Flash Report /

Benin: IMF reaches staff level agreement on fifth review of ECF, upgrade to Buy

    Stuart Culverhouse
    Stuart Culverhouse

    Chief Economist & Head of Fixed Income Research

    Tellimer Research
    7 November 2019
    Published byTellimer Research

    IMF staff announced last night they had reached staff level agreement (SLA) on the fifth review of the Extended Credit Facility (ECF) for Benin. This followed a review mission to the country from 24 October-5 November (see IMF statement here). No timing was given for the date of the Board discussion (we expect December/January). 

    We had anticipated some of the issues surrounding this review in our recently published trip notes following the IMF/WB Annual Meetings on 5 November. In particular, we highlighted two key areas. First, the border closure with Nigeria. Second, the 2019 and 2020 budgets. That SLA has been reached on this review so quickly, after one visit, augurs well for the country, suggesting to us that the macroeconomic impact of the border closure so far has been manageable (and does not, at this stage, upset programme assumptions), and that the authorities' fiscal commitment remains strong. 

    In a short statement, the IMF noted that the country's recent economic performance "remains strong", with real GDP expected to grow by 6.4% in 2019 (albeit c20bps lower than in the WEO) – despite a less supportive external environment and the border closure – and to accelerate in 2020. The fiscal deficit is expected at 2.3% of new GDP this year (as we had anticipated), while the IMF mission and authorities reached agreement on fiscal measures to keep the 2020 deficit "well" below 3%. The public debt ratio is expected to stabilise this year (projected at 41% of new GDP in the latest WEO) and decline in 2020. We should get more details in the staff report accompanying the board discussion.

    However, the statement did not mention anything about a programme extension (technical or otherwise). The three-year programme is due to expire in April 2020. 

    We upgrade our recommendation on Benin’s 5.75% 2026 EUR bond to Buy from Hold, with a yield of 4.9% (z-spread 509bps), on a mid-price basis as of cob 6 November on Bloomberg. We only recently reiterated our Hold on Benin (B2/B+/B) in our IMF trip notes, but the swift staff level agreement eases some of our concerns and confirms our underlying positive view of the country. We note Benin's bonds are about 100bps and 160bps wide, respectively, of the nearest EUR-denominated equivalents in Senegal (4.0% on the 28s) and Cote d'Ivoire (3.3% on the 25s), albeit both these countries are more highly rated.