S&P release on Republic of Benin

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19 December 2007

Dec 19 - Standard & Poor's Ratings Services today said it had affirmed its 'B' long-term and 'B' short-term sovereign credit ratings on the Republic of Benin. At the same time, Standard & Poor's revised its outlook on Benin to positive from stable due to ongoing economic improvements in the context of continued prudent fiscal policies.

'The positive outlook reflects the government's economic achievements in less than two years in office, notably a rebound in economic growth and the restoration of a sustainable budget deficit,' Standard & Poor's credit analyst Sarah N'Sonde said.

The rebound in growth was notably permitted by a better performance in the cotton sector, improvements in relations with Benin's key trading partner Nigeria, and progress in the Port of Cotonou performance. As a result of these factors, economic growth increased from a lackluster performance of 3.8% in 2006, with real GDP growth estimated at 5.3% in 2007.

The ratings on Benin are supported by the country's track record of strong donor support, which is expected to continue.

The ratings are also supported by a significantly reduced external debt burden due to debt forgiveness initiatives. As a result, general government debt is low, projected at 19.8% of GDP at year-end 2008, compared with 40.7% of GDP at year-end 2005.

That said, the ratings on Benin are constrained by the country's low level of economic development, with GDP per capita projected at $663 in 2008. The ratings are also constrained by a lack of fiscal flexibility due to the low level of domestic government revenues. Moreover, the lack of economic diversification, with the economy dependant on the cotton sector and trade with Nigeria, and the economy's vulnerability to external shocks such as low cotton or high oil prices, also constrain the ratings.

'The positive outlook reflects the possibility that the ratings on Benin could be raised in the coming years if the government successfully implements the structural reforms necessary to address the significant economic challenges that Benin is facing, notably in the cotton sector,' Ms. N'Sonde said. 'We also expect that the government will continue to pursue fiscal discipline. If the ongoing reform process were to continue slower than currently expected, notably in the cotton sector, or if the government were to abandon its commitment to fiscal discipline, the outlook could be revised back to stable.'

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