Moody’s Upgrades Benin Ratings Outlook to Positive
Moody’s Ratings has affirmed the Government of Benin’s local and foreign currency long-term issuer ratings and foreign currency senior unsecured ratings at B1 and changed the outlook to positive from stable.
According to Moody’s, the positive outlook reflects steady improvements in Benin’s economic, institutional, and fiscal strengths. The global ratings agency said these have the potential to further enhance the resilience of this small, agriculture-reliant economy that is susceptible to geopolitical risks from the Sahel region.
Benin’s track record of economic resilience and robust public finance management is growing, and if these improvements continue, they could warrant a higher rating, according to Moody’s. Notably, Benin’s economy has demonstrated strong growth performance, increased diversification, and rapidly rising income levels, albeit from low starting points.
Efforts to improve governance and transparency have bolstered investment attractiveness and the development of stronger institutions in the country. The country’s fiscal consolidation under the current IMF program has started to yield results, with the deficit estimated to have fallen to around 3% of GDP by 2024, although revenue intake remains low compared to peers.
Additionally, Benin proactive and innovative debt management has contributed to containing government liquidity risks.
Moody’s said the affirmation of the ratings at B1 balances the economy’s strong growth prospects, the government’s moderate debt burden, and the macro-financial stability derived from participation in the West African Economic and Monetary Union (WAEMU) against regional geopolitical risks and still weak, albeit improving, government revenue and household incomes.
Additionally, Benin’s local currency (LC) and foreign currency (FC) country ceilings remain unchanged at Baa3 and Ba1. The LC ceiling remains four notches above the sovereign rating, taking into account the small footprint of government in the economy, the improving, albeit from a low level, institutional framework, as well as the mitigating impact on external risks of Benin’s membership in the WAEMU.
The one-notch gap between the LC and FC ceilings reflects Moody’s view of limited, albeit non-zero, transfer and convertibility risks, due to the French Treasury guarantee of the peg between the CFA franc and the euro.
Moody’s said the first driver of the positive outlook is Benin’s increasing economic resilience, supported by recently fast-rising income levels and growing diversification, both from low levels, as well as strong growth prospects.
It noted that the country’s governance and transparency has also improved over the last couple of years supported by the assistance of international institutions like the IMF and the World Bank.
These improvements offer the prospects that Benin will be able to face shocks, inherent to its economic and geographic position, with more limited impacts on its credit profile.
Benin has shown robust economic growth and resilience, with real GDP growth averaging 6.6% between 2021 and 2024 despite numerous shocks either emanating from neighbouring countries or from the global price shock.
The implementation of Government Action Programmes (PAGs) appears to have decoupled to some extent Benin’s economy from its neighbours, leading to steady growth and a 59% increase in GDP per capita over the past decade, reaching an estimated US$4500 by the end of 2024.
The economy is also increasingly diversified, with significant contributions from services and industry. The latter is supported by the rapid development of the Glo-Djigbé industrial zone, which was established in 2021 as a special economic zone strategically connected with the Cotonou airport and the port of Cotonou.
It aims to increase value-added through processing of local agricultural products (cotton, cashew nuts, soybean), with significant job creation potential over the long term – up to 300,000 jobs by 2030 and increased GDP value by between US$4 billion and US$7 billion according to the authorities.
The petroleum sector is also progressing, which will help further diversify the economy from 2025 onwards. Benin’s external position has strengthened, with a gradually decreasing current account deficit and an overall balance of payments that is positive thanks to the external borrowing of the government and stable levels of FDI slightly below 2% of GDP.
In the meantime, Benin’s Worldwide Governance Indicators have improved in most areas, particularly in the control of corruption, where Benin outperforms its peers.
The second driver supporting the positive outlook reflects Benin’s improving management of public finances, which augurs positively for continued fiscal consolidation which improves fiscal strength further.
“We estimate Benin’s fiscal deficit to have been around 3% of GDP in 2024, meeting the WAEMU threshold and lower than the 3.7% initial objective set in the IMF program as well as the 4.1% deficit reached in 2023”.
Fiscal consolidation has been balanced between increasing government revenues and controlling expenditure growth, particularly operating spending and interest payments, thanks to a proactive debt management.
Due to consistent consolidation efforts, Benin’s debt burden began to decline in 2024 down from a peak of 54.5% in 2023. Moreover, the interest payments-to-revenue ratio decreased to an estimated 11.9% in 2024 from 15.8% in 2021.
There is no significant risk of large contingent liabilities crystallizing on the government’s balance sheet, with guaranteed and non-guaranteed state-owned enterprises debt not yet included in government debt estimated at 2.8% of GDP at the end of 2023 according to the IMF.
Liquidity risks are also declining due to fiscal consolidation and proactive debt management, leading to an improving debt structure characterised by lower costs and longer maturity.
Benin has demonstrated reliable access to domestic, regional, and international funding to cover its borrowing needs, estimated at 8.2% of GDP in 2024.
The government has also managed, particularly in challenging market conditions, to secure affordable loans from commercial banks thanks to the support of international financial institutions such as the World Bank or the African Development Bank.
All this is helping to significantly extend the average maturity of government debt and reduce the share of debt not denominated in CFA francs or euros.
Moody’s stated that going forward, continued improvement in revenue would help the government solidify its finances, create fiscal space for financing its economic and social policies, and ensure a downward trend in government debt. Progress on broadening the revenue base has been very gradual and remains uncertain.
Assuming some effectiveness of revenue-raising measures, analysts forecast government revenue and government interest payment to revenue ratio to reach 17% of GDP and 10.4%, rrespectively,by 2028.
The affirmation of Benin’s ratings at B1 reflects expectations that the economy’s strong growth prospects, the government’s moderate debt bburden,and the country’s mmacro-financialstability derived from participation in the WAEMU will continue, supported by the government’s commitment to structural reforms and renewed public investment in infrastructure.
This is balanced by the credit constraints emanating from Benin’s low incomes, a relatively weak, although improving, institutional and governance framework and a relatively low fiscal strength characterised by a narrow, albeit developing, tax base.
The intensification of the terrorist threats and potential attacks from neighbouring countries pose key geopolitical risks to Benin even though the government’s enhanced management capacity and international support help contain these risks, Moody’s said. #Moody’s Upgrades Benin Ratings Outlook to Positive Naira Exchange Rates Switch Positions in FX Markets
