Romuald WADAGNI reassures on the relevance and effectiveness of Benin’s strategy
In all the countries of the world, the question of the debt is often variously appreciated. Benin is no exception to this dynamic. If the specialists generally perceive the interest, the non-specialists go there with all their fears. However, our country is today cited as an example in the world as a model of good debt management. To better understand what this implies but also the relevance of the debt, we met the Minister of Economy and Finance, Romuald WADAGNI. The man whose competence is recognized beyond our borders explains to us all about the debt.

Question: Mr. Minister, our country has just been honored again by the World Bank through its evaluation index of transparency in terms of public debt management in countries eligible for IDA financing. What is it concretely?

Romuald WADAGNI: Indeed, the World Bank published, last June, its assessment on transparency in the dissemination of information on debt, within the member countries of its institution which provides financial assistance to countries (IDA), that is to say a total of 76 countries.
This is an assessment that takes into account the availability of debt data, its completeness and the frequency of its publication as well as that of debt management documents. Following this evaluation, Benin received the maximum score, to put it simply, say 20/20, for 7 of the 9 criteria evaluated; which propels it to the top of this ranking for all 76 countries assessed worldwide. For us, this ranking is not surprising. Already in October 2019, Benin obtained recognition for the good quality of public debt management, through the Global Markets 2019 prize for “Best sovereign debt manager in sub-Saharan Africa”, which was awarded to Benin on the sidelines the Annual Meetings of the World Bank and the International Monetary Fund. All of these accolades recognize the meticulous work we do to put debt at the service of our country’s development.

Mr. Minister, despite this performance, various comments on social networks seem to be concerned about the evolution of our country’s debt. What do you think ?

I am attentive to the reactions of our compatriots who think thus. For many, debt refers to the image of the creditor who comes knocking on your door in the morning at 6 a.m. or of the owner who removes the roof of the tenant’s room to force him to either repay or leave the premises. But, it is important not to demonize debt. Well managed, debt is a powerful factor in development. You can have fun taking a look at the debt ratios of major developed countries to convince yourself. Without debt, we would slow down our rate of growth and economic development. Take the example of two public servants who wish to have a house. The first makes the option of saving outright. He saves most of his career. He ended up building his house before he retired. The second goes into debt and builds his house, lives there by repaying gradually. Of these two officials, who benefited the most from the house? When it comes to debt, you have to ask yourself simple questions like: What do you want to do with the debt? What is the interest to pay (the cost of the debt)? What is its repayment term? Is this repayment period compatible with what the money is going to be used for? On what the debt is going to do, it is imperative that the debt be used to do something tangible. In the previous example, the second official used the loan to build his house. If this sum had been used to celebrate the 40th anniversary of the death of the grandfather, clearly it would be a very poor use of resources. Coming back to the second official, if I assume he is renting out part of the house, the rents are unlikely to repay the money that built the house after just one or two years. If he negotiates with his creditor a two-year repayment period, this debt would be a poor quality debt because of the inconsistency between the repayment period and the resources generated by the rents paid. These principles of debt management are also valid at the country level. Benin’s debt interventions are part of a global framework through our country’s Debt Strategy. This Strategy sets the objectives and targets of the State debt portfolio. It oversees all debt actions. In other words, through this strategy, Benin knows exactly when to get into debt and for what purposes. The most important thing is to maintain a limit consistent with the current and future repayment capacity of our country. Assessing a country’s repayment capacity is called a viability analysis. It is carried out before each loan. It allows us to see if, over the next 20 years, the country will still be able to repay all the debts contracted. Counter analyzes are also carried out by the IMF and the World Bank. To date, all analyzes show that Benin’s debt is sustainable.

Mr. Minister, tell us what the debt raised by Benin is really used for?

Debt is primarily used for investment. Look around and see all the infrastructure built or under construction. At the beginning of each year, we carry out what we call the “borrowing plan” or loan plan in French. This document traces the list of projects for which we will seek funding. During the year, we simply execute this plan. We also performed another operation called “reprofiling”. To caricature this operation, take the example of an individual who has a debt of one million (1,000,000) FCFA to be repaid within 12 months, by paying an interest rate of 10%, i.e. 100,000 FCFA . To better support this debt, he makes the option of contracting a new debt of the same amount, with another creditor who agrees a longer repayment period (3 years) and a lower annual interest rate of 2%. , i.e. 20,000 FCFA. With this new loan, he repays the first creditor. This new operation allows it, on the one hand, to bear less interest charges and to generate savings to be allocated to other useful expenses and, on the other hand, to have a longer repayment period. Thus, in its approach to resorting to innovative financing mechanisms, Benin has succeeded in mobilizing resources at an interest rate of 3.8% to be repaid in 12 years to replace an existing debt at the advent of the current government. , contracted at an interest rate of 8% and repayable only in 3 years. Through this operation, Benin emerges with an improvement in its debt repayment profile and an estimated savings of around CFAF 30 billion. Benin has thus made available additional resources for the financing of social spending.

Mr. Minister, do you have a word to conclude this interview?

Finally, I would like our compatriots to be reassured. Benin’s debt is well managed. The various distinctions received over the past two years are sufficient proof of this. As I said in my remarks, well managed, the debt is a powerful factor of development. However, we should not be satisfied with these glowing debt results. We will maintain rigor and transparency in debt management for even greater results.

Interview by :
THE NATION
FREE BENIN
MORNING
FRATERNITY
THE ECONOMIST
NORTH SOUTH DAILY