- As part of an assault on poverty in Sub-Saharan African countries, Benin has been assigned sovereign credit ratings by one of the UN's partners, Standard & Poor's. Benin was assigned 'B+' long-term and 'B' short-term sovereign credit ratings.
Sovereign credit ratings place countries on the investor map and allow them access to international capital markets. Benin, a poor country of 6.6 million people with a debt the World Bank estimated at US$ 840 million for 2001, received a 'B+' long-term and 'B' short-term sovereign credit rating, with a "stable" outlook.
- The ratings on Benin are supported by a prudent fiscal stance and debt reduction under the Heavily Indebted Poor Countries (HIPC) debt initiative, as well as the country's membership of the West African Economic and Monetary Union (WAEMU), said Standard & Poor's credit analyst Mame-Fatou Diagne in a statement. "These factors are balanced by Benin's weak economic structure, and the limited fiscal flexibility that ensues."
Per capita GDP is estimated at a low US$ 539 in 2003. "Moreover, Benin is highly reliant on the export of a single commodity, cotton, and the re-export trade with Nigeria," the rating company remarked. "Weak human development indicators, infrastructure deficiencies, slow reforms, and the lack of a defined industrial strategy constrain economic development prospects."
As a result of this weak economic structure, fiscal flexibility was deemed to be limited. "Customs receipts account for 49 percent of domestically raised revenue in 2003. The importance of trade and the informal sector in the economy limit possibilities to widen the tax base." Nevertheless, the government maintains a prudent fiscal stance, the rating company found.
Looking ahead, Ms Diagne added: "Standard & Poor's expects that the government will continue to lead prudent fiscal policies while raising social expenditure and investments aimed at reducing poverty. Benin's credit standing could benefit if tax and customs administration was significantly strengthened, thereby raising revenue flexibility; and if reforms aimed at attracting investment and diversifying the economy were accelerated, in particular with a view to promoting industrial and agricultural development."
Conversely, the ratings could be undermined in the event of external shocks - such as a sharp fall in cotton prices, or a deterioration of relations with Nigeria negatively affecting trade, Standard & Poor's concluded. The ratings would also come under pressure in the event of fiscal laxity.
The sovereign credit ratings of Benin was assessed in the last week of December (2003) and had been paid for by the UN development agency, UNDP. The UN agency, which also recently had paid for the first-ever rating of Ghana and Cameroon, expects this could prove a security for potential foreign investors.
- Through this project, UNDP intends to support countries in their efforts to mobilize resources from private capital markets, which are required to secure accelerated rates of economic growth and reduce poverty, said UNDP Associate Administrator Zéphirin Diabré.
Mr Diabré added that the ratings should assist Benin to accede international capital markets. "We hope that better access to financing would help Benin and other developing countries to tackle a broad range of poverty alleviation issues and provide an incentive to achieve the Millennium Development Goals," he said.
With this new rating, Standard & Poor's now rates 99 sovereign governments. This includes all industrialised nations, but very few developing countries. The company's rating often is used to set interest rates on credits given to a government.
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