Moody’s Upgrades Benin’s Ratings Outlook to Positive
Moody’s has upgraded Benin’s ratings outlook to positive, affirming its B1 credit ratings. This change reflects improvements in the country’s economic resilience, governance, and fiscal management. Benin’s GDP growth has been solid, driven by a diversification of the economy and management of public finances amidst regional geopolitical risks. Continued fiscal consolidation and revenue improvements are essential for sustaining growth and financial stability.
Moody’s Ratings has affirmed the Government of Benin’s local and foreign currency long-term issuer ratings at B1 while changing the outlook from stable to positive. This adjustment reflects improvements in Benin’s economic, institutional, and fiscal capabilities, which may enhance the resilience of the country’s agriculture-reliant economy against geopolitical challenges from the Sahel region.
The agency acknowledged Benin’s solid economic growth track record, public finance management, and rising income levels, noting that sustained development may lead to a higher credit rating. Increased governance and transparency have positively influenced investment opportunities and institutional strength. With an IMF program underway, the country’s fiscal deficit is projected to fall to approximately 3% of GDP by 2024, despite low revenue intake compared to peer nations.
Additionally, Benin’s proactive debt management strategy has mitigated liquidity risks. Moody’s assessment maintains that the B1 rating reflects the country’s robust growth outlook and moderate debt levels, balanced with underlying regional geopolitical risks and ongoing efforts to improve tax revenue. The local currency (LC) and foreign currency (FC) ceilings remain unchanged, acknowledging the limited transfer and convertibility risks tied to the CFA franc-euro peg.
The positive outlook is driven by an increase in economic resilience, supported by rising income levels and diversification within the economy, alongside improved governance and transparency. Such factors are bolstered by the support from entities such as the IMF and World Bank. These advancements enhance Benin’s capacity to withstand economic shocks stemming from its geographical position and other influences.
Despite challenges, Benin’s GDP growth has averaged approximately 6.6% from 2021 to 2024. The implementation of Government Action Programmes (PAGs) has helped decouple the economy from regional volatility, resulting in significant GDP per capita growth. Additionally, the industrial sector has seen development through the establishment of the Glo-Djigbé industrial zone, expected to create numerous job opportunities.
The petroleum sector is progressing, further diversifying the economy. Benin’s external position has strengthened, evidenced by a decreasing current account deficit and stable foreign direct investment. Improvements in governance, particularly in controlling corruption, highlight overall advancements in fiscal and institutional frameworks.
Moody’s notes that public finance management enhancements will contribute to ongoing fiscal consolidation, anticipated to improve fiscal strength. The fiscal deficit is estimated at around 3% of GDP for 2024, below previous targets and prior year figures. Positive results from consolidating efforts have led to a decline in overall debt burden, with a projected reduction in interest payments relative to revenue.
Further development in revenue generation will be essential for the government’s financial stability, as debt remains manageable. Continuous effort in broadening the revenue base and fiscal space will remain crucial for future fiscal sustainability. By 2028, analysts estimate a potential government revenue to GDP ratio of 17% and an interest payment to revenue ratio of 10.4%.
In conclusion, Moody’s affirmation at B1 reflects the strong growth potential of the economy and moderate debt levels, underpinned by ongoing structural reforms and infrastructure investments. However, these positive elements are counterbalanced by constraints related to income levels, governance challenges, and external geopolitical risks. Enhanced management of these risks will be vital for sustaining economic progress moving forward.
In summary, Moody’s upgrade of Benin’s ratings outlook to positive reflects notable improvements in the nation’s economic resilience, governance, and public finance management. Although challenges remain, particularly in revenue generation and geopolitical stability, ongoing structural reforms and investments are anticipated to bolster the economy’s foundation. Maintaining a balanced approach towards fiscal management and revenue growth will be critical for sustaining this positive trajectory.
Original Source: dmarketforces.com
