Economic performance and outlook: Real GDP growth rose from 4% in 2016 to an estimated 5.5% in 2017. The next two years look similarly promising, with growth projected at 6.1% in 2018 and 6.5% in 2019. Economic performance in 2016–17 was principally the result of reforms taken under the 2016–21 Government Action Plan, known as Benin Revealed, to increase public investment in infrastructure, agriculture, tourism, and basic services. This positive outlook is also due to substantial increases in agricultural production, especially in cotton (estimated at 450,000 tons in 2016), an increase in electricity production, and economic recovery in Nigeria, an important trading partner.
Macroeconomic evolution: The budget deficit crept up from 5.6% of GDP in 2016 to an estimated 5.9% in 2017. With the government expressing interest in reining in spending, the deficit is projected to decline to 4.8% in 2018 and 3.1% in 2019. The tighter fiscal policy that took effect in 2017 aims to achieve the 3% target for the budget deficit set by the West African Economic and Monetary Union (WAEMU). According to an International Monetary Fund (IMF) debt sustainability analysis, Benin moved from a low risk to a moderate risk of debt distress. Public debt increased from 50.3% of GDP in 2016 to 53.4% in 2017 due to higher spending related to implementation of the Government Action Plan. Government efforts to mobilize resources through a bond issue, as well as technical and financial partnerships, are expected to reduce public debt to 51.5% of GDP from 2019 onward. Due to WAEMU’s policy of price stability, good performance in agriculture, and weak oil prices, inflation is likely to remain below the 3% target. The current account deficit worsened from 7.3% of GDP in 2016 to an estimated 9.5% in 2017 but is projected to improve slightly in 2018 and 2019.
Tailwinds: In April 2017, the IMF approved a three-year $151 million arrangement to help implement Government Action Plan reforms by encouraging investment while preserving debt sustainability. The reforms are expected to allow Benin to diversify its economy by improving processing activities in agriculture through the development of agro-industry and modernization of the livestock, fisheries, and tourism industries. Political stability, as demonstrated by the relatively smooth presidential election in 2016, and stronger public-private partnerships have increased the country’s attractiveness for investment. The Economic Community of West African States Common External Tariff, introduced in in January 2015, presents an opportunity for Benin to expand its production base and reap benefits from the West African market.
Headwinds: Uncertainty about the effects of climate change on agriculture and dependence on the Nigerian economy constrain growth projections. Nigeria introduced trade restrictions during its recession that affected Benin; if not lifted, they will fuel additional uncertainty. Despite efforts at reform and investment, Benin remains plagued by a lack of infrastructure, poor economic and financial governance, and private-sector difficulties. Although Benin was one of the 10 best business reformers in 2015/16, its ranking of 151 out of 190 countries in the World Bank’s 2018 Doing Business report shows that much remains to be done to improve the business climate. With a poverty rate of 40.1% in 2015, persistent unemployment, and a Human Development Index value of 0.485, inclusive growth remains a major challenge.
The West African Economic and Monetary Union (WAEMU) comprises eight countries: Benin, Burkina Faso, Cote d’Ivoire, Guinea Bissau, Mali, Niger, Senegal and Togo.. Bond issuance strategies vary from one state to another but most use the MTDS tool to develop their issuance strategy. Generally, most programs are focused on short-term tenor and characterized by securities with repayments by amortization and deferred coupon. Recently, with the advent of the AUT, the zone has progressed towards lengthening and standardizing securities.
For the moment, there is no benchmark maturity in the WAEMU. The region is in the assessment phase of developing a yield curve. WAEMU countries understand that issuance policies need to evolve towards considering the need for a yield curve.
Yield curve calculation models
There is no benchmark yields curve in the WAEMU Zone.
As there is no yield curve in the WAEMU, no method for interpolation is in use.
Yield curve managed by
Agence UMOA-Titres is responsible for the yield curve.
There is no yield curve in the WAEMU.
Challenges in building an efficient yield curve
- Market fragmentation: fragmented securities market and non-standardized securities.
- Price discovery issue
- Narrow investor base: comprising homogeneous investors such as banks.
- Limited and illiquid secondary market: nonexistent secondary market where the securities are acquired for "buy and hold”.
- Coexistence of two agencies for issuing bonds and bills: The “Conseil Régional de l’Epargne Publique et des Marchés Financiers” (CREMPF) is in charge of monitoring the syndication. The Agence UMOA-Titres is responsible for auctions.
Guide to Buying Bonds
Procedures for market participation
The frequency of auctions is determined by the states, together with the Central Bank. Each state cannot hold T-Bills and Government bonds auction more than once a week.
For Treasury Bills, a calendar program specifying the instruments and their amounts and maturities, is published quarterly by the Minister of Finance in consultation with the Central Bank, and in consideration mainly the foreseeable revenue and government spending. Whereas Treasury bonds, an indicative issuance calendar specifying the instruments and their amounts and maturities, is set annually by the Minister of Finance in consultation with the Central Bank.
Each issuance should be advertised at least 7 days before the auction by describing the issuance characteristics. Bidders submit to the Central Bank, sealed in a ballot box reserved for this purpose, a submission form specifying the amounts and the interest rates or the price offered. Submissions may also be made electronically in the conditions defined by the Central Bank.
Later than one hour after the deadline for bids submission, the National Directions of the BCEAO transmit electronically, by fax or any other means of rapid communication accepted by the Central Bank, the main submissions to the principal agency of the BCEAO, which is organizing the auction.
Treasury bills are eligible for refinancing by the Central Bank. Investors and the Central Bank may buy or sell Treasury bonds on the secondary market, awarded by private treaty. In this context, they are required to post the purchase price and sale which they are willing to transact.
Treasury bonds can be traded on the secondary market. As such, they can be exchanged at the Regional Stock Exchange (BRVM) or outside the BRVM.
The settlement date is T+1 for domestic operations and T+3 for operations between Members of the Union. This period can be modified by BCEAO. However, the contracting parties are free to agree on a minimum term above to unwind their operations. If the instructions given by the two parties are identical, the operation is definitely offset the value date agreed. In case of discrepancy between the evidences, the Central Bank suspends the transaction and notifies this decision to both parties for correction. Central Bank ensures the existence of adequate provisions before executing the compensation requested. Transmission to the Central Bank of notifications occurs in the selection of speakers, fax, telex, ordinary mail or any other means of rapid communication accepted by the BCEAO.
Treasury bills and Treasury bonds incomes are tax-free throughout the territory of the Member States of the WAEMU. But for non-members, the tax rates are different from one country to another. In Benin, the tax rate one securities income is equal to maximum 6%.
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There is no appropriate Primary Dealers System in the WAEMU zone.
Subscription of Treasury bills is reserved to banks, financial institutions as well as regional financial institutions with an ordinary current account in the books of the Central Bank. Other investors, physical or legal persons, whatever their country of origin can also purchase Treasury bills in the primary market through banks located in the territory of the Union.
The primary subscription of Treasury bonds is restricted to banks, financial institutions, regional organizations and financial management company and intermediation (IMS). Other investors, physical or legal persons, whatever their country of origin may also purchase Treasury bonds on the primary market through banks and brokerage firms (SGI) located on the territory of the Union.
Openness to international investors
The members of the zone are actively encouraging foreign investment. Foreign companies are free to invest and list on the regional stock exchange (BRVM), which is based in Abidjan and is dominated by Ivorian and Senegalese firms.
There are no significant limits on foreign investment nor are there generally differences in treatment of foreign and national investors, either in terms of the level of foreign ownership or sector of investment.
Restriction on FX and profit repatriation
WAEMU has unified foreign exchange regulations. Under these regulations, there are no restrictions for transfers within the community, and designated commercial banks are able to approve routine foreign exchange transactions inside the community. The transfer abroad of the proceeds of liquidation of foreign direct investments no longer requires prior governments approval.