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Fitch Affirms Benin at 'B'; Outlook Stable

October 26, 2009 | Fitch Ratings

Fitch Ratings-London-22 October 2009: Fitch Ratings has today affirmed the Republic of Benin's Long-term foreign and local currency Issuer Default Ratings (IDR) at 'B' with Stable Outlook and the Short-term foreign and local currency IDRs at 'B'. The Country Ceiling is affirmed at 'BBB-'.
The rating primarily reflects the country's persisting poverty, illustrated by its GDP per capita of USD771 in 2008 and its low ranking (163rd out of 179) in the Human Development Index of the United Nations Development Programme. It also factors in its reliance on foreign aid and its exposure to external shocks, illustrated by fiscal slippages and deterioration in the current account recorded in 2008.

The Beninese economy, which relies mainly on agriculture and trade with Nigeria, is insufficiently diversified. It has grown rather slowly in recent years (3.9% on average between 2004 and 2008), owing to difficulties in the cotton sector due to inefficient domestic production and subsidised exports from developed countries. Cross-border trade with neighbouring countries has been affected by Nigeria's economic difficulties. Dependence on energy imports is a major issue, as the country purchases all its oil and most of its electricity abroad. This makes Benin highly exposed to external shocks: the increase in oil prices resulted in a marked deterioration in the current account balance in 2007 and in high inflation in 2008.

State intervention has long been a key feature of the Beninese economy. The main utilities (electricity, water and telecoms) are still owned by the state, which is also involved in the cotton sector. President Boni Yayi, elected in 2006, has taken steps to liberalise the economy, with the opening of the cotton sector and of the port of Cotonou to the private sector. The improvement of public governance, which is a major weakness in Benin, and poverty reduction projects stand at the top of his agenda. Democracy is well established in Benin, as illustrated by the presidential and parliamentary elections held respectively in 2006 and 2007, which led to a peaceful transfer of power. President Yayi enjoys genuine popularity and an excellent reputation in the international community.

Benin benefits from substantial aid from donors. It was eligible for the US-sponsored Millennium Challenge Account (MCA) and received substantial debt relief from external creditors. This allowed it to cut public debt to 18.4% of GDP in 2008 (from 51.5% in 2002), and the country has been a net external creditor since 2007. However, slower-than-anticipated economic growth, an increase in the wage bill and growing expenses to support the state-owned electrical company resulted in fiscal slippages in 2008 and reversed the debt dynamic; Fitch expects public debt to increase to 25.8% of GDP in 2010 from its trough of 15.5% in 2007. Further deterioration in the fiscal position coupled with a loss of momentum in implementing structural reforms would put downward pressure on the rating. Benin's external accounts also deteriorated in 2008, as the current account balance suffered from the increase in oil prices. In 2009, it will be indirectly affected by the global crisis, as revenue from trade with Nigeria will decline and remittances from emigrant workers will also decrease. However, Benin has large amount of international assets, as exported goods are paid in hard currencies and the country received substantial FX inflows from debt relief initiatives. Besides, due to monetary arrangements with France, the external accounts are not a constraint.

Benin is a member of the Union Economique et Monetaire Ouest Africaine, UEMOA (UEMOA), a monetary zone grouping eight member countries (Benin, Burkina Faso, Cote d'Ivoire, Guinea-Bissau, Mali, Niger, Senegal and Togo) sharing a currency, the CFA franc (XOF). The Banque Centrale des Etats d'Afrique de l'Ouest (BCEAO) is the regional central bank for the zone. The French Treasury guarantees free convertibility of the CFA franc. The foreign-exchange reserves of all member states are centralised at BCEAO, which in turn deposits at least 50% of these reserves at the French Treasury. Hence, Benin's local and foreign currency ratings stand at the same level, just as in countries of the European Union within the euro zone. The UEMOA zone's Country Ceiling of 'BBB-' is based on support provided by France. The pooling of FX at BCEAO and monetary arrangements with France have been the key to avoiding monetisation of public deficits and insulate the country against a shortage of foreign currencies.

Company: Benin

Full company nameBenin
Country of riskBenin
Country of registrationBenin


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