Niger’s macroeconomic performance under the current PRGF program was satisfactory, due in part to good weather conditions, but also to sound macroeconomic policies and an improvement in the country’s structural reforms implementation. Per capita real GDP growth averaged 1.5 percent per year during the 2001-03 period, while inflation declined.

Progress was also achieved on the structural front despite the delays encountered in the privatization of the petroleum and the electricity companies. The telecommunications company was privatized, and further liberalization of the sector was achieved with the awarding of licenses to two new cellular telephone networks. 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.

With regard to the debt issue, my authorities are thankful to Paris Club creditors for canceling all of Niger’s bilateral debt, on May 12, 2004. Paris Club’s decision came one month after Niger reached the completion point under the enhanced HIPC Initiative, and was granted full topping-up by the Executive Boards of the IMF and the World Bank. My authorities have reiterated their commitment to use the resources freed by the debt relief, to fight poverty and to implement the policies outlined in Niger’s Poverty Reduction Strategy Paper (PRSP).

Nevertheless, Niger faces significant challenges ahead (see below). As such, they are requesting a new PRGF arrangement, to secure adequate financing that will allow Niger to satisfactorily implement and strengthen its unfinished reform agenda. My authorities recognize the need to reinforce macroeconomic stability and reduce the dependency of the country’s economic performance on weather conditions. The country will also have to reach higher and sustainable levels of growth to further reduce poverty, as the Millennium Development Goal of halving poverty by 2015 is not likely to be met. On the fiscal front, and despite the election year, my authorities will adhere strictly to the fiscal target of reducing the deficit and improving public expenditure management. But weaknesses in VAT collection contributed to a weak revenue performance, which in turn, led to the nonobservance of the performance criterion on the reduction of domestic arrears, for which Niger is requesting a waiver. Regarding the clearance of these arrears, my authorities have reached satisfactory understandings with Fund staff on a revised schedule for their reduction that preserves Niger’s medium term objectives.

Recent Macroeconomic Developments

A combination of sound macroeconomic policies and favorable weather conditions have contributed to Niger’s strong macroeconomic performance in 2003. Real GDP grew by 5.3 percent,–higher than the 2002 level of 3 percent, and than the projected level of 4 percent. This strong performance was mainly driven by three sectors, namely, agriculture, construction, and trade.

In the agricultural sector, a good rainfall led to a record cereal harvest in 2003. As a result of the increased supply of food products, inflation remained low, particularly food prices. But other factors also contributed to the low level of inflation, i.e., the appreciation of the CFA franc, and the sound policies conducted by the regional central bank (BCEAO). The construction sector was boosted by the implementation of HIPC-funded investment projects in social sectors and rural areas (additional schools were built, along with health centers and other basic infrastructure in line with the PRSP). These favorable trends continued in the first quarter of 2004.

By the end of the year, the economy should be further boosted by the rehabilitation of the road network, along with investments in sports infrastructures, in preparation for the Francophone games to be held in Niger in 2005.

Challenges

Niger nevertheless faces significant challenges ahead. The authorities recognize the need to reinforce macroeconomic stability and reduce the dependency of the country’s economic performance on weather conditions. The country will also have to reach higher and sustainable levels of growth to further reduce poverty, as the population of Niger is one of the fastest growing in the region. Addressing these challenges will require, i) improving the economy’s competitiveness and raising investment, and ii) diversifying the economy.

Raising investment. High energy costs, a low skill labor force and a small domestic market further constrained investment performance. My authorities intend to increase their investment substantially by 2006. The bulk of the increase will go to agriculture and tourism. In the agricultural sector, for example, one objective is to double exports of cowpeas–for which Niger has a comparative advantage–, and to significantly increase the production of onions and groundnuts. In tourism, the objective is to triple the number of tourists by 2006. My authorities have also taken good note of the staff’s suggestion to examine the extent to which the investment potential could also be developed in the context of AGOA.

Notwithstanding a sound banking sector, my authorities recognize that private domestic investment is also constrained by a lack of long-term funding. However, efforts are being made to increase long-term financing. As such, in December 2003, Bank of Africa Niger has become the first Nigerien company to be listed on the regional stock exchange in Abidjan, Côte d’Ivoire. Furthermore, a branch of the Sahel-Saharan States Bank for Investment and Trade also opened in Niger to encourage small and medium enterprises.

Diversification. Niger’s trade is concentrated on a few commodities,–uranium and cattle mainly–, that are highly vulnerable to exogenous shocks. My authorities are making considerable efforts to extend and diversify the exports base and promote new exports to reduce the country’s vulnerability to exogenous shocks. As such, gold production will start in 2005, and mineral and oil exploration are being pursued. But in a country where 86 percent of the working population is involved in farming, it is in the agriculture that my authorities’ efforts will be concentrated. A scheme to improve the water supply to Niger’s towns is currently being implemented. The state water company Société de Patrimoine des Eaux du Niger, in charge of Niger’s water resources should complete the installation of 41 bore holes, ten reservoirs, and 550 supply stations in towns and villages across the country by early 2005. The authorities have also created an agency which monitors closely climatic and food conditions.

Promoting exports will also require an improvement in the investment climate and efforts have been made to harmonize the country’s business law in accordance to the guidelines of the African Organization for the Harmonization of Business Laws (OHADA).

Fiscal Policy

Niger’s overall fiscal deficit was contained at 7.5 percent of GDP in 2003,–lower than the projected level of 8.2 percent. Exogenous factors explain the weak revenue performance in 2003, including smaller transfers from the WAEMU, and a decline in customs receipts because of repeated border closure with Nigeria. Weaknesses in VAT collection also contributed to the weak revenue performance, which in turn, led to the nonobservance of the performance criterion on the reduction of domestic arrears, for which my authorities are requesting a waiver. The Nigerien government has reached satisfactory understandings with Fund staff on a revised schedule for the clearance of domestic payments arrears that preserves Niger’s medium term objectives in this area.

My authorities recognize that revenue collection is an area of weakness with regard to fiscal revenue management. A tax revenue of 9.6 percent of GDP is indeed far below the WAEMU target of 17 percent for member countries. Niger’s government has highlighted revenue collection as a major area for technical assistance in the future. To increase fiscal consolidation, my authorities are meanwhile considering a broadening of the tax base, a streamlining of tax exemptions and subsidies and measures to prevent further expansion of the informal sector. Niger has introduced concrete measures to increase revenue namely, i) a suspension of tax-free imports of rice for reexport, which had encouraged tax evasion, ii) an introduction of the VAT on cooking oil in addition to the existing excise tax, iii) an imposition of a 12 percent excise tax on tea. But my authorities are willing to consider other measures to ensure the realization of the revenue objective for the year.

In anticipation of the 2004 elections, current fiscal spending is expected to rise slightly. Such an increase is justified by the number of elections scheduled during the year (three) and their significance (local, legislative, and presidential). My authorities consider that after a decade of social and political instability no effort should be spared to consolidate the democratic process and to allow the forthcoming elections to pass off peacefully.

As revenue was weaker than envisaged my authorities kept strict control on spending. Current expenditures were projected to decline from 10.7 of GDP, in 2002 to 10.5 in 2003 but they were actually reduced to 10.1 percent. Capital expenditure was also reduced from 7.7 percent, in 2002, to 7.3 percent, in 2003,–below the projected level of 8.7 percent. All spending items were kept below the 2002 levels and below the projected levels for 2003(except for “wages”, which hit the projected target). Health and education spending also declined, reflecting shortfalls in external assistance for projects in these sectors. But spending on education and health is expected to rise in 2004, in light of the increased HIPC resources available for priority sectors.

As a result of these developments, revenue is expected to increase to 11.5 percent of GDP by 2006, and expenditure will be contained below 19 percent of GDP. The overall budget balance will therefore decline from an estimated deficit of 7.5 percent of GDP, to 6.8 percent by 2006.

Structural Reforms

The authorities initiated the implementation of public expenditure management reforms to improve institutional weaknesses. These include a strengthening of the operations of the external debt unit, the finalizing of the budget for 2004, using the new budget nomenclature and charter of public accounts, the completion of an actuarial audit of the National Retirement Pension Fund (NRPF), and a financial audit of the wage bill. In 2004, the authorities have also launched an audit of the HIPC-funded poverty reduction program to improve its effectiveness, and they will implement the recommendations of a Public Expenditure and Financial Accountability Review (PEMFAR), recently completed with technical assistance from the World Bank.

My authorities will also continue their efforts to finalize the privatization of the petroleum company (SONIDEP), and the electricity company (NIGELEC), which were further delayed due to difficulties with potential investors. For the petroleum company, the privatization is straightforward and advanced (a new tender offer was initiated in 2004). However, the privatization of the electricity company should take more time because of the reluctance of the two potential buyers to take on its planned investment program.

In the financial sector, my authorities are moving ahead with the privatization of the CDN, and the restructuring of the National Post and Savings Institution (ONPE). The World Bank recently approved a credit of USD5.5 million for the reform of these two institutions.

Monetary policy and Financial Sector

The authorities have announced that they will begin complying with the general guidelines of the monetary authorities requiring the settlement of outstanding statutory advances to the central bank. Monetary policy is in the hands of the regional central bank which follows tight policy to maintain the CFA franc’s fixed exchange rate with the euro and to control inflation.

The performance and the health of the banking sector is satisfactory. All but one local bank are complying with the main Regional Banking Commission’s prudential regulations.

In consultation with the World Bank, the authorities are also implementing the reform of the financial sector (see structural reforms), and intensifying consultations with the regional central bank on the supervision of microfinance institutions.

External Sector

The current account deficit has deteriorated in recent years. However, the trade deficit will fall gradually because of higher agricultural exports and the coming of stream of gold production. The import bill is nevertheless expected to increase–though slower than exports–reflecting the rising demand for imported intermediate and capital goods for Niger’s ongoing infrastructure projects. The current account balance should decline in 2005, and narrow to below 6 percent of GDP in 2006, further helped by lower debt service payments (HIPC) and sustained external assistance.

Conclusion

My authorities are thankful to the international community for their financial support and the recent debt cancellations, both at the multilateral level, and more recently at the bilateral level, through the Paris Club meeting. These debt cancellations will contribute to reinforce the sound policies that my authorities are currently implementing and that are aimed at preserving macroeconomic stability and attaining higher and sustainable levels of growth, necessary to reduce poverty. Furthermore, the government of Niger will seek external aid in the form of grants and loans with high concessional terms whenever possible, in order to ensure that Niger’s debt remains sustainable.

My authorities are requesting a new PRGF arrangement to secure adequate financing that will allow Niger to satisfactorily implement its unfinished reform agenda. Niger is still, indeed, at an early stage of its reform process and the IMF’s financial support will play a catalytic role in securing financial and technical support from other development partners. My authorities have the intention to conduct a Poverty and Social Impact Analysis (PSIA), for which the privatization of the water company has been considered a key reform warranting a PSIA. However, such an analysis will require funding and we call on the international community to contribute to the realization of the PSIA.

Finally, my authorities would like to call on the development partners to initiate a deeper analysis of Niger’s sources of growth and to launch an action plan to attract private investments. It is only through the creation of a strong private sector that Niger will be able to increase its government revenue on a permanent basis, and reduce its dependency on foreign aid.