According to the second edition of the Benin Economic Update Report, achieving sustainable and resilient economic growth in the coming decades will depend on efforts to adapt and finance climate investments. The report, titled "Adapting to climate change for sustainable, resilient economic growth," analyzes recent economic developments and presents the country's medium-term outlook.
The report projects that annual growth will stabilize at an average of 6.2% between 2024 and 2026 (3.5% on average per capita), driven by investment and the expansion of the Glo-Djigbe industrial zone (GDIZ). Factors such as the end of the gasoline subsidy in Nigeria in May 2023, supply chain bottlenecks following the closure of the border with Niger, and growing demand pressures have led to an increase in inflation to 2.8% in 2023, below the regional average of 3.7% in 2023.
In 2023, fiscal consolidation efforts were successful due to innovative tax measures and spending restraint. Consequently, the budget deficit was reduced to 4.1% of GDP, down from 5.5% in 2022. This improvement was attributed to an increase in total revenues which rose by 0.7 percentage point to 15.0% of GDP while public spending fell by 0.6 percentage point to 19.2% of GDP.
“Thanks to fiscal consolidation measures, Benin has been able to withstand external shocks while maintaining an appreciable economic growth trajectory," said Felix Oppong, World Bank senior economist and co-author of the report.
The second part of the report examines vulnerabilities of Benin's economy to climate change. In line with projections from the Country Climate and Development Report (CCDR), it is documented that without additional adaptation efforts, climate change could lead to increasing economic losses with average annual GDP losses up to 19% by 2050. By prioritizing adaptation and resilience, significant strides could be made in poverty reduction, potentially lifting almost half a million people above the poverty line.
The report calls for greater action in the agricultural sector, including the adaptation of farming practices, restoration and protection of forests, and investment in water resources.
“Decisive action in the agricultural sector is essential, given its importance to Benin's economy," added Manuela Ravina Da Silva, World Bank environmental specialist and co-author of the report.
Addressing vulnerabilities in the health system, particularly those exacerbated by climate change, is also crucial to strengthen the resilience of health and education services and safeguard human capital. Building resilience against urban flooding and investing in resilient transport and digital infrastructure will keep people and markets connected. Finally, Benin should prioritize partnerships with the private sector and financing of climate investments.
“Financing climate investments cannot rely solely on the state and its public partners; the contribution of private capital is essential," said Nestor Coffi, World Bank country manager for Benin.