Niger: Fifth Review Under the Three–Year Arrangement Under the Poverty Reduction and Growth Facility, and Requests for Modification of Performance Criterion and Extension of Arrangement

Niger’s sociopolitical environment remains fragile, with a continuation in early 2003 of the social tensions that surfaced in 2002. In the wake of a satisfactory macroeconomic performance in 2002, activity has continued to be buoyant in all sectors of the economy, particularly in the construction and trade sectors, and together with the onset of a favorable rainy season, has supported the economic environment underlying the program for 2003. The broadly satisfactory track record of Niger in policy implementation has continued in 2003.

Abstract

Niger’s sociopolitical environment remains fragile, with a continuation in early 2003 of the social tensions that surfaced in 2002. In the wake of a satisfactory macroeconomic performance in 2002, activity has continued to be buoyant in all sectors of the economy, particularly in the construction and trade sectors, and together with the onset of a favorable rainy season, has supported the economic environment underlying the program for 2003. The broadly satisfactory track record of Niger in policy implementation has continued in 2003.

I. Introduction

1. Niger has come a long way since the democratically held presidential elections in December 1999 ended the period of political instability that resulted from the April 1999 coup d’etat. Much progress has been achieved in reinforcing political stability and national peace, as evidenced by the Peace Flame ceremony in September 2000, which marked the formal end of the Tuareg rebellion in the north. Economic performance and program implementation under the Poverty Reduction and Growth Facility (PRGF) arrangement approved in December 2000 have also been broadly satisfactory. Moreover, government policies have benefited from the adoption of the poverty reduction strategy paper (PRSP) in January 2002. Assistance under the enhanced Initiative for Heavily Indebted Poor Countries (HIPC Initiative) has financed poverty-related projects initiated by President Tandja since Niger reached the HIPC Initiative decision point in December 2000.

2. This progress reflects the authorities’ strong ownership of the PRGF-supported program, despite recurrent sociopolitical tensions, limited institutional capacity, and problems in mobilizing adequate and timely external aid. The authorities’ program for 2003 aims at strengthening the track record of policy implementation, achieving further progress in the implementation of the PRSP, and reaching the completion point under the enhanced HIPC Initiative. The attached letter of intent (LOI) and memorandum of economic and financial policies (MEFP), which were prepared in the context of the fifth review of the PRGF arrangement, present the progress achieved in meeting these objectives and complement the authorities’ progress report on the PRSP implementation (IMF Country Report No. 03/384; see the related joint staff assessment (IMF Country Report No. 03/387)).

II. Recent Economic Developments

A. Background and Sociopolitical Environment

3. Niger’s sociopolitical environment remains fragile, with a continuation in early 2003 of the social tensions that surfaced in 2002 (IMF Country Report No. 03/110). The authorities have, however, continued to engage in a proactive policy dialogue with the labor unions and the private sector. In this context, they paid one month of salary arrears in May 2003 (out of five months of remaining salary arrears). Political activities are also gearing up for the local, presidential, and parliamentary elections that are scheduled to take place in 2004. The National Assembly has debated the adoption of a new electoral code for the contesting of these elections. Finally, to prevent a resurgence of the internal conflicts that have adversely affected Niger’s stability, a National Strategy for the Prevention and Management of Conflicts was also approved by the government, civil society, political parties, and the unions in April 2003.

B. Economic and Financial Developments in the First Half of 2003

4. In the wake of a satisfactory macroeconomic performance in 2002 (Table 2, Figure 2, and Box 1), activity has continued to be buoyant in all sectors of the economy, particularly in the construction and trade sectors, and together with the onset of a favorable rainy season, has supported the economic environment underlying the program for 2003. Further progress in the resolution of the crisis in Côte d’lvoire has also alleviated concerns about a possible deterioration in economic performance. Inflation, on a 12-month, period-average basis, declined sharply from 2.7 percent in December 2002 to -0.9 percent in August 2003, reflecting prudent macroeconomic policies and an abundant supply of food products following the good harvest at end-2002.

Table 1.

Niger: Fund Position, 2000-08 1/

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Source: IMF, Finance Department

End of period.

Table 2.

Niger: Selected Economic and Financial Indicators, 1999-04

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Sources: Nigerien authorities; and staff estimates and projections.

Commitment basis as per payment orders issued.

In percent of beginning-of-period money stock.

In 2002, includes 0.6 percent of GDP of revenue from the settlement of reciprocal debts between the government and public enterprises.

Total revenue, excluding grants, minus expenditure, excluding interest payments.

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

Program data and projections include grants for projects and HIPC Initiative assistance. Actual data also include grants for budgetary assistance that me disbursed by Niger’ development partners, well us tile European Union and bilateral donors

For projections, budgetary assistance is not included as it is part of the financing gap.

Including obligations to IMF. The estimate for 2002 reflects the latest debt-stock reconciliation exercise undertaken for the upcoming completion point under the HIPC Initiative.

For 2001-02, debt-service data data include payments of arrears resulting from debt-relief agreements.

Before debt relief For projections, including the financing gap.

Figure 1.
Figure 1.

Niger: Exchange Rate Indices, January 1993 - June 2003

Citation: IMF Staff Country Reports 2004, 012; 10.5089/9781451828566.002.A001

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

Niger: Selected Economic Indicators, 1997-2004 1/

Citation: IMF Staff Country Reports 2004, 012; 10.5089/9781451828566.002.A001

Sources: Nigerien authorities; and staff estimates and projections.1/ Dashed line corresponds to original projections under the PRGF arrangement approved in December 2000 (IMF Country Report No. 01/15). Solid line corresponds to actual data until 2002 and current projections for 2003-04.

Niger: Economic and Financial Developments in 2002

Most recent data on Niger’s performance at end-2002 confirm the thrust of the evaluation presented at the time of the fourth PRGF arrangement review (IMF Country Report No. 03/110; Table 2). Six of the eight indicative targets were observed at end-December 2002, compared with a preliminary assessment that five targets would be reached. In light of new budgetary revenue data (linked to taxes on foreign-financed projects), the indicative target on revenue was observed. Thus, only the indicative targets on the wage bill and net credit to government were not met, for reasons explained in IMF Country Report No. 03/110, paragraphs 12 and 15.

The revised budgetary outcome at end-2002 remains in line with estimates in IMF Country Report No. 03/110, except for a revision of foreign-financed projects (Table 4). Data on public projects executed outside the budget have been provided for the period 1999-2002. Thus, although the 2002 basic budget deficit remains slightly below its target at 1.8 percent of GDP, the overall deficit (on a commitment basis, excluding grants) has been revised from 6.5 percent of GDP to 7.7 percent of GDP. The financing of the deficit was complicated by a shortfall in net external budgetary financing of 0.4 percent of GDP and a reduction of domestic payments arrears that exceeded its target of 1.6 percent of GDP by 0.6 percentage point. The resulting 1 percentage point increase in the domestic financing requirement of the budget was reflected in increases of 0.4 percent of GDP and 0.6 percent in nonbank financing and net bank credit to the government, respectively. As the overshooting of bank financing was mainly linked to a greater reduction of domestic payments arrears in cash, it did not detract from the satisfactory performance achieved in 2002 in fiscal adjustment and the restoration of sound public finances.

New estimates of the balance of payments and cross-border flows of national banknotes within the West African Economic and Monetary Union (WAEMU) franc zone have led to a widening of the external current account deficit in 2002 (excluding grants for budgetary assistance) from a previously estimated 6.7 percent of GDP to 8.4 percent of GDP and a sharp downward revision of the net foreign assets of the Central Bank of West African States (BCEAO) at end-2002 (Tables 3 and 6). The worsening of the current account deficit results from an 11 percent revaluation of the overall level of imports, mainly consumption goods. Revised monetary data indicate a contraction of broad money of 0.4 percent, as opposed to the expansion estimated at 9 percent in IMF Country Report No. 03/110. The decline in net foreign assets amounted to 6.3 percent of beginning-of-period broad money, while the increase in bank indebtedness of the government remained equivalent to 3.7 percent of beginning-of-period broad money. The continuing recovery of economic activities was accompanied by a 15 percent growth of credit to the economy.

Table 3.

Niger: Balance of Payments, 2000-04.

(In billions of CFA francs, unless otherwise indicated)

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Sources: Nigerien authorities; and staff estimates and projections.

Includes purchases of goods in ports and airports by carriers, in line with the Balance of Payments Manual, 5th edition.

In 2002, a grant of CFAF 8.9 billion was provided by the European Commission (EC) for the settlement of external payments arrears to the European Investment Bank and the EC.

In 2002, two loans of CFAF 9.4 billion and CFAF 13.7 billion were disbursed by the OPEC Fund for (i) the settlement of Niger’s external payments arrears at end 1999 vis-à-vis the OPEC Fund; and (ii) the OPEC Fund’s contribution to the HTPC Initiative.

In 2001, includes settlement of end-1999 external payments arrears vis-à-vis the African Development Bank (AfDB) and the OPEC Fund, as agreed in the rescheduling agreements. In 2002, includes payment of end-1999 external payments arrears, whose setltlements were agreed with the OPEC Fund, Libya, the Saudi Fund for Development, and a commercial bank. In 2003, includes payment of external arrears vis-à-vis the European Investment Bank.

Includes in the 2002 program assistance from IDA and the AfDB that are now classified as grants; for 2003-05, includes assistance provided through a rescheduling of current maturities by Paris Club creditors (up to the completion point), and China, and a portion of the relief granted by the Islamic Development Bank (IsDB), and the OPEC Fund.

Includes debt under discussion for CFAF 16.6 billion in 2001, CFAF 14.7 billion in 2002, CFAF 8.9 billion in 2003, and CFAF 8.8 billion in 2004.

Includes assistance from the West African Economic and Monetary Union (WAEMU), the Arab Bank for Development in Africa (BADEA; the Kuwait Fund for Arab Economic Development (KFAED), the Paris Club (as of 2004) and the remaining of the assistance from the IsDB and the OPEC Fund.

Table 4.

Niger: Financial Operations of the Central Government, 2000-04

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Sources: Nigerien authorities; and staff estimates and projections.

Based on interim assistance under the HIPC Initiative in 2003. A revised budget with the impact of additional assistance under the completion point is expected in the last quarter of 2003.

Revenue from the settlement of reciprocal liabilities between the government and enterprises, such as settlement of tax arrears.

In 2001, includes payment of end-1999 external payments arrears vis-à-vis the African Development Bank (AfDB) and the OPEC Fund, as agreed in the rescheduling agreements. In 2002, includes payment of end-1999 external payments arrears vis-à-vis the OPEC Fund, Libya, the Saudi Fund for Development, and a commercial bank. In 2003, includes payment of external arrears vis-à-vis the European Investment Bank.

Includes in the 2002 program assistance from IDA and the AIDJ3 that are now classified as grants; for 2003-05, includes assistance provide through a rescheduling of current maturities by Paris Club creditors (up to the completion point), China, and a portion of the relief from the Islamic Development Bank (IsDB) and the OPEC Fund.

In the 2003 column for the revised program, the World Bank and the AfDB in lend to disburse CFAF 33.3 billion of loans for budgetary assistance, and the European Union is expected to disburse CFAF 16.9 billion of grants for budgetary assisance; the remaining gap (CFAF 9.1 billion) is expected to be financed by grants from bilateral donors.

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

In 2003, includes CFAF 3.2 billion of HIPC Initiative assistance granted on a stock-of-debt operation.

Table 5.

Niger: Quarterly Cumulative Financial Operations of the Central Government, 2003

(In billions of CFA francs)

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Source: Nigerien authorities; and staff estimates and projections.

West African Economic and Monetary Union.

Table 6.

Niger: Monetary Survey, 2000-04

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Sources: BCEAO; and staff estimates and projections.

In 2002, bank financing includes the impact of the OPEC Fund financing for the settlement of external payment arrears and delivery of HIPC Initiative assistance.