(Ecofin Agency) - The U.S. rating agency S&P issued a note on October 21 saying it upgraded Benin’s rating outlook to positive from stable, with the B+ rating maintained. This upward revision, made in an international and regional climate marked by various instabilities, "places Benin as the only African country with a positive outlook with S&P", the country’s authorities said.

The rater says the decision was motivated by the economic stability shown by Benin in recent years, despite several international uncertainties and regional tensions. Since 2017, despite several external shocks, Benin has posted robust economic growth, regularly surpassing more than 6%, S&P explained, anticipating a progression of 6% for 2023. This momentum is set to continue through 2026, with an average of around 6.5%. These optimistic forecasts are underpinned by the effective implementation of the Government's Action Program and the development of the Glo Djigbé special economic zone, operated by Arise IIP, the agency said.

However, S&P presents a two-way development approach. In an upside scenario, the agency said it “could raise the sovereign ratings on Benin within the next 12 months if economic activity remains dynamic despite headwinds”. “We don't expect the impact of the coup (in neighboring Niger, ed) and associated sanctions to be material for Benin's economy and have revised our projection for real GDP growth in 2023 down by 0.4 percentage points to 5.9%. Our forecasts are supported by a solid expansion in economic activity of 6.3% in the first half of the year,” it added.

At the same time, the agency forecasts a significant improvement in budget performance, thanks to a steady increase in revenues, combined with a spending strategy focused on key sectors. This dynamic should lead to a reduction in the budget deficit by 2023, which should fall below the WAEMU norm of 3% of GDP by 2025.

However, in a downside scenario, the agency warns that the regional uncertainty, particularly with the coup in Niger, could have some impact on Benin's economy. Although the direct impact of sanctions and the closure of borders with Niger is considered marginal, a greater-than-expected slowdown could lead S&P to revise its outlook again.

"We could revise the outlook to stable if external headwinds persist and negatively affect Benin more than we expect, causing much lower-than-expected economic activity or budgetary slippage,” warns the rating agency.

Such a downgrade could stem from a “deterioration of the security situation in Niger, for instance. Stronger pressure on the country's external position, for example from lower-than-anticipated export revenue, could also lead to negative pressure on the outlook."