On behalf of my Nigerien authorities, I would like to express my deep appreciation to the Executive Board and Management for their continuous support to Niger’s policy efforts. I also wish to thank staff for the constructive dialogue with my authorities held in Niamey during the fourth and fifth reviews under the ECF arrangement and the 2014 Article IV Consultations discussions. Despite the challenging regional security situation compounded by the continued effects of the 2013 poor agricultural production, the Nigerien economy delivered a positive growth in 2013, and rebounded in 2014. The Nigerien authorities have also proven their commitment to the objectives of the program and to the underlying reforms, in particular, in the areas of public financial management, revenue mobilization and debt and natural resources management.
Program performance remains broadly satisfactory in spite of the distorting effects of the two unforeseen shocks mentioned above. Based on the corrective measures taken by my authorities in order to contain expenditures and strengthen revenue collection, they request waivers for the missed performance criteria on domestic financing at end-December 2013 and end-June 2014, as well as the completion of the fourth and fifth reviews under the ECF program.
Recent Developments, Outlook, Risks and Program performance
After a strong economic performance in 2012, with real GDP growth rate reaching two digits (11.1%), the economic activities contracted sharply to an estimated GDP growth of 4.1 percent in 2013. This was due to a turnaround in agriculture production due to poor weather conditions led to a sizeable decline in economic activities in 2013. Likewise, unexpected developments in the regional security situation led to a significant increase in expenditure to address, security, humanitarian and refugee issues. However, the economy rebounded in 2014 with real GDP estimated to grow by 6.5 percent on account of better weather conditions for agriculture production, spending on infrastructure projects, as well as expansion of oil production. Inflation was kept under control at 2.3 percent in 2013 and at 1.3 percent at end June 2014, thanks to the government’s successful food programs, which helped contain the strong food demand pressures.
Fiscal developments were positive. However, these outcomes reflect to some extent expenditure restraints aimed at accommodating security and food related spending. The fiscal deficit was reduced by more than half in 2013, and was contained far below the program target of 5.6 percent. However, the estimated data for the first semester of 2014 point to continued expenditures pressures and weak revenue, which led to an increased basic fiscal deficit. However to strengthen the record of public financial management, my authorities have reduced domestic arrears by CFAF9.5 billion, mostly in favor of private sector entities. For the coming years, my authorities envisage to make similar budget efforts each year until the complete clearance of the existing stock of arrears.
Developments on the monetary and financial front in 2013 and 2014 reflect broadly the aforementioned rebounding of the economy. There was a contraction of broad money and credit in relation to the poor performance of the agriculture sector in 2013, and an expansion of monetary aggregates reflecting a pick up in the mining and oil sector during the first semester of 2014 along with a mobilization of funds in the regional financial market.
The current account deficit, as expected, increased in 2013 reflecting the growing import activities in the extractive sector as well as the progressive implementation of some of the important infrastructure projects described in the authorities’ development program, including that pertaining to the construction of the railway system. However, strong foreign direct investments, and the positive impact of export expansion for oil and uranium caused the overall external balance to show a significant surplus, leading to an increase of Niger’s contribution to the net foreign assets of the West African Economic and Monetary Union (WAEMU).
Outlook and Risks
My Nigerien authorities agree with the staff’s assumptions, which should lead to a rebound of economic growth, and sustained growth going forward. These assumptions are based on the positive outlook for the natural resources sector, the greater emphasis on the strategy to address food insecurity and increased irrigated agricultural production through the 3 N initiative and the authorities’ resolve to pursue steadfastly the implementation of their public investment infrastructure projects, which are consistent with the priorities set out in the PRSP and in their Plan de Development Economique et Social(PDOES).
While they take good note of the favorable medium-term outlook, my authorities are fully aware of the significant challenges facing the country, notably with regard to the risks associated with the regional security situation, and that pertaining to weather conditions. As regards the security situation, my Nigerien authorities believe that progress in this matter requires a two-stage response to be conducted at both the international level and the regional level. At the international level, several security and defense cooperation initiatives have already produced successful results in terms of strengthening peace and security at the three most affected Nigerien borders. At the regional level, my authorities are cooperating with others in peace keeping initiatives, and this is also having positive result. With regard to the recurrent vulnerability of Niger to climate shocks, my authorities consider that the best alternative to overcome the issue of food insecurity is to increase investment in agriculture. In this regard, while they agree with the need to address the structural dimension of food insecurity in Niger, as suggested by staff, they share staff’s view recommending to leverage natural resource revenues to increase investments in agriculture sector.
As noted above, program implementation is broadly satisfactory. All PCs at end December 2013 and also at end June 2014 were met. The only exception is related to the PC on domestic financing, which was breached because of the negative impact of insecurity on the revenue collection, shortfalls in external financing, and the need for emergency food assistance. Apart from the floor on poverty reduction, all indicative targets for end 2013 were observed. This target was also missed at end June 2014 along with the basic fiscal balance and the total revenue. Despite some delays in the area of public finance management reform measures, the structural reform agenda is advancing, as highlighted in paragraph 13 of the main report by the progress recorded in budget execution, debt management and exceptional spending limitation.
A - Fiscal Policy
The fiscal framework for 2014 has been adjusted to accommodate for higher spending due to the unexpected shocks. To that end, the basic balance has been relaxed by 1.3 percent of GDP compared to the previous reviews. For 2015, the authorities’ conservative approach, which targets a basic fiscal deficit of 3.7 percent of GDP with the goal of attaining gradually a zero basic balance over the medium-term, is a clear indication of their commitment to fiscal consolidation. In this regard, steps will be taken to raise the total revenue from 16.8 percent in 2014 to 17.6% of GDP in 2015. To that end, my authorities will implement all the envisaged revenue administration measures notably, the reinforcement of tax audits and tax registration at the General Tax Administration, the establishment of a single interconnection server linking up offices, a better control of exemptions and a limitation of loopholes of tax exoneration at the custom administration.
In order to enhance accountability with the view to meet the fiscal objectives, my authorities subscribe to the proposal of setting performance contracts between the ministry of finance and all the Directorates having in charge revenue collection and expenditure execution. Drawing from the lesson of 2014, my authorities agree with staff’s suggestion not to include the identified exceptional revenues in the framework until they materialize. On the expenditure side, my authorities are making further efforts to increase capital spending in health, education and infrastructure while decreasing current expenditure. They are also exploring ways, including technical assistance, to improve the efficiency of spending. They remain also favorable to the recommendation aimed at exerting a more realistic external-financed capital expenditure estimate, in line with the trend of an effective disbursement of external aid.
B - Management of Natural Resources
Regarding the management of resources, my authorities are exploring ways to help reconcile the projected natural resource wealth, on one side, and the pressing development needs and the establishment of a fiscal framework, which sets up gradual objectives toward a zero basic balance over the medium-term, on the other side. A number of actions aimed at maximizing the returns from natural resource sector are being implemented. These include the recent decision compelling all mining companies to operate under the new mining code, which raised mining royalties from 5.5 to 12 percent, the initiation of cost reduction measures, including the revision of the pricing of domestic refined petroleum sales, the replacement of foreign workers with Nigerien workers and the refinancing of the loan to build the refinery on concessional terms. The initiatives underway aimed at starting crude oil export, including the establishment of the transportation company and the participation in the capital of this company are other additional steps toward achieving the objective of increasing natural resource returns.
C - Debt Management
In spite of their determination to use the unique opportunity given by the country’s natural resource endowment to speed up the economic transformation, my Nigerien authorities remain cognizant of the impact of their investment decisions on debt dynamics. In this regard, they highly appreciate the valuable advice given by the Fund staff on the need to adopt a more cautious approach, suggesting a deeper prior analysis on future public financial burden before embarking on any new debt contract. This advice has helped improve the monitoring of loan agreements, in particular with regard to the loan for the construction of the refinery, SORAZ and that related to the master facility agreed with Eximbank of China. The stable qualification of moderate risk of debt distress for Niger’s 2014 DSA, despite the recent developments on debt, reflects the authorities’ efforts in debt management and commitment to ensure debt sustainability. The ministerial committee created last year is a concrete illustration of their commitment to strengthen and improve their debt management strategy.
Inclusive Growth Agenda
My authorities’ ultimate goal is to remove the numerous obstacles constraining the development of economic activities, while creating favorable conditions to promote inclusive and broad-base growth, consistent with the need to build infrastructures, improve social indicators and meet the MDGs. Niger’s social indicators are among the lowest in sub-Saharan Africa, and Niger’s middle class is small. Its financial system lags behind peers and its annual fiscal cost of government food support is among the highest in a group of 31 countries. Food security remains a major problem. These different constraints call for decisive policy-actions which are being implemented or designed currently by the authorities. With regard to the financial sector, a development strategy has been prepared since 2012 with its main strategic targets designed to increase stability and transparency in the financial sector, deepen the sector and improve the legal and judicial framework.. The action plan designed to facilitate the implementation of that strategy was recently updated and will be approved by the authorities shortly. As regards agriculture, the authorities are seeking ways to increase agriculture production to an extent that outpace the outcomes recorded with the 3N initiative. To that end, the Plan de Development Economique et Social (PDOES) 2016-2020, which is being finalized, will include this objective as a priority. Finally, in order to foster regional trade, several actions are being implemented, including the reduction of custom check points and supporting documents for exports and imports and the definition of categories of control at check points. Over the medium-term, these actions will support any initiative tending to move forward with the implementation of the proposed regional trade buffer by ECOWAS.
Niger’s medium and long term outlook have improved significantly in light with the expected returns from the development of the natural resource sector. Important achievements have been made over the recent years in terms of macroeconomic stability, revenue mobilization, public finance, and debt management. However, considerable challenges still lay ahead, in particular, the need to achieve sustained growth, less dependent on weather conditions and consistent with their poverty reduction strategy and development needs. My authorities are taking steps to address these challenges, in particular, by paying close attention to the implementation of structural reforms in the areas of natural resources management and public finance management.
Based on the strong commitment shown and the corrective actions taken by the authorities, I would request Directors’ support for the requested waivers and the proposed decisions.