1. This statement provides additional information that has become available since the issuance of the report on the fifth review under Niger’s three-year arrangement under the Poverty Reduction and Growth Facility on October 22, 2003. This information does not alter the thrust of the staff appraisal.
2. A mission visited Niamey during the period November 10–17 to review recent economic and financial developments and discuss the 2004 budget law. The staff confirmed the preliminary indications on the performance under the program at end-June 2003, as presented in the staff report for the fifth review under the Poverty Reduction and Growth Facility (PRGF) arrangement. Macroeconomic performance continues to be satisfactory, buttressed by good climatic conditions and the implementation of prudent macroeconomic policies. Inflation (annual average) is now expected to decline sharply from 2.7 percent in 2002 to -1.7 percent in 2003.
3. Based on provisional data on the end-September 2003 outcome, budgetary performance has continued to be negatively affected by large shortfalls in foreign assistance disbursements and revenue transfers from the West African Economic and Monetary Union (WAEMU), as well as a weaker collection of value-added tax (VAT) revenue. Net bank credit to the government continued to rise and the originally programmed reduction of domestic payments arrears was not achieved. Faced with these developments, the authorities have continued to implement their policy of expenditure regulation and fiscal stance tightening, including the effective freezing of CFAF 4.9 billion in non essential spending. The authorities are also redoubling their efforts to collect tax revenues, in particular the VAT, to ensure achievement of the program’s revenue target (10.6 percent of GDP) for 2003. The recourse to the regional financial market has, however, been postponed pending settlement of past domestic payments arrears with the Nigerien banking sector. Regarding the structural benchmarks at end-September 2003, the financial audit of the wage bill was completed on time and a preliminary report of its findings was made available to the staff; the actuarial audit of the National Retirement Pension Fund has also been carried out, albeit with some delay.
4. The revised program for 2003 is expected to be fully financed, following the expected disbursements of envisaged World Bank and African Development Bank budgetary assistance in November 2003, and the recent conclusions of discussions with the European Union on the latter’s budgetary grant, which is to be disbursed in the last quarter of 2003. Consistent with the revised program, the basic budget deficit (excluding grants) would be limited to 2.0 percent of GDP, while the overall budget deficit (on a commitment basis, excluding grants) is projected at 8.3 percent of GDP, below the revised target of 8.6 percent of GDP.
5. Agreement was reached on a 2004 draft budget law that is fully in line with the projections presented in the staff report. Discussions focused mainly on measures to achieve the revenue target of 11.1 percent of GDP. To that end, the staff team recommended extending the VAT to a number of commodities including cooking oil, milk, sugar, and flour; eliminating VAT exemptions on water and electricity; and levying an excise tax on soft drinks and tea. The authorities indicated that, in view of the upcoming local and presidential elections in March and November 2004, respectively, it would be extremely difficult to implement at once all these revenue-enhancing measures.
6. While stressing their willingness to undertake a gradual implementation of the measures suggested by the staff beyond 2004, they noted that they would only introduce an amended subset of these measures in 2004, in particular, the imposition of the VAT on cooking oil, above and beyond the existing excise tax, and the imposition of an excise tax on tea. In addition, the authorities also decided to suspend the special customs regime allowing tax-free imports of rice for reexport, as the regime had mainly resulted in important customs tax fraud through the effective sale of the commodity on the local market. Furthermore, the following administrative measures were identified to ensure attainment of the 2004 revenue target: (i) the recovery of existing tax arrears (estimated at CFAF 10.5 billion at end-July 2003); (ii) the effective collection of reexport duties on tobacco and cigarettes; and (iii) a greater involvement of the pre-shipment inspection company, COTECNA, in the valuation of imported goods for customs valuation purposes. An evaluation of these measures will be undertaken at the time of the sixth and final review of the program in March 2004.
7. The presentation to the Executive Board of Niger’s completion point under the enhanced HIPC Initiative has been delayed because of the need to resolve the issue of topping-up of HIPC Initiative assistance. A resolution of this issue is currently being sought and the completion point document is expected to be ready shortly for Board consideration, provided that Directors are prepared to consider the completion point for Niger soon after the completion of the current review. In this context, Niger’s record of policy implementation gives confidence that the program will remain on track.