Benin First Fiscal Management and Structural Transformation Development Policy Operation: Supplemental Financing

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The objectives of the First Fiscal Management and Economic Transformation Development Policy Operation Program Project are to support the Government to: 1) strengthen fiscal and debt management; 2) improve the financial sustainability of the energy sector; and 3) foster the development of the digital economy. The proposed operation provides US50 million dollars equivalent in supplemental financing (SF) for the First Fiscal Reform and Structural Transformation Development Policy Operation, P168668, DPO1 to help the Government of Benin (GoB) cover an unanticipated financing gap that has opened due to the impact of the COVID-19 outbreak. On December 12, 2019, the Board approved DPO1 with an amount of US100 million dollars equivalent. This operation is a single-tranche disbursement of IDA Credit for EUR 23 million (US25 million dollars equivalent) and IDA Grant for SDR 18.3 million (US25 million dollars equivalent). The request for SF is consistent with the World Bank policy on Development Policy Financing (DPF). The Government has adopted strong public health measures to contain the pandemic, but the fiscal buffer is significantly constrained. In early March, the GoB developed a Health Preparedness and Response Plan to strengthen its health response capacity. It is now preparing palliative measures against the economic fallout from the contraction of external demand and the domestic impact of containment and mitigation measures. In addition to the health pillar, the National Response Plan is focusing on two priority areas: helping extremely poor and vulnerable households; and supporting ailing businesses and economic recovery. The estimated cost of the Health Plan is CFAF 60 billion (US102 million dollars) while about CFAF 90 billion (US153 million dollars) are planned for the social and economic areas. The total is close to 2 percent of GDP. The GoB will rationalize nonpriority expenditures and reallocate the budget, but the fiscal impact will be significant given the steep rise in expenditures and sharp decline in tax revenues. Overall, the fiscal deficit (including grants) is expected to rise to 3.5 percent of GDP in 2020.