Niger: Ex Post Assessment of Performance Under IMF-Supported Programs

This paper focuses on Niger’s 2004 Article IV Consultation, Sixth Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility, and Request for Waiver of Performance Criterion. Niger’s macroeconomic performance has been satisfactory in 2002 and 2003, notwithstanding the adverse impact of the crisis in Côte d’Ivoire and large fluctuations in agricultural output owing to uneven rainfalls. Real GDP growth is estimated to have increased to 5.3 percent in 2003, from 3.0 percent in 2002, owing to a bumper crop made possible by favorable weather conditions.

Abstract

This paper focuses on Niger’s 2004 Article IV Consultation, Sixth Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility, and Request for Waiver of Performance Criterion. Niger’s macroeconomic performance has been satisfactory in 2002 and 2003, notwithstanding the adverse impact of the crisis in Côte d’Ivoire and large fluctuations in agricultural output owing to uneven rainfalls. Real GDP growth is estimated to have increased to 5.3 percent in 2003, from 3.0 percent in 2002, owing to a bumper crop made possible by favorable weather conditions.

I. Introduction

1. Niger’s economic growth has consistently been lacking in vigor, falling far short of levels that would make possible substantial improvements in living standards. The lackluster performance is attributable to several key factors, including recurrent droughts, deterioration in the terms of trade, social and political disturbances and severance of external financial assistance in the aftermath of sometimes bloody military coups.

2. In addressing its deep-seated economic problems over the last decade, Niger has benefited from support from the IMF. Fund involvement during the period has taken the form of: a Stand-By Agreement (SBA, 1994-95); an Enhanced Structural Adjustment Facility (ESAF, 1996-99); and a Poverty Reduction and Growth Facility (PRGF, 2000-03). This report reviews the country’s economic performance and reform efforts in the ten-year period to end-20031 (Section II), and makes an overall assessment of Niger’s adjustment experience and program design (Section III). On the basis of this evaluation, the report looks at the challenges the authorities face over the medium-term as they strive to move Niger toward achievement of the Millennium Development Goals (Section IV); finally, the report draws lessons for future Fund involvement with Niger (Section V) and provides the authorities’ views on the ex post assessment (VI).

II. Economic Developments and Reforms During 1994-2003

The devaluation of the CFA franc

3. In early 1994, in the face of persistent macroeconomic imbalances, the government put in place a comprehensive Fund supported-adjustment program involving for the first time ever the use of the exchange rate.2 In addition to Fund resources,3 the program benefited from a fast-disbursing World Bank loan and substantive debt relief from Niger’s Paris Club creditors.

4. On the macroeconomic front, the program aimed to substantially raise the revenue-to-GDP ratio, reduce the wage bill in relation to revenue, and increase the investment-to-GDP ratio. Revenue was to be raised to 9 percent of GDP in 1994, from7.3 percent a year earlier; while gross domestic investment was expected to increase from 5.7 percent in 1993 to 12 percent of GDP in 1994. Several key revenue measures were introduced, including a major overhaul of the tariff structure.4 On the structural front, the program called for restructuring key public enterprises (electricity, water, and telecommunications), liberalizing the labor market, developing primary school education, and continuing efforts to restructure the banking system, notably, the liquidation of the Caisse Nationale de Crédit Agricole (CNCA).

5. The devaluation of the CFA franc, along with above-average rainfall, brought about a record agricultural production and a recovery in livestock and agricultural exports. Real GDP growth reached 4 percent in 1994; consumer prices, on an end-year basis, increased by 40.5 percent, compared with an inflation objective of 37 percent; and the external current account deficit (excluding official grants) deteriorated by over 6 percentage points, to 13.8 percent of GDP. In the budgetary area, the revenue-to-GDP ratio fell from 7.3 percent in 1993 to an all-time-low of 6 percent in 1994, reflecting notably delayed implementation or postponement of the programmed revenue measures and weaknesses and fraud in the customs administration; new internal and external payments arrears were accumulated (due partly to a lack of new donor assistance caused by the absence of a “legitimate” government) and there was a substantial overrun in the wage bill caused by recruitment and discretionary merit pay decisions by the outgoing government.5 As a result, expenditures on health, education and other social services were compressed. In the monetary area, credit to the private sector remained weak, reflecting a slow pace of activity in the nonfarm formal economy. Broad money fell sharply in real terms.

6. On the structural front, important foreign trade and price liberalization measures were taken. All import and export licensing requirements were eliminated (except those relating to petroleum products), and existing price control measures lifted. However, no progress was made with regard to the reform of the public enterprise sector and the liberalization of the labor market,6 as Niger experienced a continued lack of political legitimacy and a consequent power vacuum in central administration.

Economic developments and reforms after the devaluation

7. Against the backdrop of continuing political and civil unrest, the broad-based national consensus needed to address Niger’s deep-seated crisis could not be mustered. As a result, no significant reduction of the macroeconomic imbalances was achieved in the year following the devaluation (Table 2). In fact, the SBA-supported program went considerably off-track, and no purchases were made beyond the one effected upon Executive Board approval of the loan (SDR 11.1 million, or 23 percent of quota).

Table 1.

Niger: Selected Social and Demographic Indicators

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Table 2:

Niger - Selected Economic and Financial Indicators, 1994-2003

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Sources: Nigerien authorities; and staff estimates.

Commitment basis as per payment orders issued.

Program data include grants for projects and HIPC Initiative assistance. Actual data also includes grants.

8. In a bid to restore macroeconomic stability, the new military authorities established in early 1995 a dialogue with the labor union and effected personnel changes at key fiscal agencies. In support of their efforts, the International Monetary Fund (IMF) approved on June 12, 1996 a new three-year loan under the enhanced structural adjustment facility (ESAF) equivalent to SDR 57.96 million (about $83 million), for the period 1996-99.

9. In the context of a difficult domestic and external environment, program implementation was mixed under the first and second annual ESAF arrangements. Important performance criteria and quantitative and structural benchmarks under the 1996-99 program (pertaining to arrears, the wage bill and civil service reform) were not observed. Economic activity remained generally sluggish, with real GDP increasing in 1996 and 1997 at rates below that of population growth (mainly due to inadequate rainfall in many areas of the country), rebounding to 10.4 percent in 1998, reflecting favorable weather. Inflation remained moderate, in part because of food imports. On the fiscal front, the revenue-to-GDP ratio rose by a yearly average of 0.6 percentage point, reaching 8.9 percent in 1998 due to the successful implementation of important tax measures included in the program. Against the backdrop of improved control over spending, this revenue performance helped reduce the overall budget deficit to an annual average of 7 percent of GDP during 1996-99, down from 9.4 percent in 1994-95. The external current account deficit (on a commitment basis, excluding official transfers) declined in 1996–98 to an annual average of 6.5 percent of GDP, from 7.1 percent during 1994-95.

10. Although some progress was made under the government’s economic program for 1996–98, Niger’s macroeconomic imbalances were still large. Economic growth continued to be critically dependent on weather conditions and the availability of external assistance; government revenue as a ratio of GDP remained low, even by regional standards. These weaknesses were aggravated following a military coup in April 1999 that caused the country’s major donors to withdraw financial assistance. In 1999, real GDP growth turned negative (-0.6 percent); inflation declined substantially (-1.9 percent); and some of the gains made earlier in the fiscal area were reversed, with the revenue-to-GDP ratio receding further, expenditure picking up somewhat in relation to GDP, and the overall budget deficit edging up to the equivalent of 9 percent of GDP.

Reform under PRGF-supported programs

11. Transparent and democratic elections took place at end-1999. With support from the Fund and World Bank, the newly elected authorities quickly established a new economic agenda, while maintaining social and political stability. The government resumed financial relations with its development partners and prepared an interim PRSP7 articulating an explicitly affirmed commitment to fight poverty. In support of the government’s ambitious program of economic reform and poverty reduction and following its adoption of fundamental prior actions in the fiscal area,8 the Executive Board approved, on December 14, 2000, a three-year arrangement under the Poverty Reduction and Growth Facility (PRGF) in an amount equivalent to SDR 59.20 million (about US$76 million).

12. The PRGF program aimed to more directly fight poverty, seeking to invigorate economic activity in a context of financial stability, and high, sustainable growth. To this end, real GDP growth was expected to increase to at least 4.5 percent by 2003 and the investment rate would gradually be increased to about 14 percent of GDP, with a view to achieving a per capita GDP growth rate of close to 1.5 percent in 2003. Inflation would remain subdued and kept at less than 3 percent over the period of the program.

13. In support of these macroeconomic objectives, fiscal policy would seek to strengthen revenue performance and upgrade the quality of public spending to support the authorities’ interim poverty reduction strategy. The current budget would rebound from a deficit equivalent to about 4 percent of GDP in 1999 to equilibrium by 2003, generating thereafter the savings needed to bolster the public sector’s contribution to investment. In the structural area, the privatization program would continue, but would no longer be included in the list of the PRGF program’s explicit structural measures. Also, progress was expected in the reform of the oil sector, the liberalization of prices of goods and services still subject to controls, and the finalization of a strategy for rehabilitating and expanding the financial sector.

14. Niger’s macroeconomic performance was broadly satisfactory during 2000-03, largely helped by good weather conditions, which spurred strong growth in the rural sector, but supported also by improved public finances; increased capital expenditure on infrastructure; and a broadly satisfactory implementation of programmed structural reform measures. Per capita real GDP growth averaged close to 1.5 percent per annum during the 2001-03 period, while end-year inflation declined to -1.5 percent at end-2003. The overall budget deficit (on a commitment basis, excluding official budgetary grants) which stood at an annual average of 9 percent in the previous two years, declined to 7.7 percent per annum between 2001 and 2003. Furthermore, government savings moved closer to becoming positive, with the current budget deficit declining to an annual average of 0.7 percent of GDP in 2001–03, from a yearly average deficit equivalent to 3.1 percent of GDP in the previous two years. The external current account deficit (excluding grants for budgetary assistance) deteriorated somewhat, to an annual average of 7.8 percent of GDP over the 2001-03 period from 6.5 percent in 1996-2000, reflecting in part higher investment spending in both the government and private sectors.

15. Progress in the structural reform area was mixed. The privatization agenda encountered delays, while limited progress was achieved in strengthening the financial sector. Also, the timing of the reform of the petroleum pricing system was revisited several times. The telecommunications company, SONITEL, was privatized through the sale of51 percent of its capital and further liberalization of the sector was achieved with the awarding in November 2000, through an open bidding process, of licenses to two new cellular telephone networks. In January 2001, a ten-year leasing contract was signed for the production, transport, and distribution of safe water in the 51 centers previously managed by the state water utility. The privatization of the petroleum importing firm, SONIDEP, was initiated, with the company expected to be brought to the point of sale in the second quarter of 2004. However, the privatization of the electricity company, NIGELEC, proved difficult, owing to, inter alia, the substantial amount of financing needed for rehabilitation and expansion9 and the heavy dependence of Niger on the Nigerian Electrical Power Authority(NEPA).10 Also, several key aspects of the financial sector reform agenda remain pending, especially concerning the restructuring of the banks that are still under government control (Crédit du Niger, CDN, and the Caisse des Prêts aux Collectivités Territoriales, CPCT); the reform of the insurance sector; and the restructuring of the postal financial services.

16. By and large, transparency and accountability in the awarding of public contracts improved and efforts were made to ensure equal treatment of bidders and facilitate sound competition among them. In 2002, a new Code of Public Procurement was approved, and its implementation begun in late 2003. Against this background, expenditure tracking has considerably been enhanced.

17. In the context of its PRGF-supported reform program, Niger has implemented since 2000, a series of policy initiatives specifically aimed at addressing the widespread prevalence of poverty. The poverty reduction and social sector policies are articulated in a full PRSP that was completed in January 2002, using an extensive participatory approach. A recent joint Bank/Fund staff assessment (JSA) of the PRSP’s first progress report underscored several substantive achievements made over the last years in the areas of education and health (see IMF Country Report Nos. 04/61 and 03/387).

III. Assessment of Niger’s Adjustment Experience and Fund Program Design

General characteristics

18. Performance under Niger’s adjustment programs was clearly poor in the early 1990s, becoming mixed during the latter part of the decade, before decisively improving during the period 2000-03. With the notable exception of the three years to 2003, Niger’s program implementation in the last decade had lacked in perseverance and continuity, due to political and social instability, as well as to limited institutional and human capital capacity. Even during the latter period, the authorities were unable to fulfill in a timely manner program commitments with regard to the reform of the petroleum products pricing system.

19. The resulting stop-go pattern of policy implementation had limited the extent of effective adjustment. In fact, successive governments pursuing Fund-supported policies have not engendered fundamental changes in Niger’s economic prospects. Not surprisingly therefore:

  • • Real GDP growth has remained weak and extremely dependent on weather conditions;11

  • • Government revenue mobilization remains weak, making it difficult for Niger to considerably reduce its dependence on external aid;

  • • The external current account situation has remained fragile and vulnerable, in the face of continued deterioration of the terms of trade linked to the persistent downward trend of uranium prices; and

  • • The overall poverty levels have remained high, while indicators of access to health, education, material consumption, and environmental protection have continued to be among the weakest in sub-Saharan Africa.

20. Until the late 1990s, the authorities’ inability to improve the lot of the average Nigerien had created adjustment pessimism, limiting the extent of program ownership. Several general lessons can be drawn from the shortcomings of Niger’s adjustment experience, including:

  • First, successful adjustment requires the existence of a stable government, as well as a broad-based national consensus in support of reform. The conspicuous absence of these crucial factors in Niger, especially before the democratization in 1999 of the state apparatus, considerably limited the extent of program effectiveness. The recent advent of elected and stable government, together with the adoption of the PRSP-inspired participatory approach to program design and implementation, has raised program ownership and effectiveness.

  • Second, the adjustment process necessarily requires a sustained effort in which perseverance and continuity are critical. Before the initiation of the current PRGF program, Niger’s Fund-supported programs went systematically off track before reaching their intended term; this negatively affected program outcomes.

  • Third, a successful reform effort in Niger requires a major revenue increase, notably by strengthening tax administration and incorporating the informal economy into the tax net; it also hinges on a determined expenditure reorientation in favor of the social services and infrastructure building; as well as a sustained commitment to far reaching structural reforms. Progress in these areas had been painfully slow for far too long, indicating that much remains to be accomplished, even though prospects have improved lately.

  • Fourth, program performance has been affected by two main types of shocks in the last decade, pertaining to weather conditions and disruptions in external aid flows in the aftermath of military coups. Niger’s policy responses have for the most part failed to mitigate the negative growth impact of droughts. However, the authorities have been more successful in preserving their broad fiscal objectives when faced with external assistance shortfalls. They have done so by effecting consequent spending cuts, especially during the 2000-03 period.

  • Fifth, Niger’s limited institutional and human capital capacity contributed to the delays encountered in the execution of the reform agenda, notwithstanding generous external technical assistance, including from the Bretton Woods institutions.

  • Sixth, the staffs of the IMF and World Bank have generally complemented each other well in providing assistance to Niger, and collaboration has been close. In so doing, they have improved the consistency and effectiveness of the policy advice they offer to the authorities. Nevertheless, there have been instances where delays in the intervention of one of the two institutions have led to breaches in the performance indicators of country programs supported by the other. In 2003, the preparation of the medium-term expenditure framework (MTEF) for health and education (a structural benchmark under the annual PRGF arrangement) could not be completed in a timely manner because technical assistance from the World Bank became available only late in the year.

  • Seventh, the Nigerien experience shows that after new governments took power, the Fund generally resumed lending before most other donors. In hindsight, in some instances, the Fund should have taken a more cautious approach in resuming financial support, especially when the authorities’ political commitment to reform was not fully established.

Specific lessons from Niger’s adjustment experience and for program design in the fiscal and external sectors are described more fully below.

Adjustment in the fiscal area

21. The most problematic areas of Niger’s fiscal adjustment experience pertained to revenue mobilization, management of the wage bill, and clearance of government payments arrears. In hindsight, it appears that the setting of stringent indicative targets on the wage bill may have been inconsistent with the objective of clearing government domestic expenditure arrears during the 1994-99 period. Indeed, in the absence of sufficient public expenditure management safeguards, overly aggressive indicative targets on the wage bill likely resulted in increased wage expenditure arrears. The reduction in civil service compensation introduced to contain the wage bill may have contributed to social unrest during the 1994-99 period, further aggravating revenue shortfall potentials and increasing expenditure payments arrears.

22. In some instances, especially in 1997, the revenue impact of the reforms was overestimated. Although they are desirable, reforms in fiscal administration are known not to generate much revenue in the short term. Revenue projections should therefore not have attributed a significant quantitative impact to the revenue administration measures introduced under the program, particularly considering Niger’s weak administrative capacities. Along the same lines, it was important that the tax revenue impact of reducing civil servants’ wages be fully accounted for, which was not the case. Like in many other program countries, real GDP growth projections were sometimes overly optimistic (Table 2).

23. Program implementation has consistently suffered from repeated shortfalls in foreign budgetary support. In many instances, the rationalization for over optimism in external assistance delivery is far from convincing. For instance, following the military coup of January 1996, it should have become quickly apparent that foreign budgetary support would be curtailed, a development that the program failed to anticipate.

24. The use of prior actions has proven effective in securing expeditious implementation of potentially difficult reform measures, in particular in the 1999-2000 period preceding the adoption of the current PRGF program. Resort to such measures in the face of government failure to comply with agreed conditionality has helped prevent weakening of the reform agenda.

25. In view of Niger’s limited institutional and human capacities, streamlining of structural conditionality is essential to effective program implementation. This has not always been the case, which explains some of the most publicized program failures. In the context of the 2002 program for instance, the authorities failed to meet all of the structural conditionalities pertaining to public expenditure management, while successfully implementing the retained key public expenditure management measures.

26. Ambitious reform measures often end up being watered down and ultimately reduced to weakened conditionality if the appropriate safeguards are not in place from the beginning. Such a development featured prominently in the area of domestic petroleum products pricing, which underwent successive revisions in 2001 and 2002. The Fund’s credibility may have been undermined in the process. A better approach could have been for the Fund to push for a timely implementation of the initial phase of the reform and related conditionality, ensuring however that its main negative effects are dealt with through institution of an appropriate social safety net.

Adjustment in the external sector

27. During much of the last decade, steady trade liberalization under the West African Economic and Monetary Union (WAEMU) auspices has resulted in increased openness of the economy. While uranium remains the single most important export, there has been some progress in export diversification.

28. The critical problem of dependence on highly concessional external financing remains. Against this background, the treatment of Niger’s foreign indebtedness received very high priority in Fund policies after 2000, when the country reached the decision point under the enhanced HIPC initiative. In this context, Niger’s external payments arrears have, at long last, been cleared.

Trade policies and export promotion

29. Although Niger’s trade policies were not highly restrictive in the early 1990s, liberalization of the sector featured prominently in successive Fund programs during 1994–96, in accordance with WAEMU requirements on harmonization of external policies. Over the years, program approach to export promotion has progressively shifted away from reforming of specific sectors toward a focus on improvements in the investment climate, along with the attainment of macroeconomic stability.

30. In 1996, the country’s trade openness rating fell to 2 on the IMF’s 10-point scale. 12 However, Niger experienced revenue difficulties in 1998-99 and, more recently, in 2003, at least in part due to the fact that transfers from WAEMU (to compensate for lower customs revenue linked to lower import barriers) did not materialize. Thus, while WAEMU support for import-policy liberalization improved the climate for imports in Niger, the union’s inability to police its membership and ensure revenue transfers to Niger following these policy shifts later worsened existing fiscal pressures. By 2002, Niger’s rating on the IMF’s scale of trade openness had declined to 1. This opening led to an increase in intra-WAEMU trade, as trade with Africa surpassed that with Europe for the first time in 2001.

31. Despite generally adverse terms of trade changes, the volume of non-uranium exports increased substantially between 1994 and 1998. Uranium, which accounted for 61 percent of exports in 1994, declined to 40 percent of total exports by 2000, with export revenue falling from CFAF 78.4 billion to CFAF 64.2 billion; non-uranium exports grew from CFAF 47.8 billion in 1994 to CFAF 115.3 billion in 2000. This export growth was led by goods such as cotton, groundnut products, Arabic gum, and other agricultural products, which probably benefited from the price advantage afforded by the devaluation and Fund-supported programs. Niger’s success in export diversification over the last decade has nevertheless been too modest to have a significant impact on poverty.

External debt and arrears

32. Niger had maintained a large stock of external, as well as domestic, arrears through the late 1990s. Despite successive programs emphasizing the importance of external arrears clearance, a stock of CFAF 236 billion (19 percent of GDP) was still outstanding at end-1999. In the 1990s, most of this performance has been due to poor public expenditure management (an area in which both the World Bank and Fund were involved), though much of the arrears were accumulated during periods of political instability and consequent delays in aid disbursements, including debt relief, from creditors.

33. The treatment of Niger’s high level of external indebtedness was given high priority status in the 2000-03 program, just as the country reached the decision point under the enhanced HIPC Initiative. A performance criterion under the program stipulated that loans have grant elements in excess of 50 percent, 15 percent higher than the usual threshold for low-income countries. This performance criterion was generally observed during the period analyzed.13 During debt negotiations shortly following the decision point, including a Paris Club meeting in January 2001, Niger’s outstanding external arrears were rescheduled. The authorities have been diligent since then in honoring their external commitments, and there are now no outstanding arrears. As arrears during the 1990s accumulated largely during periods of political uncertainty, this improvement is in some measure due to the comparatively extended period of political stability since 2000. However, the authorities also deserve credit for improved debt management.

34. The variability and unpredictability of foreign aid flows to Niger presented significant challenges to successive government programs. Reflecting donors’ reaction to repeated domestic political disturbances and policy slippages, external aid volatility contributed to program discontinuities and accumulation of payments arrears. This underscores the need for: (i) strong policy commitment and program implementation to ensure greater predictability of donor assistance; and (ii) greater flexibility in budget execution14 to avoid accumulation of large arrears when external assistance falls short of program projections.

Poverty reduction strategy

35. Niger’s poverty reduction strategy aims to foster strong and sustainable economic growth and poverty reduction, as spelled out in the poverty reduction strategy paper (PRSP). The latter was completed in January 2002 using an extensive participatory approach that has helped raise understanding and ownership of key government policies. This undoubtedly contributed to improving policy implementation under the PRGF. Niger’s poverty reduction program rests on four strategic pillars: (i) the creation of a macroeconomic environment conducive to economic growth; (ii) the development of the productive sectors, especially in the rural areas; (iii) improvements in access to quality social services by the poor; and (iv) the strengthening of human and institutional capacities, governance, and decentralization. The PRSP remains the overarching instrument of policy making in Niger.

IV. The Way forward: Niger’s medium-Term Challenges, Objectives, and Policies

Economic policy considerations

36. The overriding task of the authorities is to place and keep the economy on the path to strong and sustained growth, for effective poverty reduction. This will require continued fiscal consolidation and expenditure reorientation towards increased investment, as well as a further strengthening of Niger’s structural reform agenda, both of which are essential to ensuring that the economy’s aggregate supply response becomes progressively less dependent on weather conditions. Such a development is especially needed in the rural sector where the bulk of the population resides and will continue to be employed. If anything, the successful implementation of the current PRGF-supported program, within the framework of the Poverty Reduction Strategy,15 has shown these goals can be realized.

37. Consistent with the above, and as spelled out in its Poverty Reduction Strategy, Niger should work toward achieving the following key macroeconomic objectives over the medium term. First, it should strive to maintain real GDP growth at a level higher than that of population growth, which is estimated at 3.1 percent a year. The potential growth poles lie in agriculture, stockbreeding, non-uranium exports, and enhanced specialization in export sectors as favored by the emerging regional WAEMU market, as well as tourism. Second, efforts should be directed toward maintaining the inflation rate at the existing low levels. Third, the authorities should aim to progressively reduce the current account deficit of the balance of payments (excluding official transfers).

38. In order to achieve these objectives, a significant increase in the investment-to-GDP and savings ratios will be needed, requiring a steady rise in public saving. In this perspective, the government should reinforce the viability of the public finances by achieving a surplus on the current budget balance starting in 2004; over time, the revenue-to-GDP ratio will have to be raised to at least the WAEMU threshold of 17 percent. While attainment of this budgetary outlook would be facilitated by Niger being granted “topping up” at the enhanced HIPC Initiative completion point,16 realization of the regional revenue target remains a long-term challenge, especially considering the country’s relatively high tax rates and its commitments in the area of fiscal legislation under the WAEMU. Against this background, the planned increase in revenue is bound to be gradual, reflecting a strengthening of the tax and customs agencies (particularly at the local level) and the reform of the tax system, with a view to widening the tax base and eliminating exemptions.

39. In the period ahead, structural and sectoral policies should aim to effectively minimize direct involvement of the public sector in the economy. It is indeed essential that commercial and industrial activities that can profitably be carried out by the private sector are left to the latter. Consequently, the privatization of the electricity and petroleum importing companies will have to be finalized, which should help improve the overall competitiveness of the economy.

40. Beyond state disengagement from industry and commerce, promotion of the private sector will be achieved through the creation of conditions that motivate businesses to invest, including a significant strengthening of the financial sector. The measures to be taken to that effect should aim to facilitate the emergence of a more predictable and transparent economic environment, as well as higher business profitability. Against the backdrop of the existing, broadly adequate pricing policies, the focus should be on continued improvement of the judiciary and increased accountability in public sector resource management, drawing from progress accomplished in the area over the last years. The overhaul of the judiciary is to be achieved in the context of the Judicial Reforms Support Program (PARJ). In the financial sector, priority should be given to: (i) strengthening Niger’s links to the regional financial market; (ii) effectively restructuring the Credit du Niger and the Caisse des Prets aux Collectivités Territoriales; and (iii) reforming the insurance sector.

41. Niger’s PRSP gives special consideration to economic sectors that have a strong growth potential. In the authorities’ view, such sectors include agriculture, tourism and mining. In this context, considering the country’s susceptibility to drought, the government is strengthening the food security program and developing income-generating activities, notably through credit programs to support rural women-financed initiatives and IDA-funded projects in the areas of extension services, agricultural research and small-scale private irrigation projects. Tourism is being revitalized, with the government improving existing accommodations and beefing up infrastructure. Efforts are also being made to diversify mining production, beyond uranium and gold, through intensification of prospecting activities for petroleum and other minerals.

Institutional and political considerations

42. As noted earlier, political instability and social unrest explain to an important extent Niger’s past difficulties in realizing a timely and steady implementation of its reform agenda. Beyond the need to ensure an effective execution of the policy framework spelled out above, the country’s success in securing a durable revival of the economy and sustained poverty reduction will hinge on Niger becoming politically more stable. In this respect, 2004 will be a crucial year, in view of the local and presidential elections that are scheduled to take place in the third and last quarters, respectively.

43. The implementation of the reform agenda will continue to impose a heavy burden on Niger’s administrative resources, requiring extensive technical assistance. With the support of the Bretton Woods institutions and other donors, including France, the Government will have to introduce a well-targeted program for strengthening capacities in many areas of public administration, especially for revenue monitoring and collection, and expenditure management, macroeconomic data collection and management for effective economic policy implementation.

44. The Fund’s technical assistance should primarily focus on strengthening performance in the revenue agencies, including with measures promoting good governance, so as to make possible the achievement of the government’s medium-term revenue objectives. Niger has made significant progress over the last years in simplifying its tax system; Fund technical assistance in the fiscal area should henceforth mostly aim at further strengthening the tax/customs administration, either with direct FAD involvement, or through the Mali-based regional technical assistance center (AFRITAC West). The Fund would also be expected to assist in the authorities’ efforts to strengthen their macroeconomic data management capacity, particularly in the area of national accounts.

V. Future Role of the Fund and Collaboration with Other Donors

45. Niger is still probably best categorized as an “early stabilizer” under the Fund’s typology of low-income members. Until very recently, the authorities have often faced substantial domestic opposition to some of their economic agenda, specifically privatization. Under the circumstances, with repeated bouts of political instability, Fundsupported programs have for the most part been founded on the need for macroeconomic stabilization.

46. Since the 1994 devaluation of the CFA franc, Fund involvement with Niger has provided a framework for macroeconomic reform, helping to enhance Niger’s macroeconomic stability. Fund programs focused largely on fiscal issues, particularly revenue mobilization, throughout the period. Despite the disruptions caused by political instability and high variability of growth rates, government revenue increased from an average of 6.6 percent of GDP in 1994-95 to 9.5 percent of GDP during 2000-02, while the overall budget balance also declined marginally. However, the current account position deteriorated during the same period, as imports, financed by external loan and grant disbursements, grew faster than the export base; the increase in external loans has led to high debt ratios for Niger. The willingness of successive Nigerien governments to engage in Fundsupported programs has unquestionably been a valuable anchor for macroeconomic policy and external financing.

47. In the period ahead, Niger will need to make further progress towards macroeconomic stability and is likely to remain dependent on concessional external financing. Indeed, despite the recently approved HIPC topping-up assistance, NPV of debt-to-export ratios are expected to remain close to or above 150 percent in the long term, due to new borrowing,17 and notwithstanding an assumed smooth pattern of long-term export and GDP growth.

48. The authorities have indicated their determination to work with the Fund to ensure that needed external financing requirements are met, recognizing that to the extent possible the financing needs will have to be covered with grants, and only if necessary with highly concessional loans. Considering the potential financing gaps over the medium term18 and the need to ensure continued progress on the economic policy front, Niger does not yet appear ready to move to a relationship with the Fund based on surveillance and technical assistance. Rather, Fund financial involvement would be expected to continue in the form of a new PRGF arrangement, most likely with a low level of access. The Fund would also be expected to play a catalytic role in securing financial and technical support from other development partners. The authorities have expressed satisfaction with the Fund’s past performance in this key area, and called for the institution to stay the course over the medium term. In addition to Fund support, grant-based financing must necessarily also involve such key multilateral agencies as IDA and the AfDF that are among Niger’s largest creditors. With continued political and macroeconomic stability, access to more diversified sources of financing will eventually be facilitated. In this perspective, the broadly effective Bank-Fund collaborative approach to providing policy advice to Niger should not only continue over the medium term, it should be extended to other donors as well, in the context of the post-Monterrey Enhanced Donor Harmonization Initiatives that are presently being developed.

VI. The Views of the Authorities

49. The authorities prepared their own evaluation of performance under Fund-supported programs, concurring with the thrust of the staff’s ex post assessment of Fund long-term engagement. They noted the continued dependence of growth performance on weather conditions despite years of donor support, which they attributed to the predominant economic role of the rural sector and to a failure to significantly improve water management infrastructure and irrigation systems in the last decades. They viewed the realization of substantial investments in these areas as critical to improving Niger’s growth prospects over time. The authorities also assigned a key role to the private sector in bringing about stronger and sustained growth in the medium term. They indicated their readiness to develop a more formal dialogue with the business community on economic policymaking.

50. Considering Niger as a relatively early stabilizer, the authorities were of the view that the country would need continued financial and technical backing from the Fund and its development partners in the period ahead. Prospects for domestic financing of the poverty reduction program remain indeed limited, despite expected improvements in the public finances. With a view to preventing a deterioration of debt sustainability, the authorities indicated they would seek mostly grants and highly concessional loans. They asked for Fund support in ensuring that the donor community would make such resources available to Niger. Beyond helping the country secure donor financial assistance, the Fund, in the authorities’ views, should continue to contribute to strengthening domestic technical and institutional capacity for effective policy and program design and implementation. In addition, the authorities indicated they see the Fund as a key player in further rationalizing donor interventions, including with respect to the streamlining of program conditionality.

Figure 1.
Figure 1.

Niger: Exchange Rate Indices, January 1993-March 2004

Citation: IMF Staff Country Reports 2004, 275; 10.5089/9781451828658.002.A002

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

Niger: Selected Economic Indicators, 1997-2004

Citation: IMF Staff Country Reports 2004, 275; 10.5089/9781451828658.002.A002

Sources: Nigerien authorities; and staff estimates and projections.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, estimates for 2003 and current projections for 2004.
Figure 3.
Figure 3.

Niger: Selected Fiscal Indicators, 1997-2004

(In percent of GDP)

Citation: IMF Staff Country Reports 2004, 275; 10.5089/9781451828658.002.A002

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, estimates for 2003 and current projections for 2004.2/ Overal budget balance, excluding foreign-financed capital expenditure.
Table 3.

Niger: Observance of Quantitative and Structural Performance Criteria, 2001-03

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Table 3.

Niger: Observance of Quantitative and Structural Performance Criteria, 2001-03 (concluded)

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Sources: IMF Country Report Nos. 01/15, 01/138, 02/35, 02/192, 03/110, and 04/12).
1

The report was prepared by a staff team comprised of Messrs. Matungulu (head) and Fontaine (AFR), Ms. Simard (FAD) and Mr. Walsh (PDR).

2

On January 12, 1994, the exchange rate was realigned from CFA 50 to CFA 100 per French franc.

3

A Stand-By Arrangement (SBA) in an amount equivalent to SDR 18.596 million (38.5 percent of quota) was approved on March 4, 1994.

4

The number of taxes levied on imports was reduced to two (customs duty and statistical tax) and the range of taxes brought down to three (10 percent for essential goods, 15 percent for intermediate and capital goods, and 35 percent for consumer goods; all inclusive of the statistical tax).

5

The change in government followed a military coup in February 1995.

6

The Fund actively supported the programmed reforms in the public enterprise and labor market areas, which were viewed as essential to enhancing the overall competitiveness of the economy.

7

All major stakeholders were involved in the preparation of the poverty reduction strategy; they contributed in the analysis and in determining the actions to be undertaken to reduce or alleviate poverty. The people were consulted from village communities’ right up to the national level.

8

Such as adopting a supplementary budget law for 2000, increasing the price of petroleum products and liberalizing their transportation, auditing the 1997 Treasury accounts, verifying whether expenditures undertaken at end-1999 were in conformity with budget procedures, and closing the accounts for fiscal years 1998 and 1999 (Table 3).

9

The financial requirements for rehabilitation and expansion are estimated at between US$60 and US$110 million for the low- and high-case scenarios, respectively.

10

NEPA, itself under a privatization plan in Nigeria, is in an extremely weak financial position; its role in the privatization of NIGELEC has yet to be determined.

11

The primary sector contributes nearly half of GDP; mining (mostly uranium) accounts for about 7 percent of GDP, compared with a mere 1 percent for manufacturing. Under these conditions, and in the face of rudimentary irrigation facilities and extension services, performance in the key sectors of agriculture, livestock breeding, forestry and fishing, which are the backbone of the economy, has been extremely vulnerable to changes in weather conditions.

12

The lower the ranking on the 10-point scale, the higher the level of trade openness.

13

One loan in violation of this PC was contracted in 2002. The authorities elected not to draw from the loan until new terms had been agreed.

14

In the form of contingency revenue-enhancing and expenditure-reducing measures.

15

Niger’s poverty reduction strategy is built on four pillars: (i) a macroeconomic framework ensuring economic and financial stability while promoting sustainable and robust growth; (ii) the development of productive sectors, especially in rural areas; (iii) improvement in the access for the poor to quality social services; and (iv) the promotion of good governance and the strengthening of institutional and individual capacity.

16

As a result of the topping up of enhanced HIPC relief granted to Niger, debt service, in terms of both exports of goods and nonfactor services and government revenue, would decline to below 10 percent starting in 2004, despite the ratio of NPV of debt-to-GDP remaining relatively high.

17

In these projections, grants are assumed to represent 60 percent of total needed external financing (including project assistance). The remaining external assistance requirement is assumed to be covered with loans contracted with a 60 percent grant element (see IMF Country Report No. 04/161).

18

The total financing gap is projected at about SDR 120 million (at end-2003 exchange rates) for the period 2004–06, equivalent to 199 percent of quota.

Niger: Staff Report for the 2004 Article IV Consultation, Sixth Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility, and Request for Waiver of a Performance Criterion
Author: International Monetary Fund