International Monetary Fund. Monetary and Capital Markets Department
Since the 2008 Financial Sector Assessment Program (FSAP), the financial sector of the West African Economic and Monetary Union (WAEMU) has undergone major changes that have altered its risk profile. Three structural changes have played a key role since the 2008 FSAP: (i) the financial sector has grown significantly; (ii) regional banking groups have become dominant; and (iii) the high concentration of bank portfolios in sovereign exposures, which accounted for an average of 31 percent of banking assets at end-2020, are almost triple the level observed in 2004. These changes have altered the structure of systemic risks and vulnerabilities and raised the need for implementing reforms to strengthen the effectiveness of the macroprudential policy and banking supervision frameworks.
The Beninese government embarked, five years ago, on an ambitious reform agenda (“Revealing Benin”) to revive the economy and improve the wellbeing of the people. Economic activity accelerated prior to the COVID-19 pandemic, with sound macroeconomic management and enhanced budget transparency culminating in access to international capital markets in 2019 and issuance of the first-ever SDG bond by an African sovereign last year. However, today, Benin faces significant headwinds from a deteriorating security situation at its northern borders, pandemic-induced scars, and higher cost of living amidst the war in Ukraine, which could impact hard-won macroeconomic gains and cause hardship. The authorities have requested a Fund-supported program to meet pressing financing needs, preserve macroeconomic stability, and anchor the country’s National Development Plan centered on achieving the Sustainable Development Goals (SDGs).