Moody's Investors Service ("Moody's") has upgraded the Government of Benin's long-term issuer and senior unsecured debt ratings to B1 from B2. The outlook has been changed to stable from positive.
The key drivers of the decision to upgrade Benin's ratings are:
1. A solid track record of fiscal consolidation and improvements in the structure of debt, supported by strong public finance management despite the deterioration of some fiscal metrics due to the pandemic.
2. Rising economic resilience, with robust growth prospects supported by ongoing structural reforms.
The stable outlook reflects balanced risks around Moody's baseline expectation that the economy will return to robust growth and that Benin's fiscal and debt metrics will stabilise and comparatively improve over the medium term.
In a related decision, Moody's raised the local currency (LC) country ceiling to Baa3 from Ba1 and the foreign currency (FC) country ceiling to Ba1 from Ba2. Country ceilings indicate the highest rating level that would generally be assigned to the financially strongest issuers domiciled in a country, including the strongest structured finance transactions whose cash flows are generated predominantly from domestic assets or residents. The decision to upgrade the LC country ceiling in line with the sovereign rating reflects Moody's assessment that non-diversifiable risks are appropriately captured in a LC ceiling four notches above the sovereign rating, taking into account the small footprint of government in the economy, the weak, albeit improving, institutional framework, as well as the mitigating impact of Benin's membership in the West African Economic and Monetary Union (WAEMU) on external imbalances.
The concurrent upgrade of the FC country ceiling maintains a one notch gap to the LC country ceiling, reflecting Moody's assessment of limited Transfer & Convertibility (T&C) risks due to the French Treasury guarantee of the peg between the CFA franc and the euro.
