From Africa Recovery, Vol.13#2-3 (September 1999), page 32 (part of special feature on ECA conference "Financing for Development")

Benin: the pitfalls of 'good performance'

Mr. Ibrahim Pedro-Boni, head of Benin's Caisse autonome d'amortissement (CAA), which manages all external and domestic borrowings, talked to Africa Recovery.

By some criteria, Benin is in pretty good shape. But one-quarter of its annual budget goes into debt service payments, valuable resources that "we could reinvest in development." Mr. Ibrahim Pedro-Boni notes that "a middle-income country like Côte d'Ivoire has qualified as a [heavily indebted poor country], because of the budgetary burden of their debt, whereas we have not!"

Public debt is about 800 bn CFA francs ($1.2 bn). Besides the arrears on public sector salaries and payments to suppliers, domestic debt is relatively small. Foreign debt is another matter. The Paris Club has rescheduled Benin's bilateral debts four times already, most recently in 24 October 1996.

Due to those Paris Club deals, Benin had 174 bn CFA in bilateral debt by end-March 1999, and 625 bn CFA in multilateral debt and was not in arrears to any creditor. Meanwhile, the Caisse will pay about 40 bn CFA in debt service this year, and payments by Benin's Treasury to the IMF and the West African Central Bank (BCEAO) bring the total to some 50 bn CFA. This in turn amounts to 25 per cent of budgetary receipts. "That is the problem," Mr. Pedro-Boni said.

When Benin was evaluated as an HIPC candidate, "the calculations we did with the World Bank and IMF [showed that our] debt ratios are good, and we were judged as not qualifying for HIPC treatment. We even went over the calculations again last year with an IMF team, and our ratios were still good. But if we were to qualify, that would be some 50 bn CFA francs [for] development."

If new criteria were decided for HIPCs, "we would hope for reconsideration." For example, "if it is agreed that 25 per cent of the budget going to debt service is too much, then we can qualify." Meanwhile, some creditors "are already making gestures." Benin no longer pays debt service to Belgium, but puts the money into a local account, meets with Belgium every three months, and discusses what it wants to finance with the money. The Norwegians say they also want to go in that direction.

And the effects of debt service swallowing a quarter of the budget? "Very simple. We are in 1999. There was devaluation in 1994 and we are paying our civil servants at 1992 levels. With that 25 per cent in hand, we could improve their situation. For 13 years now, there has been little public sector recruitment -- the ratio is one recruitment for three departures -- because the Bretton Woods institutions have fixed the percentage of budget we can allocate to salaries. We also have insufficient funds for recurrent spending on public investments, for example on maintenance."

Benin is very good with external payments, but has internal problems "that the government has to struggle with. You have to understand why civil servants go on strike from time to time." Nearly 80 per cent of public investment comes from external sources and the government is trying to reduce this dependence. "If we had debt cancellation, we could [virtually] dispense with aid. Money we get today as new loans or grants goes out tomorrow in debt service."

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