New York, March 15, 2019 -- Moody's Investors Service ("Moody's") has today
assigned a rating of B2 to Government of Benin's planned EUR-bond
issuance. The rating was initiated by Moody's Investors Service
and was not requested by the rated entity. It is being assigned
ahead of planned issuance of EUR-denominated debt by the Benin
government in the United States under Rule 144A.
RATINGS RATIONALE
The B2 rating on Benin's forthcoming Eurobond issuance is based
on the expectation that the senior unsecured notes will, if issued,
rank pari passu with all of the government's current and future
senior unsecured debt obligations. Moody's expects that the
proceeds from the issuance will help the government meet its financing
needs and lengthen its debt maturity profile.
The instrument rating reflects Benin's relatively low economic strength
due to the economy's small size, reliance on subsistence agriculture
that constrains income levels, and concentration of exports to one
market, Nigeria. The economic strength assessment also takes
into account the challenges facing the government in implementing its
ambitious development agenda. That said, Moody's recognizes
the reform program will, if at least partially successful,
sustain robust medium-term growth prospects and, by lessening
exposure to shocks to core sectors or export partners, lower volatility
of growth. GDP growth accelerated to 6.5% in 2018
and Moody's expects it to remain between 6-7% in coming
years.
Benin's institutional challenges are reflected in low scores in
the Worldwide Governance Indicators for government effectiveness,
rule of law and control of corruption. The poor fiscal management
evident at the end of the previous administration in 2015-16,
which led to a severe deterioration of the government's balance
sheet with a relatively high debt burden now over 50% of GDP,
points to underlying institutional weaknesses including the absence of
effective checks and balances. Fiscal strength remains very low.
However, the current administration's (to date successful)
efforts at achieving fiscal consolidation (including reducing the deficit
to 2.7% of GDP in 2019 from 7.6% in 2015)
aim both to initiate a reversal in the debt trajectory through a return
to fiscal surplus in 2021 and, with the support of the IMF,
to strengthen the effectiveness and credibility of fiscal and other policymaking.
The government is moderately exposed to event risk, primarily because
of sizable financing needs, in excess of 10% of GDP in 2017
and 2018. Alongside fiscal consolidation, the government's
efforts to reprofile its domestic debt by lengthening its maturity including
through issuance of international debt and by increasing the share of
semi-concessional debt offer the prospect of material reductions
in annual borrowing requirements. Moody's anticipates gross
borrowing requirements will decline to around 8% of GDP in 2019
and further in 2020, meaningfully reducing government liquidity
risks. Nevertheless, Benin's access to financing in
times of sudden need is not yet firmly established.
Benin's stable political environment has seen multiple peaceful
transitions of power, while the banking system poses low risk to
the sovereign given its small size. Finally, although Benin
runs structural trade deficits, its membership of the WAEMU supports
the country's external position.
WHAT COULD CHANGE THE RATING UP/DOWN
The instrument rating could be upgraded if the ongoing implementation
of the "Programme d'Action du Gouvernement" (PAG) were
to lead Moody's to conclude that projected high levels of economic
growth will be sustainable without recourse to fiscal stimulus,
pointing to a markedly faster decline in the government debt burden.
A structural improvement in institutional strength would also exert upward
pressure on Benin's creditworthiness and provide scope for an upgrade
of the notes' rating over the longer term.
The notes could be downgraded if failure to sustain the reform effort,
or an external shock, were to cause Moody's to conclude that
Benin's government debt and, relatedly, the government's
annual borrowing requirement, will cause refinancing risks to rise
to levels more compatible with a B3 rating. For example,
as a result of a combination of fiscal slippages, lower commodity
prices, crystallization of contingent liability risks and/or significant
delays in the implementation of the PAG as well as any reduced support
from the donor community and international financial institutions to implement
the development agenda.
GDP per capita (PPP basis, US$): 2,282 (2017
Estimate) (also known as Per Capita Income)
Real GDP growth (% change): 5.8 (2017 Estimate) (also
known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 3.0
(2017 Actual)
Gen. Gov. Financial Balance/GDP: -5.9
(2017 Actual) (also known as Fiscal Balance)
Current Account Balance/GDP: -11.1 (2017 Estimate)
(also known as External Balance)
External debt/GDP: 23.5% (2017 Estimate)
Level of economic development: Low level of economic resilience
Default history: No default events (on bonds or loans) have been
recorded since 1983.
On 14 March 2019, a rating committee was called to discuss the rating
of the EUR-denominated Eurobond expected to be issued shortly by
the Government of Benin under Rule 144A in the US. The main points
raised during the discussion were: The issuer's economic fundamentals,
including its economic strength, institutional strength/framework,
fiscal or financial strength, including its debt profile and susceptibility
to event risk. The rating level was also considered relative to
its peers. The rating level also considered the terms and conditions
of the notes to be issued and the conclusion that these notes would rank
pari passu with other senior unsecured debt obligations of the government
of Benin.
The principal methodology used in this rating was Sovereign Bond Ratings
published in November 2018. Please see the Rating Methodologies
page on www.moodys.com for a copy of this methodology.
The weighting of all rating factors is described in the methodology used
in this credit rating action, if applicable.
The local market analyst for this rating is Aurelien Mali, +971
(423) 795-37.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Elisa Parisi-Capone
Vice President - Senior Analyst
Sovereign Risk Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Marie Diron
MD - Sovereign Risk
Sovereign Risk Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
