Developments and Performance Under the Program

Niger’s performance under the PRGF continues to be encouraging. All performance criteria and indicative targets for end-March 2003 were met. Performance at end-June is also broadly satisfactory, although the indicative targets relating to budgetary revenue and the net bank credit to government could not be met, due mainly to exogenous shocks, namely, delays in external assistance disbursements, and the impact of the crisis in Cote d’Ivoire. The program for 2003 has been revised to take these factors into account, but the main objectives of the initial program have been maintained. The authorities have also completed, as prior actions, the measures related to the three structural benchmarks that had not been previously observed at end-June 2003. These were the strengthening of the foreign debt unit with the installation of a new debt-management software, the submission of a study on the remunerations of petroleum product sector operators, and the closing of the 2001 budgetary accounts according to the procedures that were set.

On the basis of the measures implemented, the more clement weather, and higher capital expenditure on infrastructure, real GDP growth is projected at 4 percent for 2003, with the annual inflation rate declining by 0.7 percent. A good harvest and more robust economic activity following the extension of electricity and water connections to a number of rural areas under the President’s Special Poverty Reduction Program, which is financed by HIPC Initiative resources, have been instrumental in this performance. The authorities expect further progress as more and better infrastructure facilities become available in rural areas, as described in their PRSP. The construction, public works and trade sectors also registered more buoyant activity and contributed positively to the growth rate, and helped to attenuate to a certain extent the adverse external shocks.

As regards public finance, early in the year, there was a legal problem concerning the new nomenclature and the charter of public accounts, and this prevented the release of budgetary appropriations, so that the government had to operate essentially on the basis of cash transactions. However, the problem has since been resolved, and normal budgetary procedures have been restored. During 2003, the lower-than-projected transfer from the WAEMU and delays in enacting certain tax measures and in external assistance led to a shortfall in revenue, but these were more than offset by restrictions on expenditure which helped to reduce the basic budget deficit, and to avoid budgetary slippages. Bank financing was also kept within the program ceilings, although there was a larger than projected reduction in domestic payments arrears. The government also reimbursed arrears to the European Investment Bank in June 2003, with the payment of penalties and late interest settled at end-July 2003.

However, despite the improvement in the basic deficit, the government exceeded its debtor position vis-à-vis the banking sector. This was not due to any slippages in fiscal operations, but rather to the reduction in government debt to the nonbank sector, and caused the net domestic indebtedness of the government to increase marginally. The authorities are concerned at the increase in debt to the banking sector, and are looking into the issue of nonbank domestic borrowing, with a view to exercising greater control over them.

The Nigerien authorities are maintaining a tight budgetary stance for the remainder of 2003, especially in view of the shortfall in external assistance. The basic budget deficit is now projected at 2.0 percent of GDP compared to 2.1 percent, as originally programmed. This will be accomplished by freezing nonpriority expenditure and by savings on interest payment on foreign debt as a result of the appreciation of the CFA franc. The authorities will also continue their efforts to strengthen revenue collection. The delays and shortfalls in expected external resources will cause the government to have recourse to domestic financing, which however, will be limited to 0.1 percent of GDP for the year as a whole. To alleviate the severe budget constraint in the period preceding the disbursements, the authorities have reached agreement with the BCEAO to postpone the implementation of the programmed reduction in central bank advances until January of next year, and the government intends to issue treasury bills on the regional financial market. The higher indebtedness to the banking sector at year-end will be partially compensated for by the accumulation of deposits at that time, and will enable for a smoother budget execution in 2004. The authorities have also prepared the 2004 Budget in consultation with staff, and the policies envisaged will continue the fiscal consolidation process, and is consistent with the PRSP.

In the area of structural reforms, as noted above, the authorities have completed the three structural benchmarks that were outstanding. While the budgetary reforms envisaged under the program were implemented, progress was adversely affected, in particular, for the implementation of the procurement code, by delays in technical assistance. Nevertheless, extensive training programs and monitoring took place as regards the implementation of the new budget nomenclature.

The authorities continued the reforms aimed at strengthening the financial sector. The restructuring of the Banque Commercials du Niger(BCN), and the Islamic Bank of Niger for Commerce and Industry (BINCI) are being pursued. The financial audits of microfinance institutions started in April, and progress reports have been submitted by the auditors. Progress was also achieved in the restructuring of the National Postal and Savings Office(ONPE). With respect to the privatization of Credit du Niger, the government has initiated talks with potential private shareholders.

On parastatal reforms, the recruitment of sectoral directors for the Multisector Regulatory Agency (MRA) has been initiated. The privatization of the electricity company, NIGELEC, has been delayed by a difficult international environment, and the questioning of the adopted strategy by potential investors. The strategy is being reviewed with the World Bank and the investors. As regards the petroleum company, SONIDEP, the bidding package has been finalized and made available to interested operators.

Poverty Reduction Strategy Paper

As described in the authorities’ report, the implementation of the Poverty Reduction Strategy remains satisfactory. The report describes the progress in the implementation of the policies and programs pertaining to the PRSP, the participatory process, and in the monitoring and evaluation of the strategy. The report also presents a good review of the progress made in resolving some key issues raised by the staff in last year’s Joint Assessment Paper. As regards the development of productive sectors, progress has been achieved in the preparation of the Rural Development Strategy (RDS) which focuses on raising incomes of the rural poor and reducing their vulnerability to climatic conditions.

The report notes the encouraging results obtained in the social sectors. In education, the basic enrollment rate was raised from 37.3 percent in 2001 to 41.7 percent in 2002, as the government recruited more teachers and built and equipped more classrooms. The government has also finalized the Ten-Year Education Program, and has adopted a national policy for higher education. In the health sector, the objectives were not fully achieved, as the recruitment of personnel proved to be more difficult than expected. The authorities are focusing their efforts on solving these problems.

The improvement in the road network and transportation is ongoing, and good progress is being achieved in the rehabilitation of major roads and the construction and rural tracks. Moreover, almost all the targets set under the President’s Special Poverty Reduction Program were met. These consisted, among others, in the construction or rehabilitation of minidams, wells and other small infrastructure, mostly in the rural areas. The report continues to place much attention on the need to build institutional and human capacities. Some progress is being made, but much more will need to be done. The authorities have noted the assessment of the staff as regards the strengths and weaknesses in the PRSP and its implementation, and will continue to address them.

External Debt and the HIPC Initiative

My Nigerien authorities remain committed to a prudent foreign borrowing policy. They have taken steps to strengthen external debt management, and are monitoring debt obligations closely, thus avoiding the recurrence of temporary external payments arrears. As regards the OPEC loan that was contracted for the construction of technical and vocational schools, the authorities have made a request to the African Solidarity Fund (FSA) for a subsidy to increase to 50 percent the grant element of the yet to be disbursed loan.

The authorities are also pursuing their efforts to reach the completion point under the HIPC Initiative as soon as possible. In this context, they have completed work with the Fund and the World Bank staff on the reconciliation of the foreign debt at end-1999 and end-2002, and it is also proceeding with the debt sustainability analysis. The authorities have also completed nine of the thirteen conditions needed to reach the completion point, and progress is being made on the remaining four. In the meantime, the government continues to pursue contact with bilateral creditors who are not members of the Paris Club, either to finalize the HIPC Initiative agreements, or to obtain their effective participation. My Nigerien authorities are thankful to France, the United Kingdom and the United States for granting debt relief that goes beyond their required contribution under the HIPC Initiative. With this additional bilateral debt relief, the NPV of debt at end-2002 is estimated at 199 percent of exports, highlighting the need for topping-up at the completion point. My Nigerien authorities request the full support of the international community both for an early approval that they have met the conditions for the completion point, and for a topping-up at that time, so that the country can achieve a sustainable external debt position.

Conclusion

Despite a number of exogenous shocks, the Nigerien authorities are achieving good progress in the implementation of their programs of economic reforms and poverty reduction. As a result macroeconomic performance has improved, and the medium term outlook remains positive. This performance is testimony to the strong ownership of the program by the authorities, and of their commitment to the reform process. It is also an indication of the change in economic management from the past. However, the authorities recognize that in certain areas, in particular as regards structural reforms and the poverty reduction strategy, more progress could have been made, if the country had better institutional capacity. They would also note the constraints placed on their adjustment efforts by the delays and shortfalls in expected external assistance. They call on the donors’ community to strengthen their support and to make it more predictable, which will greatly help to maintain the momentum of reforms. In this context, I would like to ask my colleagues for their support of today’s decisions, including the extension of the arrangement to end-June 2004 so as to enable Niger to receive the final disbursement under the PRGF arrangement.