Report No. 6951-BEN Benin Review of Public Expenditures, 1985-90 January 12, 1988 Africa Regional Office FOR OFFICIAL USE ONLY Document of the World Bank This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQITIVALENTS Currency Units = CFA francs (CFAF) 1984 US$ = CFAF 436.96 1985 US$ = CFAF 449.26 1986 US$ = CFAF 346.30 FISCAL YEAR January 1 - December 31 Definitions of Social Indicators FOR OFCIL USE ONLY The dc! nition of a particular social indicator may 71'tal tirti/itY rute - Average number of children that varn among countries or within one country over would hx born alive to a woman during her lifetime, time. For instance. liflercint coutitrics deline "urban il durinig her childbearing years she were to bear are.t" or sale water" it tililerent vwavs. For more childrein at each agc in accordance wit!. prevailing -ddctailed detinitions. sec tle tehlinicall notes to the a£eg-specilic fertility rates. W\orld Development Indicaiors. Inant igedl0-.) nmorrtalitv rate - Num,er of infarts per thousand lIve births, in a given =ar. who die AREA (thousand sLlLtare kilometcrs) before reaching one year of agc. 7'otal - Total surli.ce area comprising land arca and Child ti aged 1-4) nwrtalitl rate - Number of deaths inland waters. of children, aged 1-4. per thousand children in the A4gricultura, t percentage ol total) - Estimate of agri- same agc group, in a given year. cutltural aIreai luscd for crops. pastures. market and Foiwiiil/ planning'- acceptors, (thousands) - Annual kitchen gardens or lying 1l,llow, as a percentage of number of acceptors of birth-control measures re- total. ceived under the auspices of a national family plan- ning program. GNP PER CAPITA (USS) - 1986 GNP per capita Fatmtily planning- u-sers (percentage of married wom- estimates at current market prices, calculatcd by the en) - Percentage of married women of child-bearing conversion method used for the Worl(d Bank Atdac. age who are practicing, or whose husbands are practicing. any form of contraception. Child-bearing POPULAlION AND VITAL STATISTICS age is generally 15 to 44. although fot some coun- Total population - mid-year (millions), 1986 data. tries contraceptive usage is measured for other age U rban population (percentIge vf total) - Different groups. countries follow different definitions of urban pop- ulation u aich may affect cormparability of data FOOD, HEALTH AND NUTRITION among countries. Index oJfood productiono per capita (1979-81 = 100) Population gro wnth rate (percent) - total and urban - - Index of per capita annual production of all food Annual growvth rates of total and of urban popula- commodities. Production excludes a .imal feed and tions. seed for agriculture. Food commodities include pri- Lt c e.pectancY at hirdit (years) - Numbcr of years a mary commodities (for examp.e, suga-cane instead newborn int:ant would live if prevailing patterns of of sugar) which are edible and which contain nu- mortality at the time of its birth werc to stay the trients (for example, tea and coffee are excluded). same throughout its life. They include nuts, fruits, pulses, cereals, vegetables, Poputlation proiections oil seeds. sugarcane and sugar beets, livestock, and Po-ptpulation in 2000 - Projections of population lIvestock products. Aggregate production of each given total population by ag4 and sex, fertility and country is based on national average producer price the demographic parameters of mortality rates, and weights. migration in the base year 1980. Per capita supply of calories - Computed from energy Stationtary populationt - Projected population level equivalent of net food supplies available in a coun- when zero population growth is achieved: i.e., the try, per capita, per day. Available supplies comprise birth rate is constant and is equdl tp the death rate, domestic production. imports less exports, and the age structure is stable. and the growth rate is changes in stock. Net supplies exclude animal feed, zero. seeds for use in agriculture, quantities used in food Populatio1n density, agricultural landl - Population per processing, and losses in distribution, square kilometcr (100 hectares) of agricultural area. Per capita supply of protein (grants per day) - Protein Population age structure (percent) - Children 0-14 content of per capita nct supply of food per day. Net years. working agc group 15-64 years. and people of supply of food is defined as above. Requirements for 65 years and over as percentages of population. all countries, established by United States Depart- Crank'e birth rate - Annual live births per thousand ment of Agriculture, provide for minimum allow- population. ances of 60 grams of total protein per day and 20 Crnde' death rate - Annual deaths per thousand grams of animal or pulse protein. population. Population per physi(ian - Population divided by the This document has a restricted distribution and miy be used by! recipients only in the performance of their official duties. Its contents may not othe.wise be disclosed without World Bank authorization. Thi dou_thsarsrce itiuinadmy eue ~rcpet nyi h efra number of practicing physicians qualificd from a and rural- Conventional dwellings with electricity in medical school at university lvel. living quarters. as a perccntage of all dwellings. Population per nursing person - Population divided by the number of practicing graduate nurses. assistant EDUCATION nurses, practical nurses and nursing auxiliaries. L'n. .lnent rates Popultation pe, hospital bed - Population divided by Prin*ary .school enrollment - total, mtale andfemale the number of hospital beds availabic in public and - Gross enrollment of all ages at primary level as a privat,~. general and specialized hospitals. and reha- percentage of school-age children as defined by each hilitation centers. Hospitals are establishmcnts per- country. and reported to Unescr. While many coun- manently staffed by at least one physician. tries consider primary schlool age to be 6-11 years. Access to sqae * ater (percentage of populationI) - others use different age groups. For some countries total, urban, and rural - People (total, urban. and with universal education. gross enrollment may ex- rural) with reasonable access to safe water supply ceed 100 percent since some pupils are younger (includes treated surface waters or urntreated but ot older than the country's own standard primary uncontaminated water such as that from springs, school age. sanitary wells, and protected boreholes). In an urban Secondary school enroll/went - total, male and fent- area this may be a public fountain or standpost ale - Computed in a similar manner, but including located not more than 200 meters away. In rural pupils enrolled in vocational, or teacher training areas this im, lies that members of the household do secondary schools. The age group is usually 12 to 17. not have to spend a disproportionate part of the day Pupil-teaciher ratio - primar.y, and secondar.v - Total fetching water. students enrolled in school divided by the total number of teachers. LABOR FORCE Percentage pupils reaching grade six - The percent- Total labor force (millions) - Economically active, age of children starting primary school, that contin- including armed forces and unemployed but exclud- ue until grade six. ing housewives and students. Feniale (percent) - Female labor force as a percent- INCOME, CONSUMPTION, AND POVERTY age of total labor force. Energy consumption per capita (kilograns of' oil Agricul'ure (percent) - Labor force in farming, equivalent) - Annual consumption of ccenmercial forestry, hunting and fishing as a percentage of total primary energy (coal, lignite, petroleum, natural gas. labor force. and hydro. nuclear and geothermal electricity). lndustry (percent) - Labor force in mining, construc- Income distribution - Income (both in cash and kind) tion. manufacturing and electricity, water and gas as accruing to percentile groups of households ranked a percentage of total labor force. by total household income. Participation rate (percent ) - total, male, and fteiale Passenger cars (per thoutsand population ) - Includes - Participation rates are the percentage of population motor cars seating fewer than eight persons. of all ages in the labor force. These are based on ILO Newspaper eiretlation (per tihousand pop!lation) - data on the age-sex structure of the population. Average circulation of a "daily, general interest Age dependency ratio - Ratio of population under IS. newspaper." defined a. a news periodical published and 65 and over, to the working age population (age at least four times a week. 15-64). Estimated absolute povertr income level (USS per cap.;ta) - urban antd rurtl - Absolute povcrty income HOUSING lcvel is that below which a minimal nutritionally Average si:e of household (personLs per household) - adequatc diet plus essential nonfood requirements total, urban, and rural - A houschold consists of a are not affordable. group of individuals who share living quarters and Estimnated population below absolute poveri' income main meals. level (percent) - Percentage of urban and rural pop- Percenta,ge ot dvellings wt ith electriwit! - totaJl urhan, ulations who live in 'absolutc poverty." 1987 SOCIAL INDICATOR DATA SHEET BENIN Reference Groups (MRE) Most Recent Lower mid 19$5 1973 Esttmate Low-income income AREA Total land area (thou sq km) 112.6 112.6 112.6 Agricultural (% of total) 17.8 19.0 20.0 GNP PER CAPITA (current USS) 100 130 280 260 820 POPULATION AND VITAL STATISTICS Total population (thou) 2,332 2,874 3.920 Urban pop. (% of totul) II 13 15 22 36 Population growth rate(%): Total 2.6 2.8 2.1 2.5 Urban 4.4 5.0 3,9 4.2 Life expect. at birth (yrs) 42 45 49 60 58 Population projections: Pop. in 2000 (thou) 6.474 Stationary pop. (thou) 20.200 Population density per sq km of agricultural land 116 134 174 349 284 Pop. age structure (%): 0-14 yrs 45 46 47 37 39 15-64 yrs 52 51 50 59 55 65 and above 3 3 3 4 6 Crude birth rate (per thou) 49 SO 49 29 36 Crude death rate (per thou) 25 21 17 10 11 Total fertility rate 6.9 6.9 6.5 3.2 3.6 Infant mort. rate (per thou) 168 149 116 72 82 Child death rate (per thou) 52 39 19 9 11 Family planning; Acceptors, annual (thou) Users (% of married women) 17 FOOD. HEALTH AND NUTRITION Index of food production per cav1ta (1979-81 i 100a 96 118 115 108 Per capita supply of: Calories (per day) 2.008 2.017 2.173 2.339 2,514 Proteins (grams per day) 45 45 42 55 56 Pop. per physician (thou) 17.5 8.9 6.9 Pop. per nu-se (thou) 2.4 1.4 Pop. per hospital bed (thou) 0.7 1.1 0.8 Access to safe water (% of population): Total 20 20 Urban ,, 42 26 Rural 16 15s Populatlon Growth Infant Mortality Primary School Enrollment 150 2 1001 1 S. *---a so. is,0 1070 Its0 1960 1070 190 et nmsT Ri?r Goup * n1SI5p' EW 1987 SOCIAL INDICATOR DATA SHEET BENIN Reference Groups (MRE) Most Recent Lower mid 1965 1973 Estimate Low-income income LABOR FORCE Total Labor force (thou) 1,154 1.360 1.699 Female (%) 46 45 46 31 29 Agriculture 1%) 83 78 70 72 55 Industry (%) 5 6 7 13 16 Participation raze (%): Total 49 47 43 41 35 Male 55 53 49 54 49 Female 44 42 38 28 20 Age dependency ratio 0.9 0.9 1.0 0.7 0.8 HOUSING Average size of household: Total Urban Rural Percentage of dwellings with electricity: Total Urban Rural EOUCATION Enrollment rates: Primary: Total 34 36 67 97 103 Male 48 51 92 109 110 Female 21 22 43 84 97 Secondary; Total 3 5 22 32 40 Male 5 6 32 41 48 Femalt 2 3 12 25 39 Pupil-Teacher ratio: Primary 42 52 38 36 32 Secondary 25 46 .. la 20 Pupils reachitng grade 6 (%) .. 50 52 49 71 INCOME. CONSUMPTION. AND POVERTY Energy consumptior per cap. (kg of oil equivalent) 21 49 35 310 345 Percentage of private income received by: Highest 10% oF households Highest 20% 52 a .. Lowest 20% 6 a Lowest 40% 16 a Est. absolute poverty income level (USS per capita): Urban Rural 84 b. Est. pop. below absolute iverty income level (%) Urban Rural 65 b Passenger cars/thou pop. 3.0 4.7 .. 0.3 4.0 Newspaper circulation (per thousand population) 0.9 0.7 0.3 16.0 14.0 IECSE August 1987 Not available. Note: Most wecent estimetos of population and GliP psr capita are for 1986 unloss otherwise noted. Grouo averas are population weighted. Country crtegse depends on date availability and s not uniorm. Unless otherwise noted. 19 refets to any year between 192 end lS11; 197) bOtwbon 1970 *nd 1976: and most reW1nt ettmte betweetn 1930 and 16. e. 1Wo. b. IM. 88IN - ECUNCNIC ItOICATORB Mid-1988 Population (mile.) 4 Page I of 8 1986 Per* Capita ON? in US$: 270 Septembir 1987 A. Shares of Gross DomestIc Product I. Orowth Raes. (S per annum) (frew current price data) (from constant price data) 1968 1973 1980 1984 1988 1984p 1988-78 1978-80 1980-88 1985 1986 arose Domestic Product M.P. 100.0 100.0 100.0 100.0 100.0 100 0 .. 2.4 8.4 8.2 '-0.2 Net Indirect Tax"s 6.8 10.1 9.2 6.6 5.9 8.8 . . Aariculture 84.7 41.8 43.4 42.4 48.8 46.8 3. 8, 0.9 138.8 6.0 Industry 7.9 11.1 11.1 14.8 14.7 12.6 .. 0.7 18.5 11.8 -9.9 (of which Manufacturing) .. 7,4 8.8 8.9 4.2 8.8 . -2.6 7.2 17.5 -12.8 Services 80.8 87.6 86.8 86.7 84.1 88.1 .. 1.8 2.4 0.6 0.2 Resource Waants -8.2 -9.0 -24.6 -18.8 -14.8 -12.4.. , Exports of ONFS 12.9 27.9 28.2 24.6 28.8 14.4 16.2 7.8 0.8' "0.1 -12.:6 Imports of ONFS 21.2 86.9 88.0 88.4 88.1 26.8 11.9 7.6 -10.2 -0.8 -21.7 Total Expenditures 108.2 108.9 124.9 113.8 114.8 112.4 .. .4 -0.9 6.6 .0.8 Total ConsVumption 97.8 92.9 108.8 108.4 100.8 99.8 .. 2.8 1.2 8.8 '4.1 Private Consumption 88.6 80.7 98.7 98,2 92.2 90.2 .. .8 0.8 8.8 0.8 Ceneral Oovernment 10.8 12.2 10.6 10.2 8.7 9.4 8.0 -8.1 4.8 8.7 -4.4 Gross Domestic Inveatment 10.8 16.0 18.6 7.4 18.6 12.6 9.1 9.0 -17.9 14.0 -8.8 Fixed Investment . . . . .. ... . Changes in Stock . . . . . ... . Oroas Domestic Saving 2.8 7.1 -14.8 -7.1 -0.8 -0.1 . . Net Factor Income 0.0 0.0 -0.8 -1.8 -0.9 -1,0 . . Not Current Transfer* . 0.8 8.8 2.2 1.9 2.85. . Oro"s National Saving .. 7.9 -10.9 -8.7 0.8 1.4 . . In billions of CPA franca 1988 1978 1980 1984 1988 1988p (at constant 1980 prices) ---- ---- ---- --- -- --- Oross Domestic Product .. 202 242 288 801 800 ,. 2.4 8.4 8.2 '.0.2 Capacity to Import 21 84 68 8s 88 82 17.8 8.5 -1.4 -1.0 -28.6 Terms of Trade Adjustment 8 24 0 -8 -8 -10 . . Gross Domestic Income .. 228 242 280 298 290 .. 1.8 8.2 8.8 -2.8 Gross National Product .. 202 242 278 298 297 .. 2.4 8.2 7.0 -0.2 Crossx National Income. 228 242 278 29S 287 .. 1.8 3.0 7.1 -2.6 - --------(1980 100)…-----nflation---Rates (S p.a.)…------ C. Pr j Indices 1980 1982 1988 1984 1985 i948p 1968-73 1973-80 1980-84 1988 1 .R6p --- -- --- -- -- --- -- -- --- - -- --- - -- ---- - -- - --- - - - - - - - - - - - - '.. Consumer Prices (IFS 64) 100.0 .. . . . . .7 10.8 Wholesale Prices (IFS 63) . . . . .. ,. , Implicit CDP Deflator 100.0' 120.1 184.'4 148.9 188.1 180.3 . 11.8 10.4 8.6 8.8 Implicit Expenditures Deflator 100.0 120.8 188.1 148.0 157.4 181.8 .. 12.8 10.6 6.4 2.8 D. Other Indicators 1955-73 1973-80 1980-88 --I--------------------- Orowth Rates (1 p.m.): Population 2.6 2.7 8.1 p a preliminary data Labor Force 2.1 1.9 Cross National Income p.c. ..-1.1 -0.2 Privste Consumption P.C. . 0.8 -2.3 Import Elasticity: Imports (CtNFS) / aDP (mp) 3. .2 -2.7 Marginal Savings Rates: Grose National Saving . .0.8 Oross Domestic Saving 21.1 -401.4 88.2 ICOR (period averages): ..7.8 2.0 Share of Total 1988 1973 1980 1988p Labor force in: ---- ---- ---- --- Agriculture 83.0 78.0 70.0 72.0 Industry 8.0 6.0 7.0 6.0 Services 12.0 18.0 28,0 22.0 Total 100.0 100.0 100.0 100.0 -------------- 1NN BENIN - ECONOP4ZC INDICATORS ___------- - - ____ -_* ______._P e 2 of 8 Volume Index (1O94 a 100) Value at Current Price (eilIlose UN): ._.,._..__.._...................__..__ _ _________._ _ ____. _ _ _____. ...... S. Merchandls Export. 1980 1982 l988 1984 1984 1986p 1980 1982 198 1984 198 IOOp PsiI OI 100 0 71.0 8 8889 64.8 7 1966. B.G -- 1.2 0.7 7 1 8.8 Coton 100.0 60.8 182.2 288.8 896.7 414.0 14.2 6.1 12.9 27.o 89.6 48.8 Cocoa 100.0 6.3 60.0 188.8 20.9 21.9 14.5 0.6 4,8 15.8 42.2 88.O Crude oil 100.0 202.6 207.1 21864 w2.8 60.2 68.6 u.0 Manufactures 100.0 1.0 138.1 121.4 142.7 212.8 48.4 19.2 40.8 Other Egport0 10.2 1.6 24.1 Total Merchendi e Exporte FOB 222.0 144.0 175.8 170.8 17*8? 181.1 P. Merchandise Imports Food 78.2 97.9 e 116 188.7 POL and Other Energy 278.6 245.4 67.2 61.7 Othor Imports 106.4 296.2 .. 183.4 152.6 Other Coneumer Ooode 45.2 W8 .. .9 6.2 Other Intermediate Good o 60. 94.0 90.4 100.8 Cp Itol oods 90.8 164.1 . 8.% 86.6 Total Merchandise Iaport. CIF ., .. .. .. .. .. 848.4 89.8 2826 285.0 812.2 869.8 0. Term, of Trade (1980 100) 1980 1982 1988 1984 1985 1986p ------------------------------------- ------------------------------ ---- .. ------ ---- --- ----- Notes: Merch. Exports Price Index 100.0 79.9 87.6 86.8 01.7 78.0 Merch. Import. Price Indox 100.0 97.3 94.2 92.9 92.0 100.4 1. Debt Servica Indlaetore roflect Merchandise Term, of Trade 100.0 82.1 93.0 94.1 0.$8 78.7 actual payments excluding arrears. US$ millions (at current price.)i H. Bciance C4 Paymonte 1980 1982 1988 1984 1985 --98p p * preliminery date Export. of Goods and NFS 3o0 215 241 285 242 190 Merchandise (MS8) 222 144 17S 170 177 181 Non-Factor Services 84 71 $66 6 66 t8 Import. of Goodo and NFS 808 700 854 867 891 871 Merch.ndise (FO8) 499 576 251 266 276 8 a Non-Factor Services 109 124 104 101 115 SO Reeource 8. lanc -302 -485 -113 -132 -149 -172 Not Factor Incom" -S -6 -13 -17 -9 -14 (interest per DRS) a a 18 17 9 14 Net Current Transfers 44 85 24 21 20 S6 (workers remittancea) 44 85 24 21 20 8S Current Account Balance -261 -456 -103 -128 -187 -181 Long-Term Capital Inflow 129 278 160 72 74 65 Direct Investment 0 0 0 0 0 0 Official Capital Crant. 63 65 S5 S5 51 28 Net LT Loan. (ORS data) S6 213 105 17 24 W9 Other LT inflow. (Net) 0 0 0 0 0 0 Total Other Items (Net) 107 28 -58 55 64 86 Net Short-term Capital 149 55 -62 50 64 8B Capital Flow. N.E.!. 0 0 0 0 0 0 Error. and Omissions -43 -27 4 5 0 0 Chnge.o in Net Reaerves 25 180 1 1 -1 1 Not Crodit from TM 2 C 0 0 0 0 Other Reserve Changes ( - indicates increnae) 23 150 1 1 -1 1 A. *hare, of ODP: R eourc 8alance -26.3 -46.9 -11.5 -13.8 -t4.5 -12.8 Interest Payment. 0.8 0.6 1.3 1.8 0.9 1.0 Current Account Balance -22.8 -44.1 -10,5 -13.4 -18.4 -10.8 Memorandum Items. tntOrnat'I Rftorvea (mil. USS) 8 5 4 8 4 4 Re.orvee Incl. Oold (mil U'S) 18 10 8 6 8 S Official X-Rate (CFAF/P/USU 211.80 828.62 381.07 4U8.96 449.26 946.80 Index Real Eff. X-R 8... 1980 MOP (million. of current US$) 1147 1035 980 958 1026 1897 8ENIN - ECONOMIC SI#CCATORS Page 3 of 8 Share, of CDP (I) Orowtb Rates (7 p.%.) I. Budget (apocify level) 1960 1982 1983 1984 1985 1986p 1980 - 89 1984 1988 1986p _______._ - - -- -- -- - - ----__ __ _ __ _ _ ---- ---- ---- ----- ----- ---- --- ____ ___ ___-_ __- _ __ Current Receipta 14.4 20.3 16.4 18.6 14.7 13.1 25.2 -7.7 19.8 -8.8 Current Expenditures 11.6 16.8 17.8 17.0 16.6 16.4 45.8 6.6 7.7 3.8 Current Budget al,bnce 2.8 8.5 -1.4 -3.8 -1.9 -8.3 -6.8 -168.7 39.7 -81.4 Capital Receipts 0.0 0.0 0.0 0.0 0.0 0.0 .. 7.9 0,0 0.0 Capital Expenditurea 8.4 13.? 12.2 10.4 5.9 8.5 41.6 -4.5 -38.1 -1.5 Overall Deficit -5.6 -10.2 -13.6 -13.9 -7.7 -8.a -91.2 -13.8 38.4 -18.9 Official Capital Oranto 5.5 6.3 5.6 8.8 5.0 1.9 -4.2 0.0 -7.8 -49.0 External Borrowing (nrt) 3.4 2.3 2.9 3.0 2.8 2.3 9.8 18.8 1.8 -14.0 Domestic Non-Bank Financing 0.3 0.9 -0.7 -1.8 0.4 0.0 -9S.8 -19S.8 73.6 0.0 Domestic Bank Financing 1.9 1.7 8.2 3.8 -1.1 0.0 S2.0 33.2 -67.2 0.0 Net Oiebureements (US$ millions) Debt Outstanding & Disbursed (USl oil.) J. External Capital Flo-*,DObt ------------------------------------------------ --------------------------------------------------- and Debt Burden Rn.ios lqO 1982 1983 1984 1985 1984p 1980 1982 1963 1984 19e6 1986p Public & Publicly Ousranteed LT 66 218 105 17 24 89 382 S70 621 685 677 581 Official Creditor. 66 41 62 24 27 .. 219 253 299 301 848 890 Multilateral 32 25 34 22 28 .. 117 159 18? 201 238 251 of which IBMD .. .. .. .. .. .. .. .. .. of which IDA 12 11 16 1S 19 24 52 73 89 100 123 146 Bi lateral 34 16 28 2 a .. 102 94 113 100 112 139 Private Creditor. 0 172 48 -7 -4 .. 113 817 321 284 328 Suppliers 0 10 0 -1 -2 .. 20 29 24 20 22 Financial Markets 0 162 43 -6 -1 .. 93 288 297 264 306 Privet* Non-Ouaranteed LT 0 0 0 0 0 0 0 0 0 0 0 0 Tota I LT 66 213 106 17 24 39 332 670 621 685 677 561 IF Net Credit 0 0 0 0 0 0 0 0 0 0 0 0 Noet Short-Term Capital 149 55 -62 s0 64 86 68 77 70 62 99 Total including IWP & Not ST 215 268 43 67 88 125 400 647 691 647 776 Bank and lOA Ratio& 1980 1982 1983 1984 1096 1986p ------- ------------------- ---- ---- ---- ---- ----- ----- Notes: Share of Total Long-Term DOD 1. IBRD as % of Total .. . .. .. .. .. 1. Debt Service Indicators reflect 2. IDA as S of Total 15.66 12.77 14.28 17.13 18.10 26.10 actual payments excluding r.rreara. S. 1i010DA as S of Total 15.66 12.77 14 28 17.13 18.10 26.10 Share of Total LT Debt Services 2. Public Finance arrears not shown 1. IS as I of Total .. .. .. .. .. .. in financing. 2. IDA as S of Total 4.55 4.11 3.29 2.83 7.14 5.00 3. llOD-IDA am S of Total 4.55 4.11 3.29 2.88 7.14 5.00 3. Some movements in trade data are not analysed at this time. DOD-to-Exports Ratiow _____________________ p a preliminary data 1. Long-Trem Debt/Exports 108.50 265.12 257.68 248.94 279.75 281.91 2. IMP Credit/Exports 0.00 0.00 0.00 0.00 0.00 0.00 3. Short-Term Debt/Exports 22.22 35.81 29.05 26.38 40.91 4. LT+IMFST DOD/Exports 130.72 300.93 288.72 278.32 820.66 OOD-to-GDP Ratio* 1. Long-Term Debt/GDP 28.9 856.09 683.37 61.27 65.98 40.16 2. IMF Credit/GDP 0.00 0.00 0.00 0.00 0.00 0.00 3. Short-Term Debt/GDP 6.93 7.44 7.14 6.49 9.65 4. LT+.WF.ST DOD/GDP 34.87 62.53 70.51 67.77 75.63 Debt Service/Exports 1. Public A Quaranteed LT 2.72 4.57 10.07 16.57 9.24 9.61 2. Private Non-Ouranateed LT .. .. . 3. Total LT Debt Service 2.72 4.67 10.07 16.87 9.24 9.61 4. IHF Repurchaos * Serv Chga. 5. Interest Only on ST Debt 6. Total (LT+IFw+Sr Int.) ------------------------------------------------- This Public Expenditure Report is based on the findings of World Bank missions that visited Benin in November 1986 and in June 1987. The first mission consisted of Messrs. Emmanuel Akpa (Country Economist, APlCO, mission chief), Simon N'Guiamba (Economist, IMF), and Peter Osei (Research Assistant). A final mission led by Mr. Akpa, and comprising Mr. Katsu, discussed the report with the authorities In October 1987. LIST OF ABBREVIATIONS UMOA - West Africa Monetary Union CAA - Caisse Autonome d'Amortis6ement, the Debt Management Agency OECD - Organization for Economic Cooperation dnd Development BCEAO - Banque Centrale des Etats de l'Afrique de l'Ouest, the common Central Bank of the West Africa French-speaking countries. CARDER - Centre d'Action R6gionale pour le Developpement Rural, the Regional Agricultural Extension Agency SBEE - Societe Bninoise d'Eau et d'Electricite, the Water and Electricity public enterprise. Table of Contents I. EXECUTIVE SUMMARY II. THE REPORT ................... * 1 A. Macroeconomic Setting ...... 1 B. Budgeting Procedureso c e d u r es.................... 2 C. Budget Execution Procedures............................. 4 D. Current ExpenditureConsumptionr ........................ 5 E. Capital Expenditure/Investment ......9 F. Net External Financing. a n.c... ...g.. ...*. .. .... 12 III. RECOMMENDATIONS.............. 18 IV. ANNEXs SECTOR OVERVIEW Agriculture .... 20 EAneriy .lu ................. .............. .444* ..... 22 Water ............................ 23 Transport ............................ 23 Telecommunications ...................... ..*.*. .24 Industry ......... ................ ............................ 24 Education ...................................... 25 Health ....................................... 25 EXECUTIVE SUMMARY i. This report presents a review of Benin's public expenditures over the period 1985-90. It follows another teport that reviewed the 1985 public investment program and which made proposals for improved investment programming, most of which were adopted in July 1986. By undertaking the analysis of all public expenditure, this report seeks to provide the basis for reviewing other elements of public finance policy, the acea in which concrete first steps towards reforms are awaited to pave the way for a full program of needed macroeconomic reforms. Accordingly, the report pays particular attention to the issues of institutional procedures and sustainability of the financial outlook. Background ii. After a decade of State-dominated resource allocation decisions, Benin is now endowed with a largely publicly owned productive capacity and an outsized Administration, both underperforming in a weak and financially over-leveraged economy. The authorities recognized these disappointing results of past policies in the public enterprise sector, as early as 1982. They then decided on corrective measures which have been developed with Bank assistance into a program of reforms, now entering its implementation phase, supported by an IDA credit. They also recognize that in view of the public finance, external debt and banking system dimensions of the problems, a generalized program of macroeconomic reforms is needed. It has also become clear that economic reform must begin with improving efficiency in public sector management and the creation of a favorable policy environment to spur private sector initiative. But progress in the design of such a program has been blocked by apparent uncertainty on the part of the authorities as to the nature of the key issues and how serious they are. In c-der to help advance the dialogue, this report examines the main public expenditure issues and recommends courseb of action on each. Budgetina Procedures iii. Five shortcomings plague Benin's expenditure budgeting and monitoring procedures. These occur in: i) the estimation of receipts; ii) the budgeting of expenditure obligations; iii) the determination of budgetary equilibria; iv) expenditure record keeping; and v) the state of the budgetary codes. iv. Owing to excessive optimism, revenue estimates for the past 8 years have exceeded actual receipts by 17 percent on average each year. This has resulted mainly from the leadership's call for upward revision of the technician's first estimates, without new taxes being introduced. The way to eliminate this weakness iF for the leadership to accept the estimates produced by the technicians. As to the more basic isst-e of strengthening the economy's revenue performance, the first course of action should be a simplification of the parts of the fiscal system which are - ii - overly complex in a way that lightens the burden of tax administration while improving buoyancy. A full reform of the tax system could follow later. The fiscal system report prepared by the IMF' mission of October 1985 gives valuable advice on how to proceed. v. Underbudgeting has occurred in the cases of debt service and materials, supplies and services. In the case of debt service, the underbudgeting has been deliberate. With materials, supplies and services, it has occurred more as a result of cumulative deficiencies in records on the basis of which future needs are decided. The effects have been, in both cases, to ignore the true level of financial imbalance faced at the beginning of the year and make imprecise tne accounting of arrears. A return to full budgeting of obligations would permit decision-making that faces up early to the disequilibria, and also lead to improved accounting of arrears in cases of unpaid obligations. vi. The use of a West African Monetary LLion (UHOA) requirement that a voted budget be in equilibrium as a pretext to overstate revenues and understate expenditure constitutes another procedural weakness. The UMOA regulation actually expects policy makers to eliminate disequilibria noted during budgeting by taking appropriate measures, not cover them up. The authorities should only reflect budgetary equilibria after they have been achieved in the work leading up to the finalization of the budget. As a beginning, the Budget Commission should be given a free hand to work with realistic estimates and to identify imbalances where these exist. The Commission should also be given a standing authorization to propose measures that would close the gaps identified in the course of their work. BudRet Execution Procedures vii. Incomplete expenditure records have hampered accurate budgeting for subsequent periods for supplies, services and utilities in particular. This shortcoming has its origins in the Budget Directorate's practice of not establishing commitments on vouchers referred t3 it unless the Directorate is reasonably certain that the payments can be made. A reversal of this practice in the case of services and utilities, for which vouchers represent obligations actually incurred, would strengthen accounting and expenditure monitoring. viii. The lack of budgetary codes for capital expenditure has hindered the effective integration of capital with current expenditure. The work on nomenclature currently under way should remedy that shortcoming. The conceptual framework developed so far for the nomenclature has to be changed, however. It would be more appropriate to make Titles cover economic classification; Chapters should apply to functional classification; and Articles should refer to functional sub-categories. - iii - Current Expenditure ix. In 1985, committed current expenditure (excluding interest on debt) absorbed 85 percent of all government receipts in 1985; it actually exceeded receipts in 1986 by about 8 percent. This situation, which is likely to get worse if current policies were to remain unchanged, is due mainly to the growth in personnel expenditures. x. Wages and salaries increased three-fold during 1980-86, rising from around 60 percent of current outlays in 1980-81 to 73 percent in 1985-86. Only by curbing this growth can the current expenditure explosion be contained. The civil servants census of November/December 1986 provides the first opportunity for tackling the personnel expenditure problem. The preliminary data show that, on the basis of the number of actual employees and average salaries paid them, the 1986 wage bill should have been no more than CFAF 37 billion instead of the CFAF 42 billion actually expended. A new personnel budget formulated on the so-called 'zero-base, furnished by the census data would mark a beginning towards controlling personnel expenditure. Next, a new personnel roll ought to be constructed with the census data. This should be supported by ths proscription of wholesale recruitment of new graduates and scrupulous adherence henceforth to regulations on retirement. Further measures to spin off some public sector employees into new private sector activities can then be incorporated in a broader reform program. Other deliberate outlays constituting the difference between CFAP 42 billion and CFAF 37 billion in 1986 should be budgeted separately, and the t,uestion of whether they can be afforded should be confronted on the merit of the particular purposes. xi. In contrast to personnel, the budget allocation for materials, supplies and services has diminished since 1980. In the case of utilities, where consumption has simply surpassed the meagre budget, payment arrears have accumulated as a result. Alongside the reduction of personnel expenditures, therefore, there ought to be higher allocations made for materials, supplies and services. Capital Expenditure xii. The revised 1986 investment p.ogram marked the beginning of programming by questioning the economic value of proposed projects and budgeting the annual trarhoes of those accepted with greater realism. Nevertheless, the prngrsnms continue to budget greater domestic conitributions than are avai3a':-' and, as a partial consequence, end up with overoptimistic tranches. rMi qavings capacity should be reinforced to enable the public sector to contribute 12-15 percent of the financing of the annual investmert progrwu. This is all the more critical since over the period 1987-90 the ecrr. faces an annual external financing gap equal to the size of the annt1a publ4c investment program. Net External financing xiii. With rising scheduled debt service and stagnating new external commitments the economy faces potential negative external - iv - transfers averaging CFAP 17 billion per year during 1987-90. The only way to reverse that outlook is through debt rescheduling to reduce the scheduled payments and improve the chances for sustained disbursements out of eristing, and possibly new, commitments. Such rescheduling on Paris Club-type terms during 1987-90 would turn the potential nega*ive transfers of CFAF 17 billion into positive net transfers of CFAF 9 billion, which is still meager compared to the country's needs. Nevertheless the possibility of achieving this improvement and mobilizing increased new commitments, constitute compelling reasons why Benin should prepare the economic reform progam which creditors require as the framework into which debt relief is to be integrated. xiv. The expected rescheduling of the domestic banking system's debt to the common central bank, the Central Bank of West African States (BCEAO). should be on terms at least as favorable as those to be expected from other donors in order not to jeopardize the sustainability of the financial framework of the economic reform program. II. THE REPORT A. Macroeconomic Setting 1. Benin's policy of accelerated expansion of the modern sector of the economy under public sector ownership pursued during 1978-83 achieved important shifts in the economy. The most direct impact was on gross domestic investment, which rose by about 15 percent per annum. It also expanded the Administration, with the number of civil servants growing by about 9 1ercent per year, raising operating expenditures by some 17 percent annually Ar.d narrowing the savings base. Consequently, although real GDP grew concurrently by a satisfactory 5 percent per annum, the external balance resource gap widened rapidly, reaching a peak of 30 percent of GDP in 1982, as the investment/GDP ratio reached 34 percent. Substantial borrowing took place to effect the transfers that closed the gap, leading to a more than six-fold increase in the external debt. 2. Capital expenditures have since fallen to more modest levels, bit consumption continues along the higher path traced out in 1978-83. More over, many of the public sector ventures undertaken in the expansionary years are performing far below expectations for a number of reasons, including lack of market outlets, shortage of working capital and unavailability of inputs. At the same time, unfavorable economic conditions in the West African subregion since 1982 has kept Benin's crucial overland transit and re-export trade activities depressed. Under both influences, the economy faces the problem of an overextended public sector largely responsible for enlarged aggregate demand that far outstrips supply. This imbalance shows up in public finance difficulties leading to domestic payment arrears, in external balance deficits covered by debt service arrears, and in banking system insolvency that has reduced financial intermediation to a trickle. 3. Real GDP growth over the period since 1983 has averaged 2.7 percent only because of an exceptional performance of cotton and food crops in 1985. With deterioration in the international terms of trade (due mainly to declining cotton prices), the impact of that performance on incomes was lessened. As a result, given the high level of consumption expenditures, domestic savings, even when positive, remained below 1 percent of GDP. Gross domestic investment equivalent to 10.7 percent of GDP was managed, but with financing almost exclusively from external sources. 4. This weak economic performance has been accompanied by deteriorating public finance and balance of payments, with the consequence of growing domestic and international payments arrears. In spite of a modest recovery in revenues in 1985 and reduced capital expenditures since 1984, the fiscal deficit as a percent of GDP has averaged about 7 percent over the period 1984-86. In none of these years could smooth financing of the deficit be arranged and arrears occurred. In external transactions, debt service due continued to exceed the means for meeting it, leading to the accumulation of external arrears of about CFAF 30 billion per year during 1984-86. These unmet obligations, in their turn, threaten to weaken parts of the economy further by reducing the flow of financial resources. - 2 - 5. The Government became concerned over the poor performance of the public enterprise sector, as early as 1982. It then decided on a number of measures towards rehabilitating the sector, implemented some immediately and developed the remainder into a broader reform program. That broader attack on the problems of the public enterprises is just getting under way, with the support of an IDA credit. But there is vastly more to do to adjust the economy to the changed environment and, thereby, to prepare it to effectively use its growth opportunities once the wider international economic situation improves. In the short term, the excess domestic demand must be brought in line with sustainable net external inflows. This would be followed by the introduction of structural, market and institutional reforms needed to elicit improved resource allocation in both the private and public sectors. In the medium- to long-term, investible public sector resources should be targetted to areas where, in conjunction with appropriate policy changes, they facilitate higher growth performance. 6. The IMF and the World Bank have assisted the Government to examine these issues. Two Bank missions, undertaken in November 1986 and June 1987 respectively, examined developments in public expenditure with a view to identifying ways in which the Government might use the management of its resources to help bring about the needed adjustment. This report presents the findings of those missions. 7. The report is organized in five sections treating, respectively, budgeting procedures, budget execution procedures, current expenditure (consumption), capital expenditure (investment) and external financing flows. A listing of the main recommendations appears in Chapter III. An annex on sectors analyzes the issues and sectoral priorities worth considering in the formulation of policies and the allocation of investable resources over the next few years. B. Budgeting Procedures 8. In the middle of each year, the Budget Commission is set up by presidential decree to prepare the following year's current budget and investment program. That Commission works in two subcommissions - a resources subcommission and an objectives subcommission. Under the direction of the Minister of Finance and Economy, the resources subcommission reviews overall resource prospects (receipts of the Treasury and the Caisse Autonome d'Amortissement (CAA), other miscellaneous receipts, external grants and loan disbursements). The objectives subcommission works under the supervision of the Miuister of Planning and Statistics to propose a pattern of expenditures. The draft budget and investment program prepared by the Budget Commission are submitted to the political authorities together with a report (Rapport de Presentation), that summarizes the thought process underlying the Commission's work. 9. The summaries of the work of the Budget Commission which are presented in the RaRport de Pr6sentation show that the Commission works with little flexibility. The language in the report is kept fairly standard, and the Commission does not paint a realistic picture of developments and make appropriate recommendations. Since the onset of financial difficulties in 1983 that shortcoming has become quite glaring, and the Budget Commission's work has become less and less relevant to the - 3 - actual fiscal situation. If the budgeting process is to become credible again and the budgets useful tools of fiscal management, changes will have to be made in at least three areas: estimation of receipts, recognition of expenditure obligations, determination of budgetary equilibria. 10. Estimation of receiRts. Estimates of Treasury receipts have always been overly optimistic. Over the eight year period, 1979-86 inclusive, actual receipts were below estimates in all but two exceptional years -- the percentage shortfall averaging 17 percent per annum. 1/ Quite often, the overestimates occur when the revenue officials are asked to come up with more receipts than were forecast in first-round estimates without new taxes being levied. The practice leads to the budgeting of parts of expenditure against fictitious income. 11. The persistence ot this revenue overestimation postpones corrective action on the public finance imbalances and puts a question mark against the Government's readiness to follow declarations with action. In oruer to makc a break with the past in this area, the revenue departments should be given a free hand in preparing revenue estimates. The revenue services should sharpen their "spread technique' by which each revenue sub-item is estimated on the basis of the probable performance of its base in the forecast year. And to support them, the authorities should resist the temptation to call for upward revisions of the initial estimates without authorizing the introduction of new taxes. On the basic issue of measures to improve the performance of the tax system, a two-step approach to a solution is recommended. First, the system should be simplified in areas where it has become very complicated, to lighten the burden of administration and raise its efficiency. Second, a full reform should be undertaken as part of a global reform program. The fiscal system report prepared by the IMF mission of October 1985 provides valuable advice on how to proceed. 12. Recognition of expenditure obligations. In an attempt to 'budget only what it can afford' the National Budget has since 1983 underbudgeted for materials, supplies and services, and has deliberately chosen not to provide for portions of the domestic debt service that it could not meet. A similar approach has been u'ed in the Caisse Autonome d'Amortissement (CAA) where budgeted external debt service has been set at the level of resources that the Government has felt should go to meet debt service. In the case of the National Budget, since each year's budget appropriations are based on the previous year's appropriations and not the actual expenditure, the problem has got worse from one year to the next. The procedure makes expenditure plans unreliable, a phenomenon that diminishes the value of the budgeting exercise. 1/ When the two windfall years of 1981-82 are excluded, the average shortfall becomes 26 percent. - 4 - 13. This issue can be dealt with through changing the way expenditures are budgeted and the actuals reported. There is nothing wrong with budgeting low amounts as long as they represent the probable level of expenditure. In fact it is absolutely necessary that for wages as much as for materials, supplies and services, the needs be pared down to the minimum necessary for efficiency. In the case of wages, after assessing that need on the basis of an accurate personnel roll, such as the one to be prepared with the civil service census (paras. 23-24), and in the case of materials, supplies and services, determining the minimum necessary on the basis of past actuals, full appropriations should be made to cover them. Similarly, with debt service, the full minimum required by contractual obligations must be budgeted. In this way, the authorities will have a better appreciation of their obligations when they decide on the allocation of the means of meeting them. It would also permit them to develop a clearer picture of the arrears when some of the obligations remain unmet. 14. Determination of budgetary equilibria. Owing to a Monetary Union regulation forbidding the presentation of unfinanced gaps in the voted budgets of the member states, the Beninese National Budget is drawn up in such a way as to show an equilibrium between receipts and expenditures. Indeed, the overstatement of receipts and the underbudgeting of non-wage current expenditures occur in part because of the need to present a budget in equilibrium at all costs. As has been the case in the past few years, that practice has contributed to the inclination to conceal deficits which, in turn, leads to the avoidance of the hard decisions necessary to deal with a chronic deficit situation. 15. The real purpose of the UMOA regulation about the voted budget being in equilibrium is not that the deficits be covered up but rather that they be addressed during the budget preparation. The repeated difficulties encountered during the execution of a budget inherently in disequilibrium demonstrate the futility of the artificial upward adjustment of receipts in order to present a balanced budget. The area in which to begin making improvements in public finance management is at the planning stage. As far as budget equilibria are concerned, they ought to be achieved by addressing any imbalances that emerge from realistic budgeting. In the 2ontext of the current budget, addressing a deficit consists In A4entifying a combination of previously accumulated resources, statutorily available banking system credit, and fiscal measures that together would suff ce to cover the gap during budget execution. (See Table 1, Page 7). C. Budget Execution Procedures 16. The budget is executed through the Budget Directorate which makes commitments and authorize3 payments to be made by the Treasury. The Budget Directorate keeps the records on commitments it makes as well as on obligations referred to it but for which it is unable (often owing to financial constraints) to establish commitments. The Treasury, in turn, keeps records of payments made as well as of commitments made by the Budget Directorate but on which the Treasury is unable to make payments. Thus at any point in time, Treasury records provide a full picture of budgetary - 5 - expenditures paid and the Budget Directorate records provide full information on committed budgetary expenditure. In order to obtain a complete picture of all budgetary expenditure obligations and determine the correct level of expenditure arrears, however, one has to take into account uncommitted obligations at the Budget Directorate as well as the committed but unpaid obligations held by the Treasury. Further, the quality of these records, and hence the information base for monitoring expenditures, suffer two additional shortcomings: the incomplete coverage of expenditure obligations referred to in para. 12, and the ineffective integration of capital expenditures with current expenditure. 17. Expenditure record keeping. As a matter of course, the Budget Directorate refuses to establish commitmenits unless it is reasonably certain that the obligations can be met. This method of expenditure control works well where commitments are obtained before expenditures are made. It fails to achieve its purpose where the obligations reported to the Budget Directorate are obligations already incurred. This is often the case with services and utilities. The failure to recognize the obligations incurred in these areas creates understatement of expenditures and leads tt unrecognized expenditure artears. Clearly, expenditure monitoring and control would be improved by replacing current practices with the budgeting of realistic appropriations by expenditure unit, on one hand, and the comprehensive commitment and monitoring of the use of the appropriations, on the other. 18. Budgetary Codes. The capital expenditures made by the Treasury are not yet recorded according to budgetary codes similar to those used for current expenditures. This makes it impossible to classify budgetary capital expenditures by function as is the case with current expenditures. The work currently underway towards the unification of the nomenclature of both parts of the budget through the creation of budgetary codes for investment expenditures is a step in the right direction. However, the draft codes prepared so far have one major shortcoming: they mix the economic and functional classification of activities, and their use in the present form would limit the value of the records for analytical work. A better approach would be to use Titles to cover the economic classification (transfers, portfolio investments, investments in tangible assets), Chapters to cover functional classification (defense, education, agriculture, etc.) and Articles to cover sub-components under the functional categories (studies, construction, etc.) D. Current Expenditure/Consumption 19. One effect of the expansion of the Government's role in the economy was an increase in current expenditures to a point where they are no longer sustainable. By 1985, current non-debt expenditure was absorbing 94 percent of current receipts, of which personnel 67 percent. This made it impossible for the Government to contribute adequately to the financing of the investment program and meet its debt service obligations. The imbalance got worse in 1986, with current non-debt cxpenditure commitments exceeding receipts by 20 percent. An examination of the evolution of the various components of current expenditure is revealing. 20. Wages and Salaries. Current expenditure became non-sustainable because of the surge in its wages and salaries component after 1980, as the number of civil servants rose and unit wage rates were raised. According to budget data, the number of employees (excluding the military) covered by the Budget de Fonctionnement rose from 29,517 in 1980 to 40,290 in 1986, an annual rate of 5.3 percent. In addition, salary measures taken in February 1980, October 1980 ard December 1981, raised individual wages. In consequence, the wage bill went from CFAE 15.051 billion in 1980 to an estimated CFAF 43.716 billion in 1986 -- implying an annual rate of increase of 19 percent. These increases (for personnel, higher than the labor force growth rate of about 3 percent and for average wage rates, higher than the annual rate of inflation of about 8 percent) may have appeared affordable during 1980-82, when the Treasury experienced windfall gains as a result of increased trading opportunities with Benin's neighbors. 21. As events since 1983 have shown, however, the improvement in Benin's trading opportunities with neighboring countries as a result of positive shifts in the terms of trade of those countries is a transient phenomei'on. The expansion of the personnel expenditure (which is not readily compressible in case of need) was an inappropriate response. In the absence of drastic corrective action, all possible scenarios about the future point to non-sustainability of the expenditures. 22. We examine one such scenario by projecting the current expenditure outlook over the period 1987-90 under the following assumptionst (i) real GDP grows at 2-3 percent per annum; (ii) personnel expenditure rises annually at 10 percent; - about half the rate that prevailed during 1980-86, and equivalent to 1.5 percent real increase and 8 percent inflation. (iii) supplies and services expenditure grows at about 5 percent per annum; (iv) revenue performance remains at the post-1982 rate of 11-12 percent of GDP. - 7 - The general results appear in Table 1 below: Table 1. Benin: Projected Current Expenditure Trends. 1987-90 (In billions of CPA francs) 1987 1988 1989 1990 Revenue 2/ 60.6 65.7 71.6 78.2 Current Non-debt Expenditure 64.4 72.4 83.3 95.9 Wages and Salaries (48.4) (55.6) (64.0) (73.7) Supplies and Services (16.0) (16.8) (19.3) (22.2) Current Surplus -3.8 -6.7 -11.7 -17.7 …----------------------------------------------------------------__-------- 23. These results predict increasing chaos in the public finances if current policies remain unchanged. They indicate the continuance of a situation where economic management capacity would have to focus on month-to-month worries about meeting personnel expenditures, to the detriment of reflection on longer-term growth and development policy issues. These will coexist with growing payment arrears on services and supplies consumed and on debt service, while no current savings are available to contribute to financing capital expenditures. Corrective action by the Government must proceed from a recognition of the origins of the imbalances. 24. In the short run, there is a basis for corrective action to adjust the government employee-labor force and government wage-per capita income ratios of today, towards proportions that proved sustainable in the 1970s. According to a study on government employment and pay released by the IMF in 1983 3/ , Benin had in 1979 one of the lowest ratios of government employees-to-population among 16 African countries in the sample. In terms of government average wage-to-per capita income, however, Benin ranked third highest in the same sample of 16 countries. That is notwithstanding the fact that Benin has one of the lowest absolute wage levels in the Western Africa forest zone. What happened during 1980-86 was a deterioration that raised the employee-to-population ratio while maintaining the already exorbitant average wage-per capita income ratio. 2/ Consolidated central Government Revenues of Treasury and CA-M combined. 3/ Heller P. S. and A. Tait, "Government Employment and Pay: Some International Comparisons," International Monetary Fund, Washington, D.C., October 1983, revised March 1984. - 8 - 25. The census of civil servants carried out in November-December 1986 offers an opportunity for streamlining the wage roll by eliminating irregularities. The preliminary results indicate that a total of some 57,000 civil servants and military personnel were enumerated. The wages (including wage-related allowances) paid out for the month of November came to about CFAF 2.5 billion. If we take into account the 20 percent contribution to the National Pension Fund (14 percent from the Government on behalf of each employee and 6 percent retained at source for each civil servant) and the further 6 percent withheld as income tax on wages, we obtain a gross monthly wage total about CFAF 3.0 billion. On an annual basis, this implies a wage bill of under CFAF 37.0 billion for those counted and paid. Compared to estimated personnel expenditure commitLents for 1986 of about CFAF 44 billion, even allowing for about 1000 individuals that were counted but not paid, the preliminary findings of the census suggest that the possibility exists for achieving some savings through an overhaul of the personnel budget. This overhaul can be carried out by preparing a new personnel budget, starting from a zero base for each ministry and using the names and wage levels recorded during the census as the basis. Other deliberate outlays which may account for part or all the difference between CFAF 44 billion and CFAF 37 billion ought to be budgeted separately. That way the issue of whether they can be afforded or not can be confronted as is the case for any other outlay, during the course of budgeting. 26. In the longer term, the new personnel roll to be developed out of the census records should enable the Government to eliminate former payroll irregularities. Subsequently, personnel and wage increase decisions should take into account the fact that the sustainable growth rate of receipts is modest and that beyond wages, current receipts must also pay for goods and services and pay part of capital expenditure. 27. Materials, Supplies and Services. Normally, with the rising number of civil servants, the need for materials, supplies and services should also increase. In reality, however, the growing personnel expenditures in the face of stagnant receipts squeezed the allocations for materials, supplies and services. The underbudgeting for materials, supplies and services got progressively worse as the crowding out became more severe. 28. In 1980, an amount of CFAF 4.3 billion was budgeted for goods and services and an amount of CFAF 5.1 billion was spent. Between 1981 and 1986, the annual budget for this category of expenditure remained at about CFAF 5.0 billion on the average, while actual need rose progressively to about CFAF 15.0 billion. Some of that need was met by increasing the obligations and not paying for them. The budgetary practice of acknowledging only that portion of the obligations likely to be honored exacerbated matters by constantly underrepresenting the needs and causing underbudgeting. The effects have been the weakening of the performance of parts of the civil service and the accumulation of payment arrears on services such as the utilities. 29. The issues on which the authorities should focus here are the effects of the underprovision of material and supplies, on one hand, and of the build-up of expenditure arrears on services, especially utilities, on - 9 - the other. The one limits the proper functioning of Government; the other progressively impairs the financial health of the public utility companies. The solution lies in containing, if not reducing, personnel expenditures in order to make room for reasonable levels of expenditure on materials, supplies and services. E. Capital Expenditure/Investment 30. When the public sector finances weakened after 1982, the response in trimming down the puhlic investment program was not decisive. Instead, the annual programs remained closely linked to the tranches of the rather ambitious 1983-87 development plan. The response consisted of the adoption of a two-part programming system in 1984 by which annual programs prepared through the first half of 1986 attempted to order priorities in a main program and an alnex. This approach, however, was unsuccessful as the priority of the main program over the annex was not respected during program execution. Both parts of the program were executed concur- rently. 4' The result was a combination of low overall program execution rates and dectoral resource allocation not in conformity with preferences revealed in the first priority program. 31. A definite improvement was made in the programming of investment expenditures when in July 1986 a revised program was adopted containing projects that were screened more carefully, with an overall expenditure level more in line with financial and technical constraints. The greater realism of the revised 1986 program is reflected in the fact that some 64 percent of the programmed expenditure was attained, as against about 30 percent during 1984-85. The sectoral distribution of the realised expenditures also closely followed the program. 32. For 1987, the authorities used the same principles as for the revised 1986 program to produce an investment program that is qualitatively sound. In other respects, however, the programming of capital expenditures faces another challenge which arises from the weakened broader financial situation, namely, the availability of investible domestic resources. 33. The projected savings-investment outlook for 1987-90, assuming unchanged policies, points up the nature of that challenge. These relationships, which are summarized in Table 2, show a framework consisting of a fairly high marginal productivity of investment (ICOR of about 4:1), and a real GDP average growth rate of 2.2 percent requiring an average investment ratio of 8.7 percent per annum. We assume that the growth of real government consumption slows down to a rate of 1.5 percent per annum, in order to maintain a constant 11.4 percent share in GDP. Private consumption grows at 2.4 percent (implying a gradual fall in per capita 41 See Benin: Public Investment Review, IBRD Report No. 5910, November 1985. - 10 - consumption). Since external terms of trade which declined in 1985 are only likely to regain their 1986 level by 1990, domestic savings would remain negative through the four-year period. In the face of these domestic constraints capital expenditures would continue to depend almost exclusively on foreign financing. But in order to attain an average investment rate of 8.7 percent of GDP, as yet unidentified external resources averaging about CFAF 81 billion per year must be found. This financial gap emphasizes the non-sustainability of the outlook described above 5/ . The challenge the authorities face relate is how to alter the relationships into a workable scenario. Table 2. BENIN: Projected Saving - Investment Outlook . 1987-90 1987 1988 1989 1990 GDP growth rate (C) 1.9 2.2 2.4 2.4 Consumption/GDP (Z) 96.3 96.7 99.9 98.6 -Government Cons./GDP (Z) 11.5 11.5 11.3 11.3 -Private Consumption/GDP (X) 84.8 85.2 88.5 87.3 Investment/GDP (2) 8.1 8.5 9.0 9.2 Financial Gap (CPAF billion) 52.9 63.6 102.6 125.6 34. The challenge concerns (i) reorganizing the portfolio of development activities over the next few years so as to obtain higher growth return from every unit of capital expenditure, (ii) regenerating domestic savings so as to improve the domestic contribution to funding the investment program and (iii) programming with greater recognition of institutional and technical capacity constraints, thus avoiding the overoptimism which results in the allocation of resources in suboptimal proportions. 35. Portfolio of Investments. With the last tranche of the 1983-87 plan under execution, the question of the nexi multi-year investment program arises. But it does so at a time of considerable uncertainty. The economy is weak and suffers from serious financial disequilibria. External market conditions that matter for most of its activities are depressed, or are at best uncertain. The authorities are on the threshold of reform 5/ This gap, which is three times the normal level of atnual gross inflows, assumes that all debt service due is paid, including the obligations relating to Save and Onigbolo averaging CFAF 14 billion per year, which are fully imputed to Benin under the joint and several responsibility provisions binding Benin and Nigeria together. - 11 - programs that would help address the issues posed. It would appear that apart from realism and project quality a key attribute for a multi-year investment program would be flexibility. As to program type, the authorities should perhaps seriously consider making the next multi-year program a 3-year rolling program. With regards to cortent, we present below in the Sector Annex a review of the current portfolio and offer suggestions as to priority activities, including rehabilitation of the cotton subsector, fuller development of the foodcrop production potential, and rationalization of the industrial sector. 36. Investible Savings. Next, efforts must be made to regenerate the public savings needed for domestic contribution to the financing of the programs. On the basis of the composition of total costs as prescribed by the financing agreements of various projects, we estimate the required contribution to the financing of recent public investment programs at 10-12 percent of planned expenditures. In line with these counterpart funding arrangements, the 1987 investment program requires an amount of CPA? 6 billion in government contribution. The program actually provides for only CFAF 2.9 billion. Since the overall financial situation of the Government is one of net dissaving in 1987, even the provision of CPA? 2.9 billion in counterpart funds would be at the expense of the supplies budget and/or debt service. The above picture underscores the fact that the issue is really one of curbing and containing public consumption expenditure so that other public expenditure needs can be accommodated. 37. We saw earlier that the results of the census of civil servants offers the opportunity for an immediate attack on the wage bill issue. The preparation of a new personnel budget from the zero base offered by the census records will be a first action to curb personnel expenditures and, hence, consumption. The creation of new personnel rolls out of the census data, the institution of rigorous personnel management practices and a general shift away from wholesale to selective public sector employment are complementary steps towards containing future growth of public sector consumption. 38. Tranching with Greater Realism. Finally, the annual tranching of projects should be done with greater realism, so that the limited financial resources available are allocated among the priority projects in the proportions in which they are most likely to be executed. In 1985, when the two-part investment programming practice was still in effect, the meager domestic savings affordable in that year were allocated throughout a program of which only 35 percent could be executed. This approach clearly takes no account of relative priorities within the program. In 1986, about 80 percent of the revised program was executed -- a vast improvement over 1985 in terms of the implied quality of resource allocation. Still more rea'istlc programming of this nature -- of tranches of priority projects rather than across the board -- will be the means to further improvement in t-he allocation of the available investible resources. - 12 - P. Net External Financing 39. When capital expenditures fell to more modest levels after 1982, gross disbursements from foreign loans also fell. At the same time, with the grace period ended for the loans to the Sav6 sugar, Onigbolo cement and S4md projects, scheduled debt service surged upwards. Together, these factors ushered in a period of potential negative net external financing flows. 40. In 1983, the year in which the last of the large projects was completed, scheduled debt service was CFAF 9 billion. With the star% of the repayment phase of the loans to rhe large projects, scheduled debt service reached an average of CFAF 40 billion during 1984-86. Over the same period, gross disbursement declined from CFAF 44 billion in 1983 to an average of CFAF 17 billion during 1984-86. The implied negative transfers in 1984-86 were avoided through the accumulation of arrears on the external debt payments. But the arrears themselves (totalling about CFAF 99 billion at end-1986, including Save and Onigbolo debts) now threaten future disbursements on the loans already in the portfolio. 41. The outlook for the period 1987-90 gives urgency to action on securing the continuance of positive net foreign flows. Scheduled debt service during the period 1987-90 averages CFAF 39 billion (Table 3) as against future disbursements out of existing loans of CFMF 22 billion. This implies potential negative net transfers averaging CFAF 17 billion. The challenge faced here concerns how to manage the net external flows in combination with domestic efforts to support target levels of investment. In the near term, the issue simplifies to one of how to raise domestic savings to a level. where they can cope with debt service, reduced to the minimum through negotiation with external financiers. On the one hand, this touches on the need to contain consumption. On the other, it relates to the need to seek restructuring of debt to reduce the payments falling due. But how much of the debt service falling due during 1987-90 can be rescheduled? 42. Over the period in question, payments due to multilateral creditors and non-OECD bilateral creditors average CFAF 1C billion annually. The multilateral debts are non-reschedulable ViL existing practices. The non-OECD bilateral debt may be renegotiated on a case-by-case basis, but in lieu of any indication as to what Benin may be able to work out with this category of creditors, we exclude their debt from this part of the analysis. The remainder -- combined payments on direct debt owed to OECD governrents and banks and suppliers, the latter with insurance from official export credit institutes -- amounts to about CFAF 29 billion annually. But these estimates include the full scheduled payments on the debts of the Save and Onigbolo projects, in line with the joint and several obligations that Benin faces with Nigeria. Table 3. BENIN: PROJECTED EXTERNAL DEBT SERVICE, 1987-90 (In Billions of CFA Francs) Principal Interest Total CREDITOR 1987 1988 1989 1990 1987 1988 1989 1990 1987 1988 1989 1990 TOTAL(excl. BCEAO) 31.589 30.085 27.051 24.618 13.540 11.S92 9.919 8.198 45.129 41.878 36.970 32.817 MULTILATERALS 4.188 S.4S9 5.401 5.710 2.367 2.5S 2.827 2.585 6.s54 8.025 8.028 8.294 (of which IDA) (0.204) (0.285) (0.328) (0.397) (0.586) (0.628) (0.BS2) (0.889) (0.790) (0.912) (0.980) (1.086) OECD 26.001 22.774 19.113 18.887 10.828 8.704 7.010 5.374 38.830 31.478 26.123 22.046 OECD(Direct) 2.377 2.873 3.144 3.470 1.758 1.793 1.754 1.822 4.144 4.868 4.898 5.096 OECD(Indirect) 23.624 19.901 15.989 13.197 9.062 6.911 5.258 3.752 32.686 26.812 21.226 18.949 of which debtors: SSS (8.275) (8.275) (6.275) (6.275) (3.748) (3.277) (2.807) (2.338) (10.023) (9.5S3) (9.082) (8.811) SCO (2.816) (2.816) (2.818) (2.020) (1.551) (1.340) (1.129) (.708) (4.388) (4.156) (3.945) (2.729) Seme (11.119) (7.750) (4.381) (2.456) (2.957) (1.641) (0.807) (0.288) (14.076) (9.391) (6.188) (2.745) OTHER 1.400 1.852 2.537 2.239 0.345 0.323 0.282 0.239 1.746 2.1.5 2.819 2.478 East Bloc 1.031 1.483 1.935 1.637 0.149 0.116 0.079 0.045 1.180 1.698 2.014 1.682 Africa 0.195 0.196 0.195 0.195 0.009 0.007 0.008 0.005 0.204 0.202 0.201 0.290 Kuwait 0.174 0.174 0.407 0.407 0.188 0.200 0.197 0.188 0.381 0.375 0.05" 0.596 Note: OECD Indirect covers private-source debt guaranteed by creditor country official institutions. - 14 - 43. In January 1987, Nigeria rescheduled its debt to the OECD creditors and the debts of Sav4 and Onigbolo were 'rescheduled to the extent that the guarantee of the Government of Nigeria is invoked." Although no clear interpretation of the reference to the debts of Sava and Onigbolo is as yet available, we may assume that the action clears the way for Benin and Nigeria to pay the debt according to new schedules but in the proportions in which they own the companies' capital. In addition to the assumption, therefore, that Benin henceforth will be responsible for about 51 percent of the debts of Save and Onigbolo, we assume the following: (i) all OECD direct and indirect government debt is rescheduled recurrently (here, one year at a time) over the period 1987-90; (ii) 100 percent of the principal and interest due each year is consolidated over a period of 20 years including 10 years of gracet (iii) a moratorium interest rate of 5 percent per annum is applied to all postponed payments. 6/ Under these assumptions, the debt service to be met during the period 1987-90 falls to an annual average of CPAF 13 billion. The distribution by time and by creditor is as in Table 4. 6/ These assumptions are illustrative. They do not preclude the possibility of Benin obtaining more favorable conditions. Table 4. BENIN: DEBT SERVICE AFTER POSSIBLE RESCHEDULING, 1987-90 (In Billions of CFA Francs) Principal Interest Total CREDITOR 1987 1988 1989 1990 1987 1988 1989 1990 1987 1988 1989 1990 TOTAL(incl. BCEAO) 8.688 9.305 10.716 18.706 8.324 e.823 7.098 7.207 12.989 18.129 17.813 23.912 TOTAL(excl. 8CEAO) 8.B88 9.305 10.715 11.30B 3.084 3.683 3.858 3.967 9.749 12.889 14.573 15.272 MULTILATERALS 4.188 6.469 5.401 5.710 2.387 2.S86 2.827 2.S85 8.5U 8.025 8.028 8.294 (of which IDA) (0.204) (0.284) (0.328) (0.397) (0.586) (0.828) (0.685) (0.889) (0.790) (0.912) (0.980) (1.068) BILATERALS 2.478 3.846 5.314 S.598 0.717 1.018 1.231 1.382 3.196 4.884 6.545 8.978 OECD 1.078 1.994 2.777 3.357 0.372 0.895 0.949 1.143 1.460 2.889 3.726 4.500 Direct (0.119) (0.283) (0.420) (0.593) (0.088) (0.178) (9.2W8) (0.347) (0.207) (0.441) (0.888) (0.940) 1 Indirect (0.959) (1.731) (2.357) (2.784) (0.284) (0.517) (0.888) (0.798) (1.248) (2.248) (3.040) (3.560) u OTHER 1.400 1.862 2.6B7 2.2B9 0.845 0.823 0.282 0.289 1.746 2.176 2.819 2.478 East Bloc (1.031) (1.483) (1.985) (1.8B7) (0.149) (0.115) (0.079) (0.046) (1.180) (1.598) (2.014) (1.882) Africa (0.196) (0.195) (0.196) (0.195) (0.009) (0.007 (0.00W ) (0.005) (0.204+ (0.202) (0.21) (0.200) Kuwait (0.174) (0.174) (0.407) (0.407) (0.188) (0.200) (0.197) (0.188) (0.31) (0.875) (0.615) (0.596) aCEAO 0.000 0.000 .000 6.400 8.240 3.240 3.240 8.240 8.240 8.240 8.240 8.640 Note: OECD Indirect covers private-source debt guaranteed by creditor country official institution. - 16 - 44. The effect of the above rescheduling scenario would be a reduction in the scheduled average annual payments (principal plus interest) from CFAF 39 billion to CFAF 13 billion. It implies a conversion of average annual negative net inward transfers of CFA? 17 billion into positive net transfers of CPAF 9 billion. But there is an additional benefit to be expected from the reorganization of the debt schedules with external creditors and, as a consequence, the orderly resumption of scheduled payments. The smoothened relationships will pave the way for new commitments and, hence, an increase in the volume of gross inflows. 45. There is, however, one condition which Benin has to meet to make debt restructuring possible. That condition for debt rescheduling is the existence of a program of financial stabilization into which the debt relief can be integrated. The essence of such a program is that it should represent a framework aimed at financial recovery, including the orderly resumption of debt payments. And this should be done within a context of renewed growth. 46. Once the debts are restructured, some extra effort would be needed to comply with the new schedules. This is because the post-rescheduling average annual payments slightly exceed the average of the pre-rescheduling period when most of the payments falling due on OECD-source commercial debt simply went into arrears. Under rescheduling, Benin would pay on the average some CFAF 1 billion more than it does at present. However, since the post-rescheduling amounts start out smaller than the average of CPA? 13 billion, the extra effort would become significant only after 1988. Another dimension of the issue of the capacity to meet the rescheduled payments relates to the very real possibility of the postponed payments simply reappearing as an insurmountable hump in the early-to-mid 1990s. The way to avoid such an occurrence is for Benin and the donors to ensure that the program of reforms in which the reschedulings are intergrated and the terms of such reschedulings lead to improved economic performance on one hand and a manageable debt profile on the other, as envisaged in the current IMP-Bank initiative. 47. Up to this point, we have considered Benin's external debt portfolio without taking into account the debt of the public enterprises to the domestic banking system, which is in turn a debt to the Banque Centrale des Etats de l'Afrigue de l'Ouest (BCEAO). Since preliminary discussions have concluded that the Government would accept responsibility for that debt and service it according to an agreed schedule, the structure of the implied debt service ought to be included in the debt service schedules discussed earlier. That debt is estimated at CFAF 54 billion 7/ (Banque 7/ This amount has been given at levels varying between CFAF 43 billion and CFAF 54 billion. Part of this amount is the accumulated penalty interest on principal overdue. Benin can certainly negotiate the terms cited here, including some write-off of the penalty interest. - 17 - Beninoise de Developpement CFAF 18 billion, Banque Commerciale du Benin CFAF 20 billion, and Caisse Nationale de Credit Agricole CFAF 16 billion). Its scheduled payments on a 10-year repayment term including 3 years of grace, at 6 percent interest rate are shown in Table 4 above. The effect of the inclusion of the debt to BCEAO in the schedule of possible restructured payments is to raise the average annual payments by CFAF 2 billion over the 1987-90 period. The potential net inward transfers are also lower by CFAF 2 billion, indicating that the challenge of restoring a sustainable financial framework is all the stiffer when one recognizes the existence of the banking sys.em debt. This also means that in the interest of ensuring the sustainability of the financial framiework, Benin ought to work towards obtaining on its BCEAO debt rescheduling terms which are more concessional than those reflected in the Table 4 above. 48. Furthermore, Table 4 above excludes the repayments to be made in settlement of the arrears of CFAF 99 billion accumulated since 1983 (or CFAF 78 billion if Benin's responsibility for the debts of Save and Onigbolo are limited to 51 percent of the amounts due). A rescheduling workout would include a schedule for the repayment of these amounts. Thus the existence of past arrears means that a greater effort will be necessary to meet the repayments than is evident from considering current maturities and interest alone. - 18 - III. RECOMMENDATIONS 49. Procedures - Technicians' revenue estimates should be accepted; no calls for upward revisions without new tax measures. - Budget should cover all valid obligations, except those deferred following negotiations, and imbalances should be explicitly addressed. - The Budget Commission should have a standing aut.horization to propose measures towards eliminating deficits identified in the course of their -work. - Budget equilibria should be reflected only after measures sufficient to eliminate deficits have been identified, quantified, and integrated into the budget. - Expenditure records should cover all commitments - including those likely to be unpaid in the relevant period owing to weakness of Treasury position. - The classification proposed for the capital budget nomenclature should be altered to have Titles cover economic classification; Chapters should apply to functional classification; and Articles should refer to functional sub-categories. 50. Current Expenditure - The civil census data should be used to prepare a new personnel roll, eliminating past irregularities and achieving a once-for-all reduction in personnel expenditures. In addition, regulations on new employment and retirement should henceforth be rigorously applied. - Allocation for supplies and services should be protected against erosion by personnel expenditures and transfers. 51. Capital Expenditure - The public sector's consumption expenditure should be contained in order to raise stavings need as local counterparts to carefully selected high priority projects. - In view of several uncertainties and the need for flexibility, the next multi-year investment program should be a 3-year rolling plan. - 19 - 52. Net External Financing The prospect of negative net external flows should be turned around by - the preparation of a credible financial recovery program based on a framework of growth resumption, - the negotiation of debt relief on very concessional terms from external bilateral creditors on the basis of the economic and financial reform program into which it is integrated, - the negotiation of the banking system debt with BCEAO on the basis of an economic recovery plan with a reformed banking sector. - 20 - IV. ANNEX - SECTOR OVERVIEW 53. As stated in para. 35 above, in the prevailing environment of economic weakness and strained finances, efforts to regenerate investible savings must be accompanied by improved allocation of the modest amounts of savings that can be marshalled. Since the current medium-term investment program is in its last year, we are unable to analyze, and offer recommendations on, the future public investment programs. Consequently what follows is a review of the existing portfolio of investments and the relevant policy issues, with suggestions on areas where attention need to be paid during the preparation of the next medium-term investment plan. Agriculture 54. Agriculture remains the sector offering the strongest growth potential in the economy. It has the resource base and does not suffer much from the large periodic swings in demand which are the plight of the economy's other sectors. Over the next few years, however, that potential can only be further developed if both policy and investable resources are used to address issues in the areas of (i) institutional arrangements; (ii) the cotton sub-sector deficit; (iii) foodcrop marketing; (iv) crop diversification research. 55. Institutional arrangements. The first issue here relates to the declining efficiency of the regional rural development organizations - the CARDERs. Introduced in 1972, the CARDER organization's objective was the provision of extension services to farmers. In that role, the organization has proven to be a success. But the progressive involvement of the CARDERs in directly productive (industrial and commercial) activities beyond their original role is making their tasks overly complex and is overtaxing them managerially. In addition, the widening of their responsibilities to cover social services (health, roads, etc.) without matching growth in the resources put at their disposal has weakened them financially. 56. In the interest of efficiency these trends ougb to be reversed. In fact the temptation to replicate the current organiz 'i * structure in each province should be resisted. The CARDERs should give primary attention to the delivery of technical packages to the farmers and they should be endowed with the resources needed to accomplish that mission, and that mission alone. These objectives are being pursued in the Second Borgou Rural Development Project being financed by IDA, the Caisse Centrale, and the West African Development Bank. 57. Cotton Subsector Deficit. The recent supply changes on the international market for cotton mean that world market prices will remain below the 1983 levels through 1990. Given its cost structure, and the fixed parity between the CFA franc and the French franc, Benin's cotton subsector faces potential deficits in the face of these price developments. - 21 - But with the resources in its price stabilization fund .epleted, the subsector needs to make cost-saving adjustments if it s to survive the expected deficits and be able to weather similar shocks in the future. 58. Near-term cost saving measures include: (i) paying for seed cotton according to quality grades; (ii) better handling, storage and ginning of cotton so as to raise the fibre recovery ratio from the current 38 percent to 41 percent; (iii) better financial management and placement of funds, including transferring of net amounts between SONAPRA and the CARDERs; and (iv) the acquisition of a better market information service and sales representation in order to reduce the margin between the wor1d market price and the price that Benin receives. These ought to be followed by actions to reinforce the commercial character of cotton production, processing and marketing activities. The steps to be taken here include the (i) transfer of the ginneries from the CARDERs to a commercial entity; and (ii) the adoption of cost and price mechanisms that price goods and services marketed in the chain at their true values. 59. Food Crop Marketing. The economy's potential in food crop production is constrained by the absence of marketing arrangements that would assure producers dependable outlets for their crops and the disincentive effects of official policy meant to ensure the availability of affordable foodstuff in the country's urban centers. The absence of dependable markets causes the farmers to limit production primarily to their own needs, in which case marketable surpluses are more incidental than deliberate. In turn, with production geared primarily at satisfying on-farm consumption, the urban centers experience shortages in years i-. which poor weather conditions reduce yields. The latter influence leads to official attempts to discourage exports, thus further limiting farmers' market opportunities. Both influences retard the development of Benin's food-crop production potentia1 as a structural exporter of food crops. 60. The food crop subsector will increase its contribution to growth only if food policy ceases to be a limiting factor on the size of the producers' market and producers' support services improve. An appropriate food policy for Benin would be one that deals with transient and not absolute food insecurity, since the zountry is food self sufficient in all but the extreme drought years. That policy should therefore aim at combining timely information and rapid access to external supply sources into a mechanism that could fill the occasional shortages. Coupled with the development of that mechanism scheme would be the liberalization of food crop trade so that farmers take advantage of the extended market opportunities of export trade. In addition, support services for storage and handling would enhance the capability of the producers to take advantage of the wider opportunities. 61. Diversification. Currently, the main cash crops are cotton and oil palm since tobacco, peanuts and shea nuts have become insignificant. But in order to take advantage of ecological variations in different agricultural zones as well as increase the product mix and reduce agricultural income instability, attention must be focussed on crop - 22 - diversification. Research will have to be geared towards investigating whether, where and how the cash crops that have dwindled in significance can be revived, and to examine the prospects for other crops such as cocoa, coffee and coconuts. 62. From the foregoing, we may conclude that the next crop of investments in the agricultural sector shouldt (i) avoid replicating the present institutional structure in the rural development projects; in particular the CARDERs should be enabled to concentrate on the delivery of extension services; (ii) break the storage and marketing bottlenecks limiting the fuller development of the economy's food crop potential; (iii) explore the means to diversify Benin's range of cash crops. A general agricultural services project would address the sector support issues and research now crop possibilities. This could be followed by projects to develop food crops and other cash crops proved suitable in the meantime. Energy. 63. In the energy subsector, current efforts center on the development of domestic sources of electric power (the Nangbeto Hydroelectric Project) and the recovery of petroleum deposits first discovered in 1978 (Seme Oilfield project). The Nangbeto project enters its productiva phase in 1988 and the Sbmb project's currently proven reserves run out in 1992. Now, some thought has to be given to what the next set of activities in the subsector should be. 64. In the area of fossil fuels, further activities would be the exploration for oil in the areas adjoining the presently producing fields and the investigation and commercial development (if warranted) of the gas deposits below the S&mb oil reserves. Earlier plans to involve the private sector in this activity should be revived as soon as practicable. In the case of electric power, possible new activities are the development of further generating capacity by the construction of smaller dams further upstream on the Mono river and the investment in an improved distribution network to distribute current production. The investments to explore extensions to the petroleum field are already programmed. In addition, should the testing of the gas deposits prove the existence of commercial quantities, further investments to develop the field would be appropriate. 65. As to electric energy, further investment in the near term to raise domestic capacity appeers unwarranted for two reasons. First, electric energy will not constitute a constraint on growth any time soon. Second, investing in smaller dams in order to secure domestic supply would not address the presumed reliability issue since the droughts that curbed Ghanaian production, and hence supply to Benin, during 1983-84 would hit smaller reservoirs just as hard and raise their already high unit costs further. Hence, in the case of electric energy, it would be more rational to turn attention over the next five years to strengthening the distribution network and reducing losses. In fact, if the tests on the gas deposits reveal comercial quantities, serious thought should be given to - 23 - the development of gas for domestic energy purposes along with itq development for export markets. Water 66. Current investment activity in this subsector aims at the provision of potable water for the main regional centers. Even though some of these works are being financed with grants (giving them the appearance of free goods), their operating and maintenance costs are still a factor that would determine their viability if not the appropriateness of the investments. These regional centers weigh heavily on the financial health of the national company, the Societe Beninoise d'Eau et d'Electricite (SBEE), owing to their high unit cost-return ratio. As such they are a major factor in the enterprise contract between Government and the SBEE on the pacing of new investments in a manner compatible with the orderly development of the subsector. 67. The present plans for extending rural water development must take into account the need for a balance between the provision of the facilities and the safeguarding of the ftnancial viability of the executing agencies. In the case of rural water development (for which the Direction de l'Hydraulique has responsibility) the constraint (in terms of of budgetary resources) is as binding as it is in the case of urban center supplies for which the SBEE has responsibility. In view of the foregoing, it would appear reasonable that the subsector consolidate its current crop of urban center investment activities over the next five years rather than add to them. Transport 68. Benin's road transport system has a network density that compares favorably with the regional average and is adequate for the country's present needs. This is all the more so with the on-going pavement of the Dassa-Parakou stretch of the north-south axis, making that major artery motorable year round. Road transport enjoys superiority over rail, being better suited to the country's needs which, outside the north-south axis, are characterised by short distances and absence of the heavy/bulky material that would make railroads a paying proposition. Policy decisions and investible resource allocation should recognize the inherent advantage that road transport enjoys over rail and concentrate on maintaining past investments and selective extension of the rural area network as well as the introduction of greater efficiency in corridor operations. Support for this orientation is being provided through the IDA credit, and financing from the Caisse Centrale and the European Development Fund among others, for the rehabilitation and maintenance of transport sector infrastructure. Maintenance 69. Over the next few years, when resource constraints are going to be firmly binding, maintenance of past existing assets should have priority over new constructions, the net marginal returns from the former being - 24 - higher than from the latter. The proposed transport infrastructure rehabilitation provides a vehicle for the efforts. 70. Simultaneously, sector institutions should be invigorated to make them more efficient. Their personnel rolls ought to be lightened, their operations put on commercial footing and their staff's technical competence regularly upgraded. In support of all the above, policy making should favor competition over regulation, including allowing increasing private sector participation in the sector's activities. Hence, the next set of investments in the sector should focus ons (i) rehabilitation and maintenance of existing secto, Infrastructure; (ii) maintenance of the railway to keep it operable until after the opening of the Dassa-Parakou road when consumers should be entitled to a free modal choice, thereby deciding the final resolution of the road/rail issue. Telecommunications 71. Major investments were made in this subsector in the mid-1970s but the local network needed to take advantage of the larger investments is missing. In addition, the subsector's finances are weak, in part, because of low subscriber density to the telephone system and, in part, because of weaknesses in the postal services that go back to the colonial days. 72. The important needs in the subsector over the next few years are for the local netiork, improved accounting that separates postal system accounts from those of telecommunications proper and improved cost recovery. The next group of investments should support the above areas, the planned expansion of the television network, for instance, should be postponed till the much later. Industry 73. The industrial sector witnessed considerable expansion during the execution of the 1978-83 plan when plants were constructed to produce sugar, cement, fertilizer, among others. These efforts have produced disappointing results because of an assortment of problems including market limitations, working capital shortages, inherent design problems and the lack of raw materials. Initiatives made in 1982 to deal with the problems of the affected enterprises have finally been launched as a detailed program of reforms aimed at the public enterprise sector as a whole. Owing to the magnitude of the resources at stake, the application of the resources will have to be resolute be they in privatization, liquidation or rehabilitation of selected enterprises or in the reform of the institutional framework or market prices. 74. In conformity with the orientation in the public enterprise sector reform program, the next round of investments should consist of the rehabilitation within carefully prepared plan of selected enterprises in which the State is retaining shares. A good deal of effort should center on improving the instituti,nal and policy environment to make it conducive - 25 - to the success of the privatisation efforts and generally greater private sector participation in industrial sector activities. Education 75. The new educational orientation adopted in 1975 broadened access to primary education to a larger segment of the population than before and, in so doing, increased the potential demand for post-primary education in the 1980s. The present bias in the education sector investment program towards the construction of new middle level institutes is largely in response to that outcome. But the quality concerns raised by the 1981 national review of the sector and the current financial constraints dictate a rethinking of the education sector policy, especially as a new plan period approaches. 76. A first consideration is how to improve sector resource allocation relative to others. Education now consumes about 351 of the current budget but schools remain underfunded. Given present resource constraints it is impossible to increase that allocation without seriously harming other programs. At this juncture, should the private sector not be encouraged to expand its educational activities that have proved so effective in technical/vocational training? How about the increased use of cost recovery to strengthen the role of the market place in allocating educational services. A second consideration concerns how to improve internal efficiency of the sector. The mismatch between the skills produced and the demand for trained manpower is one reason why large numbers of the graduates of public technical/vocational institutes end up in civil service jobs. And new institutes are being constructed while existing ones are starved of pedagogic materials. Shouldn't curriculum reform and the proper equipping of existing institutes take precedence over the construction of new ones? Also should the market place not be relied upon to re-orient more students towards practicallfunctional disciplines? Health 77. While the enunciated national health sector strategy parallels that advocated by the World Health Organization -- the health pyramid, with primary preventive services at the base -- recent investment programs have emphasized secondary and tertiary health services through the construction/rehabilitation of hospitals. Admittedly, there is a dilemma here. A number of provincial hospitals are in utter disrepair and need to be rehabilitated even though that will be at the expense of expanding primary, preventive health care. Beyond the rehabilitation and re-equipping of those hospitals, there is a real question about the timing of the construction of new hospitals which are costly to maintain and run, but which are less appropriate as investments a3ainst Benin's epidemiology. The balance should be redressed in favor of preventive health care in the next plan period.