Rating Action Commentary
ֳ Affirms Benin at 'B+'; Outlook Stable
Fri 21 Feb, 2025 - 5:00 PM ET
ֳ - Paris - 21 Feb 2025: ֳ Ratings has affirmed Benin's Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'B+' with a Stable Outlook.
A full list of rating actions is at the end of this rating action commentary.
Key Rating Drivers
Credit Fundamentals: Benin's 'B+' rating reflects a strong growth outlook, supported by a record of structural reforms, which should contribute to a gradual diversification of the economy. A record of commitment to fiscal deficit reduction, anchored by an IMF programme, and proactive debt management, is likely to put debt/GDP on a gradual downward path and improve debt affordability metrics. These strengths are set against weak development indicators compared with peers, a relatively small economy dependent on trade with Nigeria and a high level of informality constraining government revenues. Risks from regional tensions and potentially from political transition also weigh on the rating.
Robust, Resilient Growth: We expect real GDP growth to remain above 6.5% through 2026, after an estimated 6.7% in 2024, driven by a continued increase in agriculture production and construction and expansion of agroindustry and textiles. Public investments in large infrastructure projects, combined with structural reforms also contribute to a robust real GDP growth outlook. This is one of the highest forecasts among ֳ-rated sovereigns, well above the 'B' median of 4% in 2025 and 4.7% in 2026. The economy has proven resilient to external shocks, including the border closure with Niger and economic volatility in Nigeria, although this weighs on the performance of the Port of Cotonou.
Gradual Diversification Progress: We expect gradual diversification of the economy and export receipts to continue, with key projects including the expansion of the Port of Cotonou, which aims to position it as a regional hub, and the Glo-Djigbé industrial zone, contributing to a gradual shift toward higher value-added products. Revenues from the cotton sector among total export receipts has already declined to 48% in 2023, from 70% in 2021, and we expect this trend to continue as the first phase of the industrial zone is now fully operational. Development of the second phase has started, boosting prospects for jobs and private investments.
Continued Fiscal Consolidation: We estimate the fiscal deficit narrowed to 3% of GDP, from 5.5% in 2022 and 4.1% in 2023, against an initial target of 3.7%. This reflects a continued increase in revenue and lower current expenditure than in budget, partly due to increased spending efficiency, highlighting the government's commitment to fiscal consolidation. We project the fiscal deficit will stabilise at 2.9% of GDP in 2025-2026, below the WAEMU threshold of 3%, as further increases in revenue will finance social expenditure.
The revenue base is narrow, but we estimate revenue including grants will reach 15.8% in 2026, from 15.0% in 2024, on further expansion of the tax base and the introduction of new tax policy measures. This would still be below the 'B' median of 17.6% and remains a constraint on the rating due to the large share of informal activity in the economy.
Fiscal Flexibility, Limited Risks: The presidential election in 2026 could present some fiscal risks. However, we believe the risk of fiscal slippages is limited, given the country's commitment to fiscal discipline. In case of revenue shortfall, the authorities could adjust capex to reach the deficit target. Capex has grown significantly in recent years, averaging 8.5% of GDP over 2021-2023, from a 2015-2019 average of 5.3%. Capex declined to 7.3% of GDP in 2024, and we expect it will remain at this level through 2026, providing flexibility to adjust the budget, if needed.
Moderate Political Risk: Rising political tensions may worsen in the run-up to the presidential election in April 2026. For example, the March 2024 revision of the electoral law could reduce opposition participation in the April 2026 presidential election, as the candidates will need to be sponsored by 15% of members of parliament (previously 10%). Furthermore, a party must achieve a score of at least 20% in all 24 constituencies (previously 10%) to claim a seat in parliament. The opposition has expressed discontent with the revision. Governance, as measured by the World Bank Governance Indicators (WBGI), has improved in recent years, but recent developments pose a downside risk, in our view.
Proactive Debt Management: Benin has a proactive financing strategy. In January 2025, it issued a USD500 million 16-year Eurobond and used USD250 million to buy back part of its 2032 Eurobond, reducing debt service costs and lengthening the weighted average maturity of its external debt. Combined with similar liability management exercises in 2021 and 2024, this has helped reduce short- to medium-term amortisations due, lowering Benin's financial need to 6.3% of GDP in 2026 (2023: 8.5%). It also secured a EUR500 million loan partially guaranteed by the World Bank.
Benin benefits from strong support from official creditors, and we anticipate it will apply for a new IMF arrangement after the blended Extended Credit Facility /Extended Fund Facility expires at end-2025.
Slowly Declining Debt: Deficit reduction and strong medium-term growth will result in public debt declining from 53.6% in 2024 to 51% of GDP in 2026, slightly below the 'B' median of 54%. We forecast that debt will decline to 322% of revenue in 2026 from 357% in 2024. This is in line with ֳ's 2024 forecast 'B' median of 350%, but well above the forecast 'BB' median of 189%.
Favourable Debt Structure: The structure of Benin's debt remains favourable, with 60% of its end-2024 external debt stock being concessional, contributing to a weighted average interest rate of less than 3.50%. 98% of Benin's debt has a fixed interest rate, and the average maturity of its external debt is 8.9 years, reducing interest rate and refinancing risks. As of end-2024, 27% of government debt is CFA franc-denominated and 53% is euro-denominated (after SDR decomposition), contributing to a limited exchange rate risk.
Narrowing CAD: We forecast the current account deficit (CAD) narrowed from 6.3% of GDP in 2024 to 5.1 % as stronger agricultural proceeds and export diversification increased export receipts and the import needs of capital-intensive projects reduced. We expect FDI accompanying import-intensive projects and official creditors' support to continue adequately covering external financing needs.
Increasing Regional Reserves: International reserves of the regional central bank, BCEAO, strengthened in the last two months of 2024, to USD21.4 billion from USD16.1 billion in October and USD15.9 billion at end-2023. The recovery was supported by IMF disbursements as well as the earlier surge in cocoa prices combined with the recent recovery of cocoa production in some West African Economic and Monetary Union (WAEMU) countries.
Regional WAEMU, Security Risks Contained: While Burkina Faso, Mali and Niger formally left the Economic Community of West African States in January, they have confirmed they are not seeking to leave WAEMU. We also believe that given their relative size, an exit would be manageable. The fragility of governments in these countries, combined with the threat of Islamists insurgents, entail risks to Benin, but so far security-related risks (from violence or spending needs) are contained. The Benin government is responding to the threat by investing in security and social services in the north.
ESG - Governance: Benin has an ESG Relevance Score (RS) of '5' respectively for both Political Stability and Rights and for the Rule of Law, Institutional and Regulatory Quality and Control of Corruption. These scores reflect the high weight that the World Bank Governance Indicators (WBGI) have in our proprietary Sovereign Rating Model. Benin has a medium WBGI ranking at 40.1 reflecting a recent track record of peaceful political transitions, a moderate level of rights for participation in the political process, moderate institutional capacity, established rule of law and a moderate level of corruption.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
-Public Finances: Failure to stabilise debt/GDP over the medium term, for example, due to additional security spending related to increased terrorist threats, renewed subsidies and/or failure to increase revenue mobilisation.
-Macroeconomic Performance: A significant slowdown in trend growth, for example, due to insufficient progress in attracting foreign and domestic private investment, or a macroeconomic shock, sufficient to affect macroeconomic stability and/or public and external finances.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
-Public Finances: Fiscal consolidation that puts government debt/GDP on a firmer medium-term downward trajectory, combined with progress on fiscal revenue mobilisation reducing fiscal sustainability risks related to a narrow revenue base.
-Macroeconomic Performance and External Finances: Further progress on economic diversification that reduces exposure of the economy and the external accounts to fluctuations in border trade with Nigeria and the cotton sector.
-Structural Features: Sustained improvement in GDP per capita, for example, as a result of continued strong growth and further structural reforms.
Sovereign Rating Model (SRM) and Qualitative Overlay (QO)
ֳ's proprietary SRM assigns Benin a score equivalent to a rating of 'B+' on the Long-Term Foreign-Currency (LT FC) IDR scale.
ֳ's sovereign rating committee did not adjust the output from the SRM to arrive at the final LT FC IDR.
ֳ's SRM is the agency's proprietary multiple regression rating model that employs 18 variables based on three-year centred averages, including one year of forecasts, to produce a score equivalent to a LT FC IDR. ֳ's QO is a forward-looking qualitative framework designed to allow for adjustment to the SRM output to assign the final rating, reflecting factors within our criteria that are not fully quantifiable and/or not fully reflected in the SRM.
Country Ceiling
The Country Ceiling for Benin is 'BB-', 1 notch above the LT FC IDR. This reflects moderate constraints and incentives, relative to the IDR, against capital or exchange controls being imposed that would prevent or significantly impede the private sector from converting local currency into foreign currency and transferring the proceeds to non-resident creditors to service debt payments.
ֳ's Country Ceiling Model produced a starting point uplift of 0 notch above the IDR. ֳ's rating committee applied a +1 notch qualitative adjustment to this, under the Long-Term Institutional Characteristics pillar reflecting Benin's membership of WAEMU, which benefits from a convertibility guarantee from the French government. The convertibility guarantee and mechanism of pooled reserves limit the risk of member countries imposing additional capital controls and limits external liquidity risks for individual countries, as they are able to pay for imports and service external debt even when foreign-currency from domestic sources is depleted.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Benin has an ESG Relevance Score of '5' for Political Stability and Rights as World Bank Governance Indicators have the highest weight in ֳ's SRM and are therefore highly relevant to the rating and a key rating driver with a high weight. As Benin has a percentile rank below 50 for the respective Governance Indicator, this has a negative impact on the credit profile.
Benin has an ESG Relevance Score of '5' for Rule of Law, Institutional & Regulatory Quality and Control of Corruption as World Bank Governance Indicators have the highest weight in ֳ's SRM and are therefore highly relevant to the rating and are a key rating driver with a high weight. As Benin has a percentile rank below 50 for the respective Governance Indicators, this has a negative impact on the credit profile.
Benin has an ESG Relevance Score of '4' for Human Rights and Political Freedoms as the Voice and Accountability pillar of the World Bank Governance Indicators is relevant to the rating and a rating driver. As Benin has a percentile rank below 50 for the respective Governance Indicator, this has a negative impact on the credit profile.
Benin has an ESG Relevance Score of '4' for Creditor Rights as willingness to service and repay debt is relevant to the rating and is a rating driver for Benin, as for all sovereigns. As Benin has a fairly recent restructuring of public debt in 2006, this has a negative impact on the credit profile.
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. ֳ's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on ֳ's ESG Relevance Scores, visit .
Additional information is available on
PARTICIPATION STATUS
The rated entity (and/or its agents) or, in the case of structured finance, one or more of the transaction parties participated in the rating process except that the following issuer(s), if any, did not participate in the rating process, or provide additional information, beyond the issuer’s available public disclosure.
APPLICABLE CRITERIA
APPLICABLE MODELS
Numbers in parentheses accompanying applicable model(s) contain hyperlinks to criteria providing description of model(s).
- Country Ceiling Model, v2.0.3 (1)
- Debt Dynamics Model, v1.3.2 (1)
- Macro-Prudential Indicator Model, v1.5.0 (1)
- Sovereign Rating Model, v3.14.2 (1)
ADDITIONAL DISCLOSURES
ENDORSEMENT STATUS
| Benin | EU Issued, UK Endorsed |