IMF, update

 

Dear MARIA, In today's edition, we highlight: Benin Country Focus Victoria Fan and Sanjeev Gupta on how to heal health financing Daniel Susskind on growth A focus on digital finance, IMF staff papers, and more COUNTRY FOCUS Benin: An African Pioneer (Credit: Joesboy-hadynyah/iStock by Getty Images/IMF Photo) Benin has faced a number of challenges over the past several years: a deteriorating regional security situation at its northern border, the lingering scars of COVID-19, and higher living costs amid the war in Ukraine. To help counter those headwinds, the country tapped IMF support. Development partners’ confidence in the country’s reform program has been reflected in budget support consistently exceeding expectations. And Benin was among the first countries to re-access the international capital market last year, following a two-year hiatus, with several sovereign credit rating upgrades in recent years.  Despite challenges, there are promising signs of economic transformation. Among other achievements, growth has been strong, fiscal adjustment is proceeding while allowing for a significant increase in social spending, and efforts to strengthen governance are gaining ground in the country. IMF Country Focus discussed the country’s economic performance with Romuald Wadagni, Senior Minister of State of Economy and Finance for Benin, and the IMF’s Constant Lonkeng. Read the Article F&D MAGAZINE How to Heal Health Financing (Credit: Guerchom Ndebo/Getty Images) Failure to learn from the response to COVID-19 could have grave consequences for global health. Writing in F&D, the Center for Global Development’s Victoria Fan and Sanjeev Gupta say that the pandemic exposed significant holes in the current international framework, including lack of coordination among multiple organizations and unequal vaccine distribution between high- and low-income countries. Developing economies urgently need additional health resources. But existing resources must be spent efficiently, and coordination between international donors, public and private, should be improved, the authors say. “A multipronged approach that prioritizes strengthening country health systems and integrates global initiatives into national strategies could have a lasting impact on health outcomes in these countries.” Read the Article Economic growth is often seen as the core ingredient to social development, but it’s a relatively new idea. So what did pre-growth society look like and how much growth can modern society sustain? In his latest book, Daniel Susskind argues that economic policy should consider the costs of growth more carefully and realign the drivers to better fit with the challenges of our time. Susskind is a research professor at King's College London and a senior research associate at the Institute for Ethics in AI at Oxford University. In this podcast, he says growth doesn’t come from the tangible world of things but from the intangible world of ideas. Weekly Roundup IMF PUBLICATIONS Focus on the Digital Economy Most financial assets are digital today. Tomorrow, they may be tokenized. Tokenization implies recording and transferring assets on a widely shared and trusted digital ledger that can be programmed. Interest in tokenization is strong and experiments abound, but what are the consequences of this new trend for financial markets? A new Fintech Note introduces a taxonomy and a conceptual framework centered on market inefficiencies to evaluate this question. Also, among our popular publications this week is a 2021 paper on Powering the Digital Economy. The paper looks at the impact of the rapid adoption of artificial intelligence (AI) and machine learning in the financial sector while highlighting both the benefits and concerns these technologies bring. STAFF PAPER Competitiveness and Productivity in the Baltics: Common Shocks, Different Implications A new IMF staff paper examines competitiveness and productivity in the Baltics. Focusing on recent developments, the authors ask why Russia’s war in Ukraine led to a prolonged recession and strong decline in competitiveness in Estonia, while Latvia and Lithuania shielded their economies more effectively. Their findings underscore the need for targeted reforms to improve allocative efficiency, boost productivity, and restore competitiveness in the Baltic region. STAFF PAPER Understanding Agricultural Output in Mozambique This new IMF staff paper presents a comprehensive analysis of agricultural land coverage in Mozambique by utilizing advanced remote sensing technologies. It draws on successful agricultural development examples to propose strategic ways forward for Mozambique. The authors have used satellite imagery coupled with a machine learning algorithm to accurately map and assess the country's agricultural land. The study offers a model of how emerging technologies like remote sensing can inform the agricultural state of affairs and also provides important insights into bottlenecks that may be holding back Mozambique’s agricultural development. Thank you very much for your interest in the Weekend Read! Be sure to let us know what issues and trends we should have on our radar. Miriam Van Dyck Editor IMF Weekend Read mvandyck@IMF.org

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Benin Benin: An African Pioneer (Credit: Hadynya/iStock by Getty Images) Read this article in French Benin faced a number of negative spillovers in 2022: a deteriorating regional security situation at its northern border, the lingering scars of COVID-19, and higher living costs amid the war in Ukraine. To help counter those headwinds, the country tapped IMF support, including a $650 million blended Extended Fund Facility (EFF) and Extended Credit Facility (ECF) arrangement, complemented by a $200 million Resilience and Sustainability Facility (RSF) in 2023. Development partners’ confidence in the country’s reform program has been reflected in budget support consistently exceeding expectations. Moreover, Benin was among the first countries to re-access the international capital market last year, following a two-year hiatus, with several sovereign credit rating upgrades in recent years.   Despite challenges, there are promising signs of economic transformation. Among other achievements, growth has been strong, fiscal adjustment is proceeding while allowing for a significant increase in social spending, and efforts to strengthen governance are gaining ground. Following the combined Fifth Review of the ongoing EFF/ECF arrangement and Second Review of the RSF, IMF Country Focus discussed the country’s economic performance with Romuald Wadagni, Senior Minister of State of Economy and Finance for Benin, and Constant Lonkeng, IMF Mission Chief for Benin. How is the current reform program affecting the daily lives of Beninese people? Finance Minister Wadagni: First and foremost, our ongoing reform program has allowed us to navigate an episode of severe and repeated shocks, with technical and financial support from our development partners. As a result, our economy has shown remarkable resilience, with growth averaging more than 6.5 percent in recent years. Economic resilience is helping harness the potential of Benin’s people. A key focus of our reform program is enhancing human capital, as articulated under our people-centric Government Action Program (PAG 2021–26). Our Integrated School Feeding Program currently provides free meals to students in 95 percent of elementary schools in rural areas (more than 1.3 million children), with full coverage targeted this year. Lower education is now tuition-free for girls across all of Benin’s 77 communes (estimated 2 million girls), with an ongoing pilot to extend to upper secondary school. We are also putting emphasis on technical education and vocational training to prepare our large youth population to seize job opportunities in high value-added activities.   More broadly, our flagship Insurance for Human Capital Enhancement (ARCH) seeks to foster social resilience through various programs including micro-credits, access to healthcare, and pensions. The social registry—established early on under the EFF/ECF with World Bank technical support—is an essential tool for targeting our support to the most vulnerable.   How has IMF engagement supported the authorities’ policy agenda? IMF Mission Chief Lonkeng: One key design consideration of Benin’s IMF-supported program was balancing financing and fiscal adjustment in a shock-prone environment. Considering Benin’s established track record in macroeconomic management, we opted for a flexible design—a vote of confidence from the IMF.   Frontloaded financing supported the country’s appropriately strong counter-cyclical policy response to severe shocks—the IMF disbursed more than 40 percent of the total financing envelope of about 400 percent of Benin’s quota in the first 6 months of the 42-month program to smooth out fiscal adjustment. The EFF/ECF was subsequently complemented by an RSF (120 percent of Benin’s quota) to help enhance the country’s overall socio-economic resilience.   The authorities have since been re-building policy space, with domestic revenue mobilization being a key part of this effort and, more broadly, the cornerstone of the authorities’ reform program. A frontloaded tax policy reform under the program complemented efforts to digitalize the tax system to boost revenue collection. As the chart shows, Benin’s tax-to-GDP ratio increased by more than 2 percentage points during 2022–24, far exceeding the average improvement of other countries in this timeframe.  There are promising signs of economic transformation. How are you achieving this and what lessons did you learn along the way? Finance Minister Wadagni: We first conducted an in-depth diagnostic of our economic and financial situation about a decade ago. We then embarked on a first wave of reforms to lay the foundations for structural transformation, cognizant of the fact that sound public finances, reliable energy, and infrastructure—including digital—are key prerequisites for sustained economic expansion.   The ongoing second wave of reforms seek to consolidate our initial achievements and climb up value chains by processing commodities locally. The Glo-Djigbé Industrial Zone—which is dedicated to the local transformation of agricultural products including cotton, cashews, and soybeans—plays a strategic role in this regard. We intend to further develop the zone and, more broadly, pursue the structural transformation of our economy, including through continued modernization and enhanced resilience of agriculture. We will also step up investment in unlocking Benin's tourism potential and modernizing the Port of Cotonou. In doing all of the above, we will expand the social safety nets to reach as many vulnerable people as possible. A key lesson from our experience so far is that sound governance is critical in economic transformation.   Benin innovated with the issuance of the first Social Development Goal (SDG) bond in the region – and is now extending this framework to catalyze private climate finance. Can you elaborate? Finance Minister Wadagni: We developed an SDG bond framework around the country’s social and climate priorities as an integral part of our development finance strategy. The framework was initially used to issue a €500 million SDG bond in 2021, a first in the region. It has since facilitated the financing of key social and energy transition projects. We intend to leverage the SDG bond framework to catalyze financing for climate change adaptation, resilient agriculture, sustainable ecosystem management, and the energy transition. Relatedly, we secured climate financing pledges from our partners during the recent COP29, following the climate finance roundtable that we co-convened in Cotonou with the IMF and the World Bank. What has been the key to program engagement in your view, and what do you see as the main challenges ahead?    IMF Mission Chief Lonkeng: First and foremost, program ownership has been key. Benin has an established tradition of public consultation around the country’s reform agenda—under the National Development Plan and the Government Action Program. The Fund-supported program therefore had a solid homegrown foundation to build on.   Going forward, continued expansion of the tax base, drawing on the country’s recently developed medium-term revenue strategy, would help fund Benin’s large development needs (the country’s median age is 18), and improve the country’s capacity to carry debt and preserve debt sustainability.   On the structural front, a continued move away from the traditional transit-centered growth model—supported by a balanced social contract—would foster private sector job creation in higher value-added activities for the large youth population. Enhancing resilience to climate change and maintaining the digitalization drive would also support overall socio-economic resilience in the long-term. All of this would help raise the living standards of the Beninese in a sustained and inclusive manner. RELATED LINKS Benin and the IMF Extended Credit Facility (ECF) Extended Fund Facility (EFF) Resilience and Sustainability Facility (RSF)