Published on Let's Talk Development

Striving for effective debt policy and management: Benin’s journey

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Benin Flag on a background composition. | © Benin Flag on a background composition. | ©

Amidst the diverse landscape of debt policy and management in Sub-Saharan Africa (SSA), Benin has emerged as a country demonstrating strong progress in its approach to financial governance.  In this blog, we will explore the factors contributing to Benin's success, highlighting the steps taken by the government to promote balanced and transparent debt management.

With a score of 4.5 in the 2022 Country Policy and Institutional Assessment, Benin has surpassed the SSA IDA average of 3.1, showcasing its commitment to responsible fiscal practices. The country’s economic performance has been supported by a strong legal framework, ongoing reforms, and effective coordination between debt management and macroeconomic policies.

In 2018, the country improved its debt management capacity by introducing a public debt management procedures manual and a system to monitor the debt of state-owned enterprises (SOEs) and their contingent liabilities. The Beninese Debt Management Agency (CAA) updates its debt strategy annually and submits it to Parliament together with the Budget Law. The CAA also regularly updates its Medium-Term Debt Strategy (MTDS) to ensure smooth and effective debt management. Additionally, the CAA has established a mechanism for more timely and effective disbursement of external loans by appointing portfolio officers in close contact with investment project coordinators.

Benin has also made progress in improving debt transparency. The country's debt recording systems are efficient and reliable, with regular statistics on central government domestic and external debt stocks and flows that are publicly available. In 2019, the CAA adopted a new monitoring system for SOEs' guaranteed and non-guaranteed commercial debt, which was strengthened by a new SOEs law in September 2020. This law mandates the annual publication of audited financial statements of SOEs within six months of the end of the annual accounting exercise, as well as authorization before generating commercial debt and the publication of annual audits of financial statements. Fiscal risk reports and quarterly debt bulletins continue to improve, with recent additions of outstanding stock of non-guaranteed SOE debt and details on on-lending to SOEs. These ongoing reforms have helped Benin receive a high score for sectoral coverage on the IDA Debt Reporting heat map for 2022.

Benin has made progress in managing its exposure to credit risk, with the recent adoption of a tool to assess and quantify credit risk from public corporations.  In 2022, the country sought technical assistance from the World Bank to improve the process of evaluating requests from state-owned enterprises (SOEs) for new sovereign guarantees. The Credit Rating Tool to Assess and Quantify Credit Risk from Public Corporations was developed to help countries evaluate and measure the credit risk of public corporations, which can potentially create financial burdens for central governments through loan guarantees, on-lending, and direct debt of these entities. The tool employs a credit rating methodology based on a scorecard to determine the level of risk associated with each entity, generating risk measures and a range of outputs that can be used to inform decision-making by authorities.

One of the key features of the tool is its ability to calculate the annual probability of default for each public corporation, which is used to determine risk metrics such as expected, unexpected, and stressed losses per entity, instrument type, and at the portfolio level. The tool also provides guidance for charging ex-ante risk-based guarantee fees, which is an effective way to manage fiscal risks arising from state-owned enterprises.

The adoption of this tool reflects Benin's ongoing efforts to minimize fiscal risks by using an objective, methodology-based decision-making process to evaluate requests for new guarantees for SOEs. The country has also taken steps to improve the regulatory framework governing the evaluation, issuance, and monitoring of sovereign guarantees, with support from the IDA's Sustainable Development Finance Policy (SDFP) performance policy actions in FY23.

Benin's success in promoting balanced and transparent debt management can serve as an example for other countries in the region and beyond.  By implementing a strong legal framework, ongoing reforms, and effective coordination between debt management and macroeconomic policies, the country has demonstrated its commitment to responsible fiscal practices.

Improvements in debt transparency and credit risk management, including the adoption of a tool to assess and quantify credit risk from public corporations, can provide valuable lessons for other countries looking to manage their exposure to fiscal risks. As countries continue to navigate the challenges of debt policy and management, Benin's experience offers a roadmap for promoting sustainable and responsible financial governance. 


H. Hakan Yavuz

Senior Debt Specialist, Macroeconomics, Trade & Investment

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