Moody's: Benin's credit challenges remain, include political & social tensions

The Republic of Benin faces ongoing credit challenges as political and social tensions persist, according to a recent report from Moody's. The small West African country's economy is relatively undiversified and remains vulnerable to external shocks, particularly those stemming from neighboring Nigeria. Aurelien Mali, Vice President and Sovereign Analyst at Moody's, shed light on these concerns in a recent interview with CNBC Africa. Mali highlighted the close economic ties between Benin and Nigeria, emphasizing that Benin's exports are heavily reliant on its larger neighbor. Historically, up to 70% of Benin's exports have been destined for Nigeria, with a significant portion being re-exported. The recent closure of the border between the two countries had an impact on Benin, albeit less severe than initially anticipated. Additionally, currency fluctuations in Nigeria have affected the purchasing power of Benin's citizens, underscoring the interconnectedness of the two economies. Regarding the political climate in Benin, Mali noted a shift in stability following recent parliamentary and presidential elections, leading to heightened polarization and tensions. Despite expectations of a relatively smooth election process and President Talon's likely reelection for a second term, challenges persist. The economy's lack of diversification and ongoing struggles to attract substantial foreign investments pose long-term risks. While Moody's outlook for Benin's economy projects strong growth exceeding 6% by 2022 and a low fiscal deficit, the report also highlights persistent weaknesses that could constrain ratings in the coming years. Mali pointed out structural reforms that have bolstered the country's resilience, but noted deficiencies in infrastructure, limited foreign investment in key sectors, and a narrow tax base as areas of concern. In terms of a potential upgrade, Mali emphasized the importance of overall balance sheet improvement, revenue growth, and continued fiscal consolidation. Moody's recently upgraded Benin's rating to B1 under a positive outlook, citing expectations of a robust recovery and debt stabilization. However, sustained progress in revenue generation and fiscal management will be crucial for further positive rating adjustments. Conversely, Mali outlined factors that could trigger a downgrade for Benin, including a halt or reversal of critical reforms, deterioration in the country's balance sheet, and failure to expand the tax base. The country's heavy reliance on agriculture, vulnerability to climate change, and dependence on external aid also pose risks to its credit profile, necessitating ongoing monitoring and proactive policy measures. As Benin navigates these credit challenges amidst political and economic vulnerabilities, stakeholders will closely watch for developments that could shape the country's creditworthiness in the near future.