Niger: Staff Report for the 2001 Article IV Consultation, the Second Review and Second Annual Program Under the Poverty Reduction and Growth Facility Arrangement, and Request for Additional Interim Assistance Under the Enhanced Initiative for Heavily Indebted Poor Countries

This paper evaluates Niger’s 2001 Article IV Consultation, the Second Review and Second Annual Program Under the Poverty Reduction and Growth Facility (PRGF) Arrangement, and a Request for Additional Interim Assistance Under the Enhanced Initiative for Heavily Indebted Poor Countries (HIPC). The corrective measures taken by the authorities since June 2001 have been successful in bringing the program back on track. All end-September 2001 quantitative performance criteria and benchmarks were met, except for a small and temporary accumulation of external payments arrears, for which the authorities are requesting a waiver.

Abstract

This paper evaluates Niger’s 2001 Article IV Consultation, the Second Review and Second Annual Program Under the Poverty Reduction and Growth Facility (PRGF) Arrangement, and a Request for Additional Interim Assistance Under the Enhanced Initiative for Heavily Indebted Poor Countries (HIPC). The corrective measures taken by the authorities since June 2001 have been successful in bringing the program back on track. All end-September 2001 quantitative performance criteria and benchmarks were met, except for a small and temporary accumulation of external payments arrears, for which the authorities are requesting a waiver.

I. Introduction

1. Discussions on the 2001 Article IV consultation and the second review and the second annual program under the Poverty Reduction and Growth Facility (PRGF) arrangement were held in Niamey during November 12-26, 2001.1 The arrangement, covering the period October 2000-September 2003, was approved by the Executive Board in an amount of SDR 59.2 million (90 percent of quota) on December 14, 2000 (EBS/00/244, 11/29/00; and EBS/00/235, 11/21/00). At the same date, Niger’s decision point under the enhanced Heavily Indebted Poor Countries Initiative (HIPC Initiative) was reached, with a common reduction factor for all creditors estimated at 53.5 percent (EBS/00/256, 12/06/00). The first review under the PRGF arrangement was completed on August 3, 2001 (EBS/01/123, 7/20/01), and two disbursements totaling SDR 16.9 million have been made to date.

2. As of end-November 2001, Niger’s outstanding use of Fund resources amounted to the equivalent of SDR 65.2 million or 99.1 percent of quota (Table 1). Niger has accepted the obligations of Article VIII and maintains an exchange system free of restrictions on payments and transfers for current international transactions. Niger’s relations with the Fund are summarized in Appendix I. The World Bank maintains an active portfolio often projects in various sectors. A water sector project (US$48 million) and a public expenditure adjustment credit (US$70 million) were approved in 2001. Niger’s relations with the World Bank are summarized in Appendix II. Niger’s economic and financial database remains weak, especially in the areas of national accounts, balance of payments, and external debt. Statistical issues are discussed in Appendix III, and a provisional work program under the Fund-supported program is included in Appendix IV.

Table 1.

Niger: Fund Position During the PRGF Arrangement, September 2000 - March 2004

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Source: IMF, Treasurer’s Department.

End of period.

3. In the attached letter, memorandum of economic and financial policies (MEFP), and technical memorandum of understanding, the Minister of Finance and Economy reviews performance under the program at end-September 2001 and presents the authorities’ program for 2002, for which they request Fund support as well as continuing Fund interim assistance under the enhanced HIPC Initiative (Appendix V). The program for 2002 is built upon the full poverty reduction strategy paper (PRSP; EBD/02/8, 1/17/02), which is circulated separately with the joint staff assessment (EBD/02/9, 1/17/02). The PRSP was prepared through an extensive participatory approach and approved by the Cabinet of Ministers after validation in a national workshop held in Niamey in late November. It includes a sound analysis of the current status of poverty in Niger and presents a clear strategy to reduce it over the medium term.

II. Background and Recent Economic Developments

4. In concluding the 2000 Article IV consultation in December 2000, Directors supported the efforts of the new authorities, democratically elected at end-1999, to resume the economic and structural reform program interrupted by the political events of April 1999 (EBS/00/244). Directors welcomed the authorities’ program, to be supported by the PRGF, and noted in particular the authorities’ determination to consolidate the fiscal situation and establish a satisfactory track record of performance.

5. Performance under the program at end-March 2001 was mixed as a result of weaknesses in program implementation and monitoring, but Directors, in completing the first review under the PRGF arrangement in August 2001, welcomed the corrective actions taken to bring the program back on track and endorsed the revised program for 2001. In this context, they urged the authorities to implement their strategy to reduce domestic payments arrears, strengthen expenditure control, and ensure the flexibility of petroleum product prices in accordance with the new pricing system implemented in August 2001. Directors also stressed the importance of a cautious external borrowing policy consistent with Niger’s debt sustainability.

A. Economic Developments as of End-September 2001

6. Despite delays in foreign aid disbursements in the second and third quarters of 2001, the corrective measures taken by the authorities have been successful in bringing the program back on track. All end-September 2001 quantitative performance criteria and benchmarks were met, except for a small accumulation of external payments arrears, which were cleared on December 24, 2001 as a prior action for the completion of the program review (Table 1 of the MEFP).2 The authorities are requesting a waiver of nonobservance for this continuous performance criterion. Budgetary developments were in line with program targets, and the quantitative benchmarks on budgetary revenue, the wage bill, and the basic budget deficit were observed at end-September 2001, as well as the quantitative performance criterion on the reduction of domestic payments arrears.3 Delays in the disbursement of external assistance resulted in a level of net bank credit to the government higher than the unadjusted program ceiling, but this ceiling, adjusted for the shortfall in external aid flows, was observed.4 In line with their commitments, the authorities did not contract new loans on a nonconcessional basis and did not draw on the loans of the West African Development Bank (BOAD) that were signed in April 2001 but did not meet the program requirement of a 50 percent grant element. Finally, the two structural benchmarks at end-September 2001 on establishing provisional opening balances of the treasury accounts for January 1, 2001 and defining a new budgetary nomenclature were observed (Table 2 of MEFP).

Table 2.

Niger: Selected Economic and Financial Indicators, 1999-2004

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Sources: Nigerien authorities; and staff estimates and projections.

For 2001, as of November 2001.

Commitment basis as per payment orders issued.

In percent of beginning-of-period money stock.

Budget revenue minus expenditure, excluding interest payments.

Budget revenue minus expenditure, excluding foreign-financed investment projects.

Including obligations to IMF.

Before debt relief. For projections, including the financing gap.

7. The fiscal stance through end-September 2001 was in line with the revised program. The basic budget deficit was smaller than programmed by CFAF 8 billion (or 0.5 percent of annual GDP) and was limited to CFAF 35.3 billion (Table 3). Although budgetary revenue, nontax revenue in particular, performed well, this outcome reflects mainly a containment of current budgetary expenditure at CFAF 109 billion, or 90 percent of the program level. The measures to bring the expenditure program back on track in the wake of the excess release of budget allocations in the first quarter of 2001 were effective in achieving this result, which also benefited from smaller-than-envisaged needs in food assistance. Regarding capital outlays, the implementation of the presidential program for poverty reduction, financed by resources freed under the HIPC Initiative, proceeded satisfactorily as a result of strong ownership and close monitoring, while the execution of the regular public investment program was slower than envisaged, particularly for the foreign-financed projects. These developments led to an overall budget deficit equivalent to 5 percent of GDP, some 1½ percentage points of GDP below the program ceiling. Improved monitoring of the domestic payments arrears strategy allowed for a slightly greater than programmed reduction of domestic payments arrears, equivalent to about CFAF 13 billion (or nearly 1 percent of GDP) since the beginning of the year. However, the sizable shortfall of external project financing and budgetary assistance in the second and third quarters of 2001 resulted in severe cash constraints at the level of the treasury.5 Net bank credit to the government consequently exceeded the unadjusted programmed ceiling by 0.8 percent of GDP but remained within the allowed adjusted ceiling.

Table 3.

Niger: Financial Operations of the Central Government, 1999-2004

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Sources: Nigerien authorities; and staff estimates and projections.

Budgetary revenue, excluding grants, minus total expenditure, and excluding foreign-financed investment projects.

In 2001, includes repayment of arrears to the African Development Bank and the OPEC Fund as agreed in the rescheduling agreements.

For 2001-02, includes assistance from IMF, IDA, African Development Bank, and Pans Club creditors; for 2003-04 includes full benefit* from the enhanced HIPC Initiative.

For 2002, see footnote 16 of the staff report.

Budgetary revenue minus current expenditure.

For 1999, includes several months of Wages due bin not paid For 2001, estimates at end-November 2001 for capital expenditure and at end-December 2001 for current expenditure. For 2002, budgetary allocations.

8. Monetary developments as of end-September 2001 were strongly affected by the budgetary outcome. Broad money grew by 13.9 percent during the first nine months of 2001, compared with 1.9 percent under the program, because of the significant increase in net credit to the government (Table 4).6 Credit to the economy remained almost flat, following its considerable increase in 2000. Bank claims on the energy sector continued, in particular, to account for nearly 25 percent of total bank credit to the economy, reflecting financing of the sector’s recent financial losses linked to retail prices administratively set below supply cost in 1999-2000—prior to the introduction of the new pricing system of petroleum products in August 2001—and pending understandings on the settlement of these lossess by the government.

Table 4.

Niger: Monetary Survey, 1999-2002

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Sources: Nigerien authorities; and staff estimates and projections.

9. Niger continued to make significant progress on structural reforms. The reform of the budgetary expenditure process, including the strengthening of budget execution and monitoring, proceeded sufficiently well to be supported by a new public expenditure adjustment credit of the World Bank (US$70 million), to be disbursed in 2001-02. Similarly, as mentioned above, a new budgetary nomenclature was prepared, and provisional opening balances were established for the 2001 treasury accounts, while work on the closing of the 2000 accounts continued. Moreover, the unification of the investment and the general budgets was made possible by the merger of the Ministries of Finance and Planning in the context of a cabinet reshuffle in September 2001.

10. Concurrently with the reforms of budget management, the authorities proceeded in the third quarter of 2001 with the implementation of the new pricing and taxation system for petroleum products adopted in August 2001 and with the privatization of the telecommunications company, SONITEL. However, the privatization of SONITEL was affected by delays, as a strategic investor for a 51 percent share in the company’s capital was selected only in early November, paving the way for the approval of the World Bank public expenditure adjustment credit by end-November 2001. As for the implementation of the automatic, flexible, and transparent pricing system for petroleum products, the authorities suspended its implementation in October 2001, thus preventing the first price variation, a price increase, that would have resulted from the new system. The authorities viewed the price increase implied by the system as temporary in the wake of the September 11 events and were concerned about the social impact—and the public rejection—of such an increase. The authorities have nevertheless remained committed to the new system, and they are conscious of the detrimental impact of stop-and-go policies on the government’s credibility. The implementation of the petroleum product pricing system resumed in November 2001, and retail prices of petroleum products had fallen by nearly 10 percent by year’s end, thus alleviating the authorities’ concern about public acceptance of possible future increases. Therefore, they intend to implement the system as scheduled on a monthly basis; this is a performance criterion under the arrangement.

B. Objectives for End-2001

11. As explained in the attached MEFP, the authorities maintained the thrust of their policies in order to build upon the satisfactory performance at end-September 2001 and achieve the program objectives for 2001 (Table 2 and Figure 2). The economy benefited in this regard from favorable weather conditions and satisfactory agricultural production in the second half of 2001. Preliminary information based on surveys in the rural areas indicates that cereal production will exceed the country’s anticipated requirements for 2002 by more than 200,000 tons. The recovery of overall output in 2001 is thus expected to have exceeded program projections and to have resulted in a rate of economic growth of 5.1 percent, led by a 10 percent increase in agricultural production. This outcome follows a decline in economic activity in 2000 that has been revised to minus 1.4 percent. The decline in food and petroleum product prices in the last quarter of 2001 has also brought the 12-month inflation rate from 4.7 percent at end-September to 3.2 percent at end-2001.

Figure 1.
Figure 1.

Niger: Exchange Rate Indices, January 1993 - September 2001

Citation: IMF Staff Country Reports 2002, 035; 10.5089/9781451828542.002.A001

Source: IMF, Information Notice System.
Figure 2.
Figure 2.

Niger: Selected Economic and Financial Indicators, 1997-2003

Citation: IMF Staff Country Reports 2002, 035; 10.5089/9781451828542.002.A001

Source: IMF, Information Notice System.1/ Budgetary revenue excluding grants, minus total expenditure.

12. The current account deficit, excluding grants, is expected to have been limited to 8.4 percent of GDP in 2001, less than initially projected under the program (Table 5). Agricultural exports were sluggish because of the bad harvest in 2000, but strong cattle exports and increased reexport activities resulted in a stabilization of overall export levels, compared with 2000.7 Although imports of food products grew to offset lower domestic output, petroleum imports were contained in value because of the fall in international oil prices. A slower execution of the public investment program also led to lower-than-expected capital goods imports. The current account deficit was financed, inter alia, by the interim HIPC Initiative assistance and debt relief already obtained or still under discussion. As a result, a net accumulation of CFAF 3.8 billion in net foreign assets of the central bank was expected for end-2001.

Table 5.

Niger: Balance of Payments, 1999-2005

(In billions of CFA francs, unless otherwise indicated)

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Sources: Nigerien authorities; and staff estimates and projections.

In 2001, includes repayment of arrears to the African Development Bank and the OPEC Fund as agreed in the rescheduling agreements.

For 2001, figure includes CFAF 16.6 billion of debt under discussion.

13. The authorities were committed to achieving the budgetary targets at end-2001 but expressed concern about delays in disbursements of sizable external budgetary assistance in the fourth quarter of 2001, particularly by the World Bank (US$30 million) and the African Development Bank (SDR 6 million). To prevent any budgetary slippages and large accumulations of domestic payments arrears on 2001 spending, the government delayed the release and reduced the amounts of available commitments for fourth quarter spending by about 0.6 percent of GDP. Based on these measures, the main budgetary objectives for 2001 would have been reached. In particular, the basic budget deficit would have been limited to 2.9 percent of GDP at year’s end, compared with a program objective of 3.6 percent of GDP. However, the late disbursements of foreign aid could have affected the programmed reduction of domestic payments arrears in light of the lengthy payment procedures to clear payments arrears. The smaller reduction of domestic payments arrears would have led to an accumulation of government deposits by year’s end.

III. Policy Discussions

14. With a per capita income of about US$200, Niger is one of the poorest countries in Africa and is ranked very low on all social indicators (Table 6).8 Its main economic activities, agriculture and livestock (which represents approximately 40 percent of output), are highly vulnerable to weather-related shocks. The export base is limited to uranium (Box 1), which has suffered from a secular decline over the past 15 years, and a few agricultural products and cattle, destined mainly for Nigeria and the subregion. The formal sector accounts for only 25 percent of economic activity, thus hampering the ability of the government to collect taxes. Efforts to diversify the economy in the years ahead will crucially depend on investment in human capital and physical infrastructure, as well as policies to promote the development of the private sector.

Table 6.

Niger: Social Indicators

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Source: World Bank, World Development Indicators, 2001