Moody’s Ratings upgraded Benin’s outlook to positive while affirming its B1 ratings. The positive trend reflects improvements in economic resilience, public finance management, and governance. Despite certain risks, the economy shows strong growth potential and diversified development supported by strategic projects, enhancing fiscal stability. Benin’s ratings indicate a balanced view of its growth prospects against external challenges.
Moody’s Ratings has confirmed the Government of Benin’s local and foreign currency long-term issuer ratings at B1, upgrading the outlook from stable to positive. This change indicates significant improvements in Benin’s economic, institutional, and fiscal capacities, which are essential for the resilience of the economy that heavily relies on agriculture and is vulnerable to geopolitical risks from the Sahel region.
The positive outlook arises from Benin’s demonstrated economic resilience and enhanced public finance management, suggesting potential for a higher rating in the future. The country has seen strong economic growth, increasing diversification, and rising income levels, starting from a low baseline. This economic upswing is supported by efforts to improve governance, which have bolstered investor confidence and institutional development.
Benin’s fiscal consolidation measures under an IMF program have begun yielding results, estimating the deficit to be around 3% of GDP by 2024. Revenue collection remains comparatively low when juxtaposed with peers, yet proactive debt management minimizes liquidity risks. The ratings highlight strong growth prospects alongside manageable government debt levels and macro-financial stability fostered through participation in the West African Economic and Monetary Union.
Moody’s ratings affirm the local currency (LC) and foreign currency (FC) ceilings at Baa3 and Ba1, respectively. The higher LC ceiling accounts for the government’s limited economic influence and improvements in the institutional framework. A slight gap between the LC and FC ceilings reflects Moody’s assessment of minor but existent transfer and convertibility risks, bolstered by a guarantee from the French Treasury for the CFA franc’s peg to the euro.
The positive outlook is underpinned by Benin’s economic resilience marked by rapid income growth and diversification. Improved governance over recent years, aided by the IMF and World Bank, enhances the country’s ability to withstand economic shocks. Real GDP growth is projected to average 6.6% between 2021 and 2024 amid various external challenges.
Furthermore, the Government Action Programmes (PAGs) have allowed a degree of economic decoupling from regional influences, leading to steady growth and a significant increase in GDP per capita. Growth in the industrial and services sectors, driven by the Glo-Djigbé industrial zone’s development, promises to create jobs and enhance the economy’s value-added potential by 2030.
Benin’s external position mirrors its improved economic fundamentals. This is indicated by a gradually lowering current account deficit, while favorable external borrowing and stable foreign direct investment levels bolster the overall balance of payments. Governance indicators reveal significant improvements in several domains, particularly regarding corruption control.
Another vital factor for the positive outlook is the improved management of public finances. Fiscal policies aim at continued consolidation, which positively influences fiscal strength. Estimates suggest a fiscal deficit of approximately 3% of GDP for 2024, meeting WAEMU standards, and showing improvement from prior years.
Benin’s debt situation is steadily improving thanks to cautious fiscal policies and effective debt management, leading to a declining debt burden forecasted to drop from 54.5% in 2023. The interest payment-to-revenue ratio is also projected to decrease considerably, indicating better revenue management compared to past performances.
Significantly, there are no immediate risks from large contingent liabilities affecting the government’s financial standing. Benin enjoys reliable access to domestic and international funding channels, intense ongoing fiscal consolidation, and proactive debt management strategies, improving the average maturity of government debt and reducing reliance on currencies outside CFA francs or euros.
Going forward, enhancements in revenue generation are crucial for solidifying government finances and promoting further debt reduction trends. Continued effectiveness in introducing revenue-raising measures is hoped to elevate government revenue projections by 2028. Overall, Benin’s ratings reflect stability due to favorable growth prospects and government reforms while also retaining a heedful viewpoint toward regional geopolitical risks.
Moody’s upgrade of Benin’s ratings outlook to positive reflects improvements in the country’s economic strengths and fiscal management. The affirmation of a B1 rating balances strong growth prospects against challenges like low revenue and regional geopolitical stability. The implementation of effective governance reforms and proactive debt management suggests a path toward strengthened economic resilience and potential future rating upgrades.
Original Source: dmarketforces.com
