2018—which led to a substantial reduction in sovereign bond issuances on the regional market. As a result, the average rate at the BCEAO weekly refinancing auction, which had remained at its 4.5 percent ceiling from November 2017 to June 2018, declined to below 3 4 Guarantees to SOEs are already included in public debt, although more work needs to be done to reconcile the two data sources (guarantees disclosed in the budget and information on non-guaranteed SOE debt). 5 In the paper, debt stocks are measured at the end of the year. For instance, 2018 debt refers to the debt at the end of 2018. 6 An additional amount of debt repayment of CFA 170 billion, related to the debt reprofiling operation, was included in the 2018 debt service. 7 See IMF DSA Database for LICs. 3 percent. It crawled back up to its 4.5 percent ceiling in late 2018, though, on the back of seasonal liquidity needs. Text Figure 1. Benin: Central Government Debt 2010–18 (in percent of GDP) 40.0 60.0 50.0 30.0 40.0 20.0 30.0 20.0 10.0 10.0 0.0 0.0 2010 2011 2012 2013 2014 2015 2016 2017 2018 External Debt Domestic Debt Total Debt (RHS) Sources: Authorities’ data and staff calculations. STRUCTURE OF DEBT 7. Benin’s external public debt is essentially owed to multilateral and bilateral creditors. In 2016 and 2017, Benin’s domestic debt surpassed external debt. It represented about 60 percent of total debt at end-2017. The October 2018 debt reprofiling operation, which exchanged cheap and long-term external debt against more expensive and shorter-maturity domestic debt, allowed a rebalancing of the composition of the total debt stock. As of end-December 2018, external debt represented around 47 percent of the total debt, while the domestic debt accounted for 53 percent of the debt. External public debt, essentially owed to multilateral and bilateral creditors, is most of the time provided on concessional terms. 8. Domestic public debt is dominated by government securities issued in the regional bond market. Benin’s domestic public debt has increased significantly between 2014 and 2017, driven mainly by the increasing reliance on the regional bond market to raise funds. About 80 percent of domestic liabilities consisted of government securities issued on the regional financial market at end-2018. Such debt is non-concessional and is associated with roll-over and interest rate risks. 9. Benin issued its first Eurobond in March 2019, which is expected to change significantly the structure of the debt portfolio. The Eurobond amounts to EUR 500 million (equivalent to 5.2 percent of 2019 GDP) and was issued at favorable terms (see Box for 1 details). The authorities have decided to reduce, by the same amount, the domestic financing projected for the year, leaving the 2019 borrowing plan unchanged. As a result, external debt should, for the first time since 2015, exceed domestic debt, with respective shares projected at 58 percent and 42 percent of total debt for 2019. 4 Box 1. Benin’s First Eurobond Issuance Accommodative global financial conditions have narrowed spreads and boosted capital inflows to sub-Saharan Africa’s (SSA) frontier markets since 2009-10. Unconventional monetary policies in advanced economies have produced a prolonged episode of ultra-low global interest rates and extremely low volatility in financial markets, since 2009-10. This, in turn, has contributed to a revival of ample global funding conditions and widespread financial risk-taking, as developed market investors searched for yield to meet targeted return. Taking advantage of the benign global financial environment, Benin issued its first Eurobond and became the 17th country in SSA to tap international capital markets to meet its financing needs (Text Figure 2). The Eurobond was issued Text Figure 2: Sub-Saharan African Frontier Market: International Sovereign Bond in March 2019, for an amount of EUR 500 20 Issuances (in US$ Billion) (Data as of March 20, 2019) million at a yield of 6 percent with a weighted 15 US$ Billion maturity of 6 years. The issuance was two 10 times oversubscribed, attracting EUR 1.1 Benin, 0.56 billion in demand. Terms compare very 5 favorably to recent issuances by Benin on the 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019* regional market (7.0 percent for a 5-year Angola Cameroon Ethiopia Gabon Ghana Côte d'Ivoire Kenya Namibia Nigeria Rwanda Senegal South Africa bond issued in early-March 2019). Tanzania Zambia Benin Seychelles D.R.Congo Source: Bloomberg While Eurobond issuance provides the Beninese government with access to longer-term financing at favorable rates, it also leads to some rebalancing of risks. The exchange rate risk is estimated to be small in the short to medium term given the peg between the FCFA and the euro. The comparison of refinancing risks between the Eurobond and regional issuances, however, is more difficult to assess. On the one hand, the regional market can become very illiquid when bigger WAEMU economies (such as Senegal and Cote d’Ivoire) borrow, leaving limited space for Benin. On the other hand, international markets may shut down for frontier markets in case of a reversal in global risk appetite1. Nonetheless, the refinancing risk is expected to decrease over the short term, given the improved access to longer-term financing. At the same time, over the medium-term or once the Eurobond comes close to maturity, refinancing risk is expected to increase. 1 Faster-than-expected normalization of monetary policies of advanced economies, a strong growth slowdown in China, or adverse spillover effects of U.S.-China trade tensions are examples of major events that could result in a decompression of spreads and reversals of capital flows going to frontier markets. This could make the rollover of the Eurobond more difficult and could raise debt servicing costs. 5 Text Table 2. Benin: Structure of External Debt, Estimated at end 2018 (in CFAF billion) Creditors 2018 Multilateral Creditors 1021.0 IDA 541.2 FAD (African Development Fund) 244.4 Others 235.4 Bilateral Creditors 511.0 Others 317.3 People's Republic of China 166.9 Kuwait 26.8 Sources: Beninese authorities and IMF staff calculations. Text Table 3. Benin: Structure of Domestic Debt, Estimated at end 2018 (in CFAF billion) Creditors 2018 Other local banks 292.6 Bonds 1267.0 T-bills 160.1 Total domestic debt 1719.7 Sources: Beninese authorities and IMF staff calculations. BACKGROUND ON MACROECONOMIC FORECASTS 10. Macroeconomic assumptions have been updated compared to the November 2018 DSA. The main changes relate to the primary balance and the real GDP growth for the medium term (Text Table 4). Benin’s growth is revised upwards to 6.7 percent in 2018, mainly because of higher-than- anticipated agriculture and port activities. The real GDP growth forecasts for 2019 and beyond have also been revised up to reflect new estimates of medium-term growth (see IMF 2019 Article IV Report). Medium-term prospects are strong, driven by the lagged effect of the public investment scaling-up, greater participation of the private sector, strong agricultural production, and the development of new sectors such as tourism and digital economy. 6 • The 2018 primary deficit was lower than expected mainly driven by an under execution of the capital expenditure budget. The primary surplus is estimated to reach 0.3 percent of GDP on average in the period 2019-24 and 0.9 percent of GDP on average, in the long run. Beyond 2019, the projections assume a continued scaling-down of public investment, which should bring back the investment ratio to its pre-scaling up level and maintain the deficit below the 3 percent of GDP regional norm. • The non-interest current account deficit is expected to decline gradually in the medium to long term, thanks to the implementation of fiscal consolidation plan and structural reforms to boost competitiveness. Higher exports should result from larger cotton production. Imports should also remain contained due to the scaling-down of public investment and the increase in agricultural production. 11. Risks to the baseline are tilted to the downside. On the fiscal position, the main risks include extra spending pressures related to the political cycle as well as failures to implement key reforms, in particular in the area of revenue administration and the elimination of tax expenditures. On growth, achieving the expected performance will require that the authorities rigorously implement measures that intent to increase the agricultural production capacity and structural reforms that aim at improving business environment and governance. Table 4. Benin: Macroeconomic Projections DSA 2018 DSA 2019 2018 Aver.2019-23 2028 2038 2018 Aver.2019-24 2029 2039 (Percent of GDP, unless otherwise indicated) (Percent of GDP, unless otherwise indicated) GDP growth (percent) 6.5 6.5 6.0 5.0 6.7 6.7 6.0 5.0 GDP deflator (percent) 1.0 1.8 2.5 2.9 1 1.8 2.5 2.9 Non-interest current account balance 8.8 6.6 4.4 3.6 8.0 5.7 4.4 1.7 Primary balance 2.5 -0.4 -0.7 -0.7 1.8 -0.3 -0.9 -0.9 Exports 21.6 25.0 29.5 30.8 22.1 26.6 29.1 29.1 Revenues and grants 18.6 19.4 19.8 20.8 18.6 19.3 19.7 20.6 Sources: Beninese authorities and IMF staff calculations. 7 COUNTRY CLASSIFICATION AND DETERMINATION OF SCENARIO STRESS TESTS Country Benin Country Code 638 Debt Carrying Capacity Medium Classification based on Classification based on Classification based on the Final current vintage the previous vintage two previous vintages Medium Medium Medium Medium 3.00 3.03 3.47 Note: Until the October 2018 WEO vintage is released, the previous vintage classification and corresponding score are based solely on the CPIA per the previous framework. Applicable Thresholds Applicable thresholds APPLICABLE APPLICABLE EXTERNAL debt burden thresholds TOTAL public debt benchmark PV of total public debt in PV of debt in % of percent of GDP 55 Exports 180 GDP 40 Debt service in % of Exports 15 Revenue 18 Cut-off Values of the CI New framework Cut-off values Weak CI ≤ 2.69 Medium 2.69 < CI ≤ 3.00 Strong CI > 3.00 8 Calculation of the CI Index Components Coefficients (A) 10-year average CI Score components Contribution of values (B) (A*B) = (C) components CPIA 0.385 3.473 1.34 45% Real growth rate (in percent) 2.719 5.906 0.16 5% Import coverage of reserves (in percent) 4.052 40.207 1.63 54% Import coverage of reserves^2 (in percent) -3.990 16.166 -0.65 -22% Remittances (in percent) 2.022 1.552 0.03 1% World economic growth (in percent) 13.520 3.583 0.48 16% CI Score 3.00 100% CI rating Medium REALISM TOOLS 12. The growth projections for 2019 are slightly more optimistic than the growth path predicted by the growth and fiscal adjustment tool (Figure 4). More generally, the deviation between baselines projections and the growth path with LIC’s typical multiplier of 0.4, can be explained by several factors: • The authorities are implementing an ambitious public investment scaling plan, which peaked in in 2017-18. Given the traditional long lags of investment multipliers, we expect the positive growth effects to persist at least until 2019-20.8 • The revitalizing of the cotton production (a record high growth of 67 percent and 33 percent of cotton production, in 2016 and 2017 respectively) will be transmitted to the secondary sector in 2018-19 and beyond, through the ginned cotton activity, as well as higher export revenues. The cotton activity should remain dynamic in 2019, impacting export revenues and growth in 2020. Furthermore, port activities have been dynamic in 2018 and are expected to remain strong in the medium term. • A number of large public-private infrastructure projects of the Government’s Action Program are expected to start in 2020. • Nigeria’s economy is estimated to accelerate in 2018 and growth should be maintained in 2019-20. 8 See computation of the size and persistence of fiscal multipliers in Sub-Sahara Africa Regional Economic Outlook October 2017. 9 13. The fiscal adjustment path is assessed to be realistic despite being in the upper end of the historical distribution. Fiscal consolidation is expected to amount to about 4 percent between 2017 and 2020. This is high by historical standards (Figure 4). However, the adjustment will be mostly achieved through a scaling down of public investment, which increased by about 3 percent of GDP between 2016 and 2017-18 and will revert towards its 2016 level in subsequent years. 14. The projections of public and private investment as well as their contribution to real GDP growth remain broadly unchanged compared to the previous DSA. Benin’s medium-term outlook continues to be favorable, with economic growth projected at 6.7 percent over 2019-24, led by rising private investment. At the same time, the public investment ratio is expected to decline over the medium- term to return to its pre-scaling up 2016 level. 15. Relative to the previous DSA, the drivers of debt dynamics show a higher external debt path, compensated by lower domestic debt. The increase in the external debt stock reflects the Eurobond issuance. The reduction by the same amount of the domestic financing projected for the year is expected to leave the 2019 public debt stock unchanged. RISK RATING AND VULNERABILITIES: EXTERNAL DEBT SUSTAINABILITY RESULTS 16. The external debt burden indicators remain below the policy-dependent thresholds in the baseline scenario. Under the baseline, all debt indicators remain below their relevant policy-dependent thresholds. The PV of total PPG external debt is expected to stabilize at about 24 percent of GDP on average over 2019–24, reaching 10 percent of GDP in 2039. Thus, the ratio would remain below the corresponding threshold of 40 percent of GDP throughout the projection period. 17. However, the ratio of the present value of external debt to exports exceeds its threshold in the case of an extreme shock to exports. This breach is what motivates the assessment of moderate risk for external debt. The breach of the PV of Public and Publicly Guaranteed (PPG) external debt-to-exports ratio under the most extreme stress test (MX shock, standard and tailored) lasts four years (2021-2024). Such a breach lasts an extra year compared to the November 2018 DSA (in which the breach occurred over 2020-22), and its magnitude is larger (19.4 percent of GDP on average in the current vintage compared to 13.7 percent on average in the previous one). The increase in the stock of PPG external debt explains such a deterioration. Other indicators, the debt-to-GDP ratio and all debt service indicators, remain below their thresholds under the extreme shock scenarios. 18. Sizable breaches are recorded under the historical scenario for two external debt burden indicators. The historical scenario shows breaches for the PV of external debt-to GDP ratio and the external debt service-to-revenue ratio. However, this scenario is unlikely to materialize. The projections for real GDP growth, non-interest current account and net FDI flows are above the historical averages 10 because of the major reforms taken by the authorities to boost economic growth and the revitalization of exports supported by a booming agricultural production. 19. The market financing risk indicators show no breach of the GFN benchmarks, and the potential heightened liquidity needs are low. For the moment, there is no available data for the JP Morgan EMBI spreads. To add granularity to the moderate risk rating, Benin shows “some space” to absorb shocks. This is mainly due to the rise in the debt service-to-revenue indicator over the period 2024-26. The PV of debt to GDP also lies in the ‘’some space’’ zone. RISK RATING AND VULNERABILITIES: PUBLIC DEBT SUSTAINABILITY RESULTS 20. Total PPG debt (external plus domestic) remains below its respective benchmark, but the PV of public debt-to-GDP rises very slightly above its benchmark from 2024 until the end of the projection period under the real GDP shock scenario. The overall risk of debt distress remains moderate. Total debt does not show any breach in the baseline scenario. However, the ratio of the PV of public debt-to-GDP exceeds very slightly its benchmark under the real GDP shock scenario from 2024 until the end of the projection period. This breach is more pronounced than the one of the November 2018 DSA, because the current vintage has added some new items to the debt stock, including domestic arrears (0.3 percent of GDP) and additional government guarantees (0.4 percent of GDP). The PV of public debt-to-GDP records also a breach under the historical scenario. 21. Other factors also motivate the rating of moderate risk debt distress for total debt. These factors include: the past evolution of domestic debt; the relatively high ratio of debt service to revenue; the existence of contingent liabilities of SOEs; and the moderate risk of external debt distress. CONCLUSION 22. The updated DSA confirms that Benin stands at moderate risk of external and overall public debt distress. The ratings are unchanged relative to the Staff Report of November 2018 (EBS/18/364). Medium-term fiscal consolidation and improved debt management are needed to maintain debt sustainability. 23. The authorities concur broadly with staff’s assessment. Consistent with the main findings of the DSA, the authorities remain committed to strengthening debt sustainability by adhering to medium- term fiscal consolidation, conducting sound public investment management, and enhancing debt management capacity. 11 Table 1. Benin: External Debt Sustainability Framework, Baseline Scenario, 2016–39 Actual Projections Average 8/ Historical Projections 2016 2017 2018 2019 2020 2021 2022 2023 2024 2029 2039 External debt (nominal) 1/ 22.5 22.0 26.5 31.9 31.0 30.2 29.4 28.5 27.0 19.6 12.4 19.2 25.7 Definition of external/domestic debt Currency-based of which: public and publicly guaranteed (PPG) 22.5 22.0 26.5 31.9 31.0 30.2 29.4 28.5 27.0 19.6 12.4 19.2 25.7 Is there a material difference between the Yes two criteria? Change in external debt 1.2 -0.5 4.4 5.4 -0.8 -0.9 -0.7 -1.0 -1.4 -0.7 -0.7 Identified net debt-creating flows 7.4 6.6 3.6 3.6 2.4 2.1 1.6 1.1 0.9 1.4 -0.7 5.9 1.8 Non-interest current account deficit 9.2 9.7 8.0 7.2 6.5 5.9 5.4 4.8 4.6 4.4 1.8 8.5 5.3 Deficit in balance of goods and services 11.9 12.5 10.6 9.6 8.9 8.2 7.8 7.2 5.9 5.4 5.4 12.1 5.3 Exports 16.7 19.6 22.1 24.1 25.6 26.8 27.7 27.4 27.7 29.1 29.1 Imports 28.7 32.1 32.7 33.7 34.6 35.0 35.5 34.6 33.6 34.5 34.5 Debt Accumulation 9/ 9.0 35 Net current transfers (negative = inflow) -2.5 -2.6 -2.5 -2.3 -2.4 -2.2 -2.4 -2.4 -2.3 -2.4 -2.4 -3.6 -2.4 of which: official -1.9 -1.9 -1.8 -1.4 -1.3 -1.2 -1.4 -1.3 -1.3 -1.4 -1.4 8.0 30 Other current account flows (negative = net inflow) -0.3 -0.2 -0.1 0.0 -0.1 -0.1 0.0 0.0 1.0 1.4 -1.2 -0.1 2.3 7.0 Net FDI (negative = inflow) -1.3 -1.7 -2.2 -2.5 -2.7 -2.5 -2.5 -2.5 -2.5 -2.2 -2.2 -2.2 -2.4 6.0 25 Endogenous debt dynamics 2/ -0.5 -1.3 -2.2 -1.2 -1.4 -1.3 -1.3 -1.2 -1.2 -0.8 -0.2 5.0 Contribution from nominal interest rate 0.2 0.3 0.3 0.5 0.6 0.6 0.6 0.6 0.6 0.3 0.4 20 Contribution from real GDP growth -0.8 -1.2 -1.3 -1.7 -2.0 -1.9 -1.9 -1.8 -1.8 -1.1 -0.6 4.0 Contribution from price and exchange rate changes 0.1 -0.5 -1.1 … … … … … … … … 3.0 15 Residual 3/ -6.2 -7.1 0.9 1.8 -3.3 -3.0 -2.3 -2.0 -2.3 -2.0 -0.1 -4.8 -2.4 2.0 of which: exceptional financing 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1.0 10 Sustainability indicators 0.0 5 PV of PPG external debt-to-GDP ratio ... ... 18.2 24.8 24.6 24.3 24.2 23.8 22.7 16.5 9.9 -1.0 PV of PPG external debt-to-exports ratio ... ... 82.4 102.6 95.9 90.8 87.4 86.7 82.1 56.8 33.9 -2.0 0 PPG debt service-to-exports ratio 5.0 4.8 3.8 5.4 5.7 5.2 4.9 4.8 6.7 4.4 3.6 2019 2021 2023 2025 2027 2029 PPG debt service-to-revenue ratio 5.7 5.4 4.7 7.4 8.2 7.8 7.5 7.3 10.3 6.8 5.2 Gross external financing need (Billion of U.S. dollars) 0.7 0.8 0.7 0.7 0.6 0.6 0.6 0.5 0.6 0.9 0.3 Rate of Debt Accumulation Grant-equivalent financing (% of GDP) Key macroeconomic assumptions Grant element of new borrowing (% right scale) Real GDP growth (in percent) 4.0 5.8 6.7 6.7 6.7 6.7 6.7 6.7 6.7 6.0 5.0 4.4 6.4 GDP deflator in US dollar terms (change in percent) -0.6 2.1 5.5 -1.7 1.8 1.8 1.8 1.9 1.8 2.5 2.9 -0.3 2.0 Effective interest rate (percent) 4/ 1.1 1.6 1.5 2.0 1.9 2.1 2.2 2.2 2.3 1.7 3.5 1.5 2.0 External debt (nominal) 1/ Growth of exports of G&S (US dollar terms, in percent) -1.9 26.4 26.9 14.5 15.4 13.5 12.4 7.6 9.7 -4.5 8.0 8.1 11.6 of which: Private Growth of imports of G&S (US dollar terms, in percent) -0.3 20.8 14.8 8.1 11.4 9.9 10.2 6.1 5.4 8.6 8.0 5.9 9.1 35 Grant element of new public sector borrowing (in percent) ... ... ... 12.1 32.4 31.3 30.0 30.7 29.6 29.1 29.1 ... 28.6 Government revenues (excluding grants, in percent of GDP) 14.7 17.5 17.8 17.7 18.0 18.0 18.0 18.0 18.0 19.0 20.2 16.9 18.3 30 Aid flows (in Billion of US dollars) 5/ 0.1 0.1 0.1 0.3 0.2 0.3 0.3 0.3 0.3 0.3 0.3 Grant-equivalent financing (in percent of GDP) 6/ ... ... ... 2.5 2.2 2.1 2.1 2.0 1.9 1.3 0.7 ... 1.8 25 Grant-equivalent financing (in percent of external financing) 6/ ... ... ... 25.1 54.9 55.6 54.8 57.4 56.6 48.1 51.0 ... 50.5 Nominal GDP (Billion of US dollars) 9 9 10 11 12 13 14 15 17 26 56 20 Nominal dollar GDP growth 3.4 8.0 12.6 4.8 8.6 8.7 8.7 8.7 8.7 8.6 8.0 4.1 8.5 15 Memorandum items: 10 PV of external debt 7/ ... ... 18.2 24.8 24.6 24.3 24.2 23.8 22.7 16.5 9.9 In percent of exports ... ... 82.4 102.6 95.9 90.8 87.4 86.7 82.1 56.8 33.9 5 Total external debt service-to-exports ratio 5.0 4.8 3.8 5.4 5.7 5.2 4.9 4.8 6.7 4.4 3.6 PV of PPG external debt (in Billion of US dollars) 1.9 2.7 2.9 3.1 3.4 3.6 3.8 4.2 5.5 0 (PVt-PVt-1)/GDPt-1 (in percent) 7.8 1.9 1.9 2.0 1.6 0.9 0.9 0.1 2019 2021 2023 2025 2027 2029 Non-interest current account deficit that stabilizes debt ratio 8.0 10.2 3.5 1.8 7.3 6.8 6.1 5.8 6.0 5.1 2.5 Sources: Country authorities; and staff estimates and projections. 0 1/ Includes both public and private sector external debt. 2/ Derived as [r - g - ρ(1+g)]/(1+g+ρ+gρ) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, and ρ = growth rate of GDP deflator in U.S. dollar terms. 3/ Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes. 4/ Current-year interest payments divided by previous period debt stock. 5/ Defined as grants, concessional loans, and debt relief. 6/ Grant-equivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the PV of new debt). 7/ Assumes that PV of private sector debt is equivalent to its face value. 8/ Historical averages are generally derived over the past 10 years, subject to data availability, whereas projections averages are over the first year of projection and the next 10 years. 9/ The peak in 2019 and the negative debt accumulation in 2025-26 partly reflect the Eurobond operation. 12 Table 2. Benin: Public Sector Debt Sustainability Framework, Baseline Scenario, 2016–39 Actual Projections Average 6/ 2016 2017 2018 2019 2020 2021 2022 2023 2024 2029 2039 Historical Projections Public sector debt 1/ 49.7 54.4 56.8 54.7 52.5 50.3 48.3 46.4 44.6 36.1 22.4 37.0 44.8 Definition of external/domestic Currency- of which: external debt 22.5 22.0 26.5 31.9 31.0 30.2 29.4 28.5 27.0 19.6 12.4 19.2 25.7 debt based of which: local-currency denominated Change in public sector debt 7.3 4.8 2.3 -2.1 -2.2 -2.3 -2.0 -1.8 -1.9 -1.8 -1.2 Is there a material difference Identified debt-creating flows 5.1 0.7 0.9 -1.6 -1.9 -2.2 -2.3 -2.4 -2.4 -1.7 -1.2 1.7 -1.8 Yes between the two criteria? Primary deficit 4.7 3.8 1.8 0.6 0.1 -0.3 -0.6 -0.8 -0.9 -0.9 -0.9 2.5 -0.6 Revenue and grants 15.3 18.6 18.6 19.2 19.3 19.3 19.3 19.3 19.3 19.7 20.6 18.2 19.4 of which: grants 0.7 1.1 0.8 1.5 1.3 1.3 1.3 1.3 1.3 0.7 0.4 Public sector debt 1/ Primary (noninterest) expenditure 20.0 22.4 20.3 19.8 19.3 19.0 18.7 18.5 18.4 18.8 19.7 20.7 18.8 Automatic debt dynamics 0.4 -3.1 -0.8 -2.1 -2.0 -1.9 -1.7 -1.6 -1.6 -0.8 -0.3 of which: local-currency denominated Contribution from interest rate/growth differential -1.0 -2.4 -3.8 -2.7 -3.8 -3.7 -3.5 -3.3 -3.3 -1.8 -0.9 of which: foreign-currency denominated of which: contribution from average real interest rate 0.6 0.4 -0.4 0.9 -0.4 -0.4 -0.3 -0.3 -0.3 0.3 0.2 of which: contribution from real GDP growth -1.6 -2.7 -3.4 -3.6 -3.4 -3.3 -3.2 -3.0 -2.9 -2.1 -1.1 60 Contribution from real exchange rate depreciation 1.4 -0.8 3.0 ... ... ... ... ... ... ... ... 50 Other identified debt-creating flows 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Privatization receipts (negative) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 40 Recognition of contingent liabilities (e.g., bank recapitalization) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 30 Debt relief (HIPC and other) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Other debt creating or reducing flow (please specify) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 20 Residual 2.2 4.1 1.4 0.0 1.6 1.7 2.1 2.3 2.2 0.9 0.6 1.4 1.4 10 Sustainability indicators 0 PV of public debt-to-GDP ratio 2/ ... ... 49.2 47.5 45.9 44.3 42.9 41.6 40.1 32.9 19.8 2019 2021 2023 2025 2027 2029 PV of public debt-to-revenue and grants ratio … … 264.9 247.1 238.4 229.7 222.6 215.9 208.1 166.9 96.0 Debt service-to-revenue and grants ratio 3/ 48.4 37.4 64.7 50.7 52.5 54.7 41.1 35.1 33.3 27.2 16.1 Gross financing need 4/ 12.1 10.7 13.8 10.0 8.0 8.6 6.3 5.3 5.2 4.4 2.4 of which: held by residents of which: held by non-residents Key macroeconomic and fiscal assumptions 1 Real GDP growth (in percent) 4.0 5.8 6.7 6.7 6.7 6.7 6.7 6.7 6.7 6.0 5.0 4.4 6.4 Average nominal interest rate on external debt (in percent) 1.2 1.7 1.4 2.1 1.9 2.0 2.1 2.2 2.3 1.7 3.5 1.5 2.0 1 Average real interest rate on domestic debt (in percent) 5.3 6.4 5.4 5.4 6.7 6.8 7.3 7.9 7.4 9.2 7.5 1.9 9.1 Real exchange rate depreciation (in percent, + indicates depreciation) 7.0 -3.8 16.1 … ... ... ... ... ... ... ... 4.4 ... 1 n.a. Inflation rate (GDP deflator, in percent) -0.3 0.0 0.8 1.5 1.8 1.8 1.8 1.9 1.8 2.5 2.9 1.7 2.0 0 Growth of real primary spending (deflated by GDP deflator, in percent) -14.0 18.4 -3.1 3.9 4.2 4.8 5.0 5.6 6.2 6.5 5.5 5.7 5.6 Primary deficit that stabilizes the debt-to-GDP ratio 5/ -2.6 -1.0 -0.6 2.6 2.3 2.0 1.4 1.0 1.0 0.9 0.3 -1.4 1.3 0 PV of contingent liabilities (not included in public sector debt) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0 2019 2021 2023 2025 2027 2029 Sources: Country authorities; and staff estimates and projections. 1/ Coverage of debt: The central, state, and local governments, central bank, government-guaranteed debt. Definition of external debt is Currency-based. 2/ The underlying PV of external debt-to-GDP ratio under the public DSA differs from the external DSA with the size of differences depending on exchange rates projections. 3/ Debt service is defined as the sum of interest and amortization of medium and long-term, and short-term debt. 4/ Gross financing need is defined as the primary deficit plus debt service plus the stock of short-term debt at the end of the last period and other debt creating/reducing flows. 5/ Defined as a primary deficit minus a change in the public debt-to-GDP ratio ((-): a primary surplus), which would stabilizes the debt ratio only in the year in question. 6/ Historical averages are generally derived over the past 10 years, subject to data availability, whereas projections averages are over the first year of projection and the next 10 years. 13 Figure 1. Benin: Indicators of Public and Publicly Guaranteed External Debt under Alternative Scenarios, 2029 PV of debt-to GDP ratio PV of debt-to-exports ratio 60 250 50 200 40 150 30 100 20 50 10 Most extreme shock is Exports Most extreme shock is Exports 0 0 2019 2021 2023 2025 2027 2029 2019 2021 2023 2025 2027 2029 Debt service-to-exports ratio Debt service-to-revenue ratio 16 25 14 20 12 10 15 8 10 6 4 5 A one-off breach excluded: One-time depreciation 2 Most extreme shock is Exports Most extreme shock is Combination 0 0 2019 2021 2023 2025 2027 2029 2019 2021 2023 2025 2027 2029 Baseline Historical scenario Most extreme shock 1/ Threshold 1 Stress test with (the largest) one-off breach Customization of Default Settings Borrowing Assumptions for Stress Tests* Size Interactions Default User defined Shares of marginal debt No No External PPG MLT debt 100% Tailored Tests Terms of marginal debt Combined CLs Yes Avg. nominal interest rate on new borrowing in USD 2.4% 2.4% Natural Disasters n.a. n.a. USD Discount rate 5.0% 5.0% Commodity Prices 2/ n.a. n.a. Avg. maturity (incl. grace period) 22 22 Market Financing No No Avg. grace period 6 6 Note: "Yes" indicates any change to the size or * Note: All the additional financing needs generated by the shocks under the stress tests interactions of the default settings for the stress are assumed to be covered by PPG external MLT debt in the external DSA. Default terms tests. "n.a." indicates that the stress test does not of marginal debt are based on baseline 10-year projections. apply. Sources: Country authorities; and staff estimates and projections. 1/ The most extreme stress test is the test that yields the highest ratio in or before 2029. Stress tests with one-off breaches are also presented (if any), while these one-off breaches are deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most exterme shock even after disregarding the one-off breach, only that stress test (with a one-off breach) would be presented. 2/ The magnitude of shocks used for the commodity price shock stress test are based on the commodity prices outlook prepared by the IMF research department. 14 Figure 2. Benin: Indicators of Public Debt under Alternative Scenarios, 2019–29 PV of Debt-to-GDP Ratio 70 60 50 40 30 20 Most extreme shock is Growth 10 0 2019 2021 2023 2025 2027 2029 PV of Debt-to-Revenue Ratio Debt Service-to-Revenue Ratio 400 70 350 60 300 50 250 40 200 30 150 20 100 Most extreme shock is Growth 10 Most extreme shock is Growth 50 0 0 2019 2021 2023 2025 2027 2029 2019 2021 2023 2025 2027 2029 Baseline Most extreme shock 1/ Public debt benchmark Historical scenario Borrowing Assumptions for Stress Tests* Default User defined Shares of marginal debt External PPG medium and long-term 44% 44% Domestic medium and long-term 53% 53% Domestic short-term 3% 3% Terms of marginal debt External MLT debt Avg. nominal interest rate on new borrowing in USD 2.4% 2.4% Avg. maturity (incl. grace period) 22 22 Avg. grace period 6 6 Domestic MLT debt Avg. real interest rate on new borrowing 3.8% 3.8% Avg. maturity (incl. grace period) 9 9 Avg. grace period 5 5 Domestic short-term debt Avg. real interest rate 4.0% 4.0% * Note: The public DSA allows for domestic financing to cover the additional financing needs generated by the shocks under the stress tests in the public DSA. Default terms of marginal debt are based on baseline 10-year projections. Sources: Country authorities; and staff estimates and projections. 1/ The most extreme stress test is the test that yields the highest ratio in or before 2029. The stress test with a one-off breach is also presented (if any), while the one-off breach is deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most exterme shock even after disregarding the one-off breach, only that stress test (with a one-off breach) would be presented. 15 Table 3. Benin: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2019–29 (in percent) Projections 1/ 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 PV of debt-to GDP ratio Baseline 25 25 24 24 24 23 20 18 17 17 17 A. Alternative Scenarios A1. Key variables at their historical averages in 2019-2029 2/ 25 27 30 34 37 40 42 43 46 49 51 0 #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A B. Bound Tests B1. Real GDP growth 25 26 28 28 27 26 23 20 20 19 19 B2. Primary balance 25 27 31 31 30 29 26 24 24 24 23 B3. Exports 25 29 37 36 35 34 30 27 27 25 24 B4. Other flows 3/ 25 26 28 28 27 26 23 21 20 19 19 B5. One-time 30 percent nominal depreciation 25 31 26 26 26 25 21 19 18 18 18 B6. Combination of B1-B5 25 31 31 31 30 29 25 23 22 21 21 C. Tailored Tests C1. Combined contingent liabilities 25 29 29 29 29 28 25 23 23 23 23 C2. Natural disaster n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C3. Commodity price n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C4. Market Financing 25 25 24 24 24 23 20 18 17 17 17 Threshold 40 40 40 40 40 40 40 40 40 40 40 PV of debt-to-exports ratio Baseline 103 96 91 87 87 82 60 54 53 51 57 A. Alternative Scenarios A1. Key variables at their historical averages in 2019-2029 2/ 103 107 113 122 136 146 126 130 139 147 176 0 103 92 85 80 77 71 50 41 37 34 35 B. Bound Tests B1. Real GDP growth 103 96 91 87 87 82 60 54 53 51 57 B2. Primary balance 103 105 116 112 111 106 79 73 73 72 80 B3. Exports 103 142 211 201 198 188 140 128 124 118 127 B4. Other flows 3/ 103 103 104 100 99 94 69 62 61 59 64 B5. One-time 30 percent nominal depreciation 103 96 77 75 74 70 51 45 44 44 49 B6. Combination of B1-B5 103 129 100 127 126 119 87 79 76 74 81 C. Tailored Tests C1. Combined contingent liabilities 103 112 108 105 105 100 75 70 70 70 78 C2. Natural disaster n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C3. Commodity price n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C4. Market Financing 103 96 91 87 87 82 60 54 53 51 57 Threshold 180 180 180 180 180 180 180 180 180 180 180 Debt service-to-exports ratio Baseline 5 6 5 5 5 7 8 8 4 4 4 A. Alternative Scenarios A1. Key variables at their historical averages in 2019-2029 2/ 5 5 5 5 6 9 12 13 8 9 11 0 4 5 4 4 4 6 9 9 3 3 3 B. Bound Tests B1. Real GDP growth 5 5 4 4 4 6 8 8 4 4 4 B2. Primary balance 5 6 6 6 6 8 9 9 5 5 6 B3. Exports 5 6 8 8 8 12 15 14 8 10 11 B4. Other flows 3/ 5 5 4 4 5 7 9 8 5 5 5 B5. One-time 30 percent nominal depreciation 5 5 4 3 4 6 8 8 4 3 4 B6. Combination of B1-B5 5 5 6 5 6 9 11 11 6 6 7 C. Tailored Tests C1. Combined contingent liabilities 5 6 6 5 5 7 9 8 5 5 5 C2. Natural disaster n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C3. Commodity price n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C4. Market Financing 5 6 5 5 5 7 8 8 4 4 4 Threshold 15 15 15 15 15 15 15 15 15 15 15 Debt service-to-revenue ratio Baseline 7.4 8.2 7.8 7.5 7.3 10.3 15.1 14.2 7.1 7.1 6.8 A. Alternative Scenarios A1. Key variables at their historical averages in 2019-2029 2/ 7 7 7 7 9 14 22 22 14 15 16 0 5 7 6 5 6 10 16 15 6 5 4 B. Bound Tests B1. Real GDP growth 7 7 7 7 7 11 17 16 8 8 8 B2. Primary balance 7 8 9 9 9 12 17 16 9 10 9 B3. Exports 7 7 7 8 8 12 17 16 10 11 11 B4. Other flows 3/ 7 7 7 6 7 10 16 15 8 8 8 B5. One-time 30 percent nominal depreciation 7 9 8 7 7 12 18 17 8 7 7 B6. Combination of B1-B5 7 7 8 7 8 12 18 17 10 9 9 C. Tailored Tests C1. Combined contingent liabilities 7 8 8 8 8 11 16 15 8 8 8 C2. Natural disaster n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C3. Commodity price n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C4. Market Financing 7 8 8 7 7 10 15 14 7 7 7 Threshold 18 18 18 18 18 18 18 18 18 18 18 Sources: Country authorities; and staff estimates and projections. 1/ A bold value indicates a breach of the threshold. 2/ Variables include real GDP growth, GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows. 3/ Includes official and private transfers and FDI. 16 Table 4. Benin: Sensitivity Analysis for Key Indicators of Public Debt, 2019–29 (in percent) Projections 1/ 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 PV of Debt-to-GDP Ratio Baseline 47 46 44 43 42 40 39 36 36 35 33 A. Alternative Scenarios A1. Key variables at their historical averages in 2019-2029 2/ 47 49 50 52 55 57 58 59 63 65 67 0 #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A B. Bound Tests B1. Real GDP growth 47 50 53 54 55 55 56 55 57 57 57 B2. Primary balance 47 50 54 53 51 50 48 46 45 43 42 B3. Exports 47 50 55 54 52 50 48 45 45 42 40 B4. Other flows 3/ 47 48 48 46 45 43 41 39 39 37 35 B5. One-time 30 percent nominal depreciation 47 50 46 44 41 38 35 32 31 28 26 B6. Combination of B1-B5 47 47 51 50 49 47 46 44 44 43 42 C. Tailored Tests C1. Combined contingent liabilities 47 55 53 51 50 48 46 44 44 42 40 C2. Natural disaster n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C3. Commodity price n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C4. Market Financing 47 Public debt benchmark 55 55 55 55 55 55 55 55 55 55 55 PV of Debt-to-Revenue Ratio Baseline 247 238 230 223 216 208 199 187 185 175 167 A. Alternative Scenarios A1. Key variables at their historical averages in 2019-2029 2/ 247 253 260 270 281 291 297 301 318 326 335 0 51 -793 -907 -743 -695 -730 -1224 -1166 -900 -1254 -1970 B. Bound Tests B1. Real GDP growth 247 257 275 278 282 284 284 282 290 289 290 B2. Primary balance 247 257 283 274 266 258 246 234 231 220 210 B3. Exports 247 259 288 278 269 259 246 232 227 213 201 B4. Other flows 3/ 247 248 248 241 233 225 214 201 198 187 178 B5. One-time 30 percent nominal depreciation 247 260 242 227 214 200 182 165 158 144 132 B6. Combination of B1-B5 247 246 262 256 251 245 236 226 226 217 210 C. Tailored Tests C1. Combined contingent liabilities 247 285 274 265 258 250 238 225 223 212 203 C2. Natural disaster n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C3. Commodity price n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C4. Market Financing 247 Debt Service-to-Revenue Ratio Baseline 51 53 55 41 35 33 42 35 25 27 27 A. Alternative Scenarios A1. Key variables at their historical averages in 2019-2029 2/ 51 54 59 46 41 40 51 47 39 44 46 0 51 -793 -907 -743 -695 -730 -1224 -1166 -900 -1254 -1970 B. Bound Tests B1. Real GDP growth 51 56 63 49 43 41 52 46 37 42 44 B2. Primary balance 51 53 58 46 40 38 46 43 35 38 38 B3. Exports 51 53 55 43 37 35 43 36 27 30 31 B4. Other flows 3/ 51 53 55 42 36 34 42 36 26 28 28 B5. One-time 30 percent nominal depreciation 51 50 54 41 35 35 45 39 27 28 28 B6. Combination of B1-B5 51 52 58 45 39 37 46 40 32 34 35 C. Tailored Tests C1. Combined contingent liabilities 51 53 59 44 38 36 45 44 34 36 36 C2. Natural disaster n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C3. Commodity price n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C4. Market Financing Sources: Country authorities; and staff estimates and projections. 1/ A bold value indicates a breach of the threshold. 2/ Variables include real GDP growth, GDP deflator and primary deficit in percent of GDP. 3/ Includes official and private transfers and FDI. 17 Figure 3. Benin: Driver of Debt Dynamics – Baseline Scenario Figure 3. Benin: Drivers of Debt Dynamics - Baseline Scenario External debt Gross Nominal PPG External Debt Debt-creating flows Unexpected Changes in Debt 1/ (in percent of GDP; DSA vintages) (percent of GDP) (past 5 years, percent of GDP) Current DSA 60 80 Residual 25 Previous DSA proj. 70 DSA-2012 40 20 Interquartile Price and range (25-75) 60 exchange 15 rate 50 20 Real GDP 10 growth Change in PPG 40 5 debt 3/ 0 Nominal 30 interest rate 0 20 -20 -5 Current Median 10 account + FDI -1 0 -40 0 Change in -1 5 5-year 5-year Contribution of 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 PPG debt 3/ Distribution across LICs 2/ unexpected historical projected changes change change Public debt Gross Nominal Public Debt Debt-creating flows Unexpected Changes in Debt 1/ (in percent of GDP; DSA vintages) (percent of GDP) (past 5 years, percent of GDP) Residual 60 Current DSA 45 Previous DSA proj. DSA-2012 Interquartile 80 Other debt 40 40 range (25-75) creating flows 70 35 Real 60 Exchange 20 30 rate depreciation 25 50 Real GDP growth 0 20 Change in debt 40 Real interest 15 30 rate -20 10 20 Primary deficit 5 10 -40 0 Median 0 Change in debt 5-year 5-year -5 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 Distribution across LICs 2/ historical projected Contribution of change change -10 unexpected 1/ Difference betw een anticipated and actual contributions on debt ratios. 2/ Distribution across LICs for w hich LIC DSAs w ere produced. 3/ Given the relatively low private external debt for average low -income countries, a ppt change in PPG external debt should be largely explained by the drivers of the external debt dynamics equation. 18 Figure 4. Benin: Realism Tools 3-Year Adjustment in Primary Balance Fiscal Adjustment and Possible Growth Paths 1/ (Percentage points of GDP) Distribution 1/ 8 2 14 Projected 3-yr 7 12 adjustment 3-year PB adjustment greater than In percentage poi nts of GDP 6 2.5 percentage points of GDP in 10 approx. top quartile 5 In percent 8 4 1 6 3 4 2 2 1 0 0 0 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0 7.5 8.0 -4.5 -4.0 -3.5 -3.0 -2.5 -2.0 -1.5 -1.0 -0.5 More 2013 2014 2015 2016 2017 2018 2019 2020 Baseline Multiplier = 0.2 1/ Bars refer to annual projected fiscal adjustment (right-hand side scale) and lines show 1/ Data cover Fund-supported programs for LICs (excluding emergency financing) approved since possible real GDP growth paths under different fiscal multipliers (left-hand side scale). 1990. The size of 3-year adjustment from program inception is found on the horizontal axis; the percent of sample is found on the vertical axis. Public and Private Investment Rates Contribution to Real GDP growth (% of GDP) (percent, 5-year average) 26 8 24 7 22 20 6 18 16 5 14 4 12 10 3 8 2 6 4 1 2 0 0 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Historical Projected (Prev. DSA) Projected (Curr. DSA) Gov. Invest. - Prev. DSA Gov. Invest. - Current DSA Contribution of other factors Priv. Invest. - Prev. DSA Priv. Invest. - Current DSA Contribution of government capital 19 Figure 5. Benin: Qualification of the Moderate Category, 2019–29 1/ PV of debt-to GDP ratio PV of debt-to-exports ratio 45 200 40 180 Threshold 35 160 140 (1-X)*Threshold 30 120 25 (1-Y)*Threshold 100 20 80 15 60 10 40 5 20 0 0 2019 2021 2023 2025 2027 2029 2019 2021 2023 2025 2027 2029 Debt service-to-exports ratio Debt service-to-revenue ratio 16 20 18 14 16 12 14 10 12 8 10 8 6 6 4 4 2 2 0 0 2019 2021 2023 2025 2027 2029 2019 2021 2023 2025 2027 2029 Threshold Baseline Limited space Some space Substantial space Sources: Country authorities; and staff estimates and projections. 1/ For the PV debt/GDP and PV debt/exports thresholds, x is 20 percent and y is 40 percent. For debt service/Exports and debt service/revenue thresholds, x is 12 percent and y is 35 percent. 20 Figure 6. Benin: Market-Financing Risk Indicators, 2019–29 GFN 1/ EMBI 2/ Benchmarks 14 570 Values 10 n.a. Breach of benchmark No n.a. Potential heightened liquidity needs Moderate 1/ Maximum gross financing needs (GFN) over 3-year baseline projection horizon. 2/ EMBI spreads correspond to the latest available data. 45 PV of debt-to GDP ratio PV of debt-to-exports ratio 200 40 180 35 160 30 140 25 120 20 100 15 80 10 60 5 40 0 20 2019 2021 2023 2025 2027 2029 0 2019 2021 2023 2025 2027 2029 Debt service-to-exports ratio Debt service-to-revenue ratio 16 20 14 18 16 12 14 10 12 8 10 8 6 6 4 4 2 2 0 0 2019 2021 2023 2025 2027 2029 2019 2021 2023 2025 2027 2029 Baseline Market financing Threshold Sources: Country authorities; and staff estimates and projections. 21