Country Report Benin April 2008

Outlook for 2008-09: External sector

The re-export trade is expected to recover steadily during the forecast period, owing to the slow resolution of border issues with Nigeria and increased traffic with the hinterland countries, as well as improvements at the PAC. However, in March 2008 disputes over levies on goods transshipped to Niger risked reducing the amount of re-export trade to its neighbour in the north. Given the porous nature of Benin's long land borders and the high level of corruption, efforts to crack down on cross-border smuggling will be difficult, and the informal trading sector will remain significant. A recovery in the cotton sector, coupled with increased international prices, should boost cotton exports over the forecast period. However, Benin's imports will also increase, in line with new investment projects. The trade deficit is therefore forecast to narrow slightly in 2008-09. The structural deficit on the services account will widen, reflecting higher spending on imported services. However, the deficit on the income account will narrow slightly in 2008-09, owing to debt relief under the MDRI. Current transfers are set to increase as a result of strong donor support for Benin's reform efforts and remittances. Overall, the current-account deficit is expected to narrow from an estimated 8.2% of GDP in 2007 to 7.2% of GDP in 2008 and 7% of GDP in 2009, in line with movements in the trade balance.

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