Moody’s Ratings has upgraded Benin’s government ratings outlook to positive while affirming its B1 rating. The positive outlook is driven by improvements in economic, institutional, and fiscal resilience. Benin shows notable GDP growth, diversified economy, and effective debt management, though it still faces regional risks and low revenue challenges. Continued efforts in governance and economic reform signal potential for higher ratings in the future.
Moody’s Ratings has revised Benin’s long-term issuer ratings outlook to positive, maintaining the existing B1 rating for both local and foreign currencies. The positive outlook reflects notable advancements in the nation’s economic, institutional, and fiscal resilience, emphasizing Benin’s dependency on agriculture amid geopolitical challenges from the Sahel region. If these improvements persist, Moody’s suggests that higher ratings could be justified in the future.
The government’s effective public finance management alongside steady economic growth marks Benin’s resilience. Economic indicators such as diversification and increasing incomes, albeit from lower bases, contribute to this narrative. Furthermore, governance enhancements have made the country more appealing for investments, with fiscal reforms under the IMF resulting in a projected deficit reduction to around 3% of GDP by 2024, despite still-low revenue collections compared to its regional counterparts.
Benin has successfully managed its debt, mitigating government liquidity risks through innovative strategies. The B1 rating balances the optimistic growth outlook, manageable debt levels, and macroeconomic stability of Benin’s membership in the West African Economic and Monetary Union with persistent regional risks and improving but still inadequate governmental revenue streams.
The local currency (LC) and foreign currency (FC) ceilings remain unchanged, reflecting a stable economic environment bolstered by Benin’s institutional improvements and external risk mitigation strategies. Moody’s notes the French Treasury’s backing of the CFA franc to euro peg lessens transfer and convertibility risks despite some existing limitations.
Factors driving the positive outlook include enhanced economic resilience, fuelled by rising income levels and diversity in economic activities. Concurrently, improvements in governance and transparency, aided by international entities like the IMF and World Bank, encourage confidence in Benin’s ability to endure economic shocks.
The period from 2021 to 2024 has seen Benin achieve a remarkable average GDP growth of 6.6%, a result of mitigation strategies against external shocks. Investments in government action programs have fostered steady economic growth, leading to a 59% increase in GDP per capita over the decade, anticipated to reach $4,500 by the close of 2024.
Diversification efforts, particularly through the Glo-Djigbé industrial zone inaugurated in 2021, are set to enhance local agricultural product processing and potentially generate 300,000 jobs by 2030, significantly contributing to GDP. Progress in the petroleum sector also promises further economic diversification post-2025, while Benin’s external position improves with a decreasing current account deficit.
Benin’s governance frameworks are advancing, especially in corruption control, positioning the nation favorably when compared to its peers. Enhanced financial management and fiscal consolidation are anticipated to yield positives, with an estimated fiscal deficit aligned with WAEMU standards in 2024.
Efforts to balance government revenue against expenditure have resulted in a gradual decrease of the debt burden, from a peak of 54.5% in 2023. With a favorable interest payments-to-revenue ratio forecasted, Benin is positioned to maintain lower costs and extend the maturity of public debt, assuring reliable access to necessary funding sources.
Continued revenue improvement is vital for solidifying government finances, potentially allowing for more robust economic policy financing and reducing overall debt levels. Despite gradual and uncertain progress, projections indicate government revenue reaching 17% of GDP by 2028 with sustained fiscal efforts.
The B1 rating affirms expectations that Benin’s strong growth prospects and moderate debt burden, combined with the macro-financial stability from the WAEMU, will endure. Credit constraints, however, arise from low income levels and a developing governance framework, while regional security threats remain a concern despite improved management capabilities and international support.
In summary, Moody’s upgrade of Benin’s ratings outlook to positive reflects significant improvements in economic resilience and fiscal management. The country’s efforts towards governance and transparency have bolstered its investment attractiveness. While external risks persist, Benin’s strategic measures and commitment to reforms poise it for future growth and stability. Ensuring continued revenue generation will be crucial for long-term fiscal health.
Original Source: dmarketforces.com
