Fitch affirms Benin at 'B+' with stable outlook

Fitch Ratings has recently affirmed Benin's Long-Term Foreign-Currency Issuer Default Rating at B+ with a stable outlook, highlighting the country's relatively moderate level of government debt at around 50% of GDP and strong performance in GDP growth. Jan Friederich, the Head of Europe, Middle East, and Africa Sovereign Ratings at Fitch Ratings, discussed the findings in an interview with CNBC Africa. Friederich pointed out Benin's resilience in 2020 when the country's economy grew by 3.8%, despite global contractions due to the pandemic. However, he also mentioned the country's heavy dependence on exports of cotton and informal trade with Nigeria, as well as the low level of government revenue, posing challenges for debt sustainability. In terms of inflation, Fitch expects it to average around 2.5% this year, with recent inflation surges attributed to local and regional factors. Friederich noted that Benin's track record in the West African Monetary Union for inflation has been strong, which could help mitigate temporary supply-side shocks. Despite external shocks like the Russia-Ukraine crisis, Benin's limited dependence on goods directly from the affected regions has lessened the impact on its economy compared to other countries. The IMF program in Benin, set to end this year, is viewed as a tool to bolster policy credibility and address financing needs, rather than responding to an immediate crisis. Benin's presence in international markets, particularly through Eurobonds and the issuance of an SDG bond, showcases the country's innovative approach to financing. While Benin is perceived as providing new investment opportunities, its small economy and structural indicators like governance and per capita GDP highlight the ongoing riskiness of its credit rating as a B+ sovereign. Looking ahead, concerns remain about the need to stabilize debt to GDP levels over the medium term to avoid negative rating actions, given the country's economic challenges and reliance on a few key export sectors.