Statement by Damian Ondo Mañe, Executive Director for Niger

This paper focuses on Niger’s Request for a Three-Year Arrangement Under the Poverty Reduction and Growth Facility (PRGF). Authorities’ reform program for 2005–07 focuses on fiscal consolidation; public and financial sector reforms; and development of social and priority sector strategies. To raise the government’s contribution to domestic savings and investment, gradual reductions in fiscal imbalances will be sought in 2005–07. The structural reform agenda focuses on measures to further improve the supply response of the economy through more efficient allocation of resources and by improving economic governance.

Abstract

This paper focuses on Niger’s Request for a Three-Year Arrangement Under the Poverty Reduction and Growth Facility (PRGF). Authorities’ reform program for 2005–07 focuses on fiscal consolidation; public and financial sector reforms; and development of social and priority sector strategies. To raise the government’s contribution to domestic savings and investment, gradual reductions in fiscal imbalances will be sought in 2005–07. The structural reform agenda focuses on measures to further improve the supply response of the economy through more efficient allocation of resources and by improving economic governance.

I. Introduction

On behalf of my authorities, I would like to reiterate my appreciation to Management and staff for their advice and their continued support to Niger in its efforts to address the many challenges facing the economy. Niger also reached the HIPC completion point in 2004 and benefited from enhanced HIPC debt relief.

Presidential elections were held in October 2004, and President Tandja was reelected. The reform efforts started with the first PRGF and which had the full support of the authorities and people will be pursued steadfastly. The objective remains the reduction of poverty through the continued implementation of reform measures.

Notwithstanding the low administrative and institutional capacities in Niger, my authorities are of the view that their successful implementation of reforms supported by the Fund’s PRGF over the past few years has been critical to the progress achieved so far. They would like to pursue this close collaboration with the Fund in the context of a successor PRGF Arrangement which could help to consolidate the progress made. To this end, in line with the PRSP, my Niger authorities envisage to implement the remaining reforms that will boost productivity and diversify the economy. They believe that this strategy combined with adequate support from the development partners, will facilitate Niger’ achievement of the Millennium Development Goals (MDGs).

II. Recent Developments and Performance under the former PRGF

Macroeconomic conditions were broadly satisfactory during the period 2001–03, thanks to good fiscal management, an increase in public investment expenditure, and higher productivity gains resulting from the structural reforms. Annual average GDP growth over the period was 5 percent. Inflation declined from 4 percent in 2001 to - 1.5 percent in 2003, as a result of the good weather that improved agricultural production and the prudent monetary policy of the regional central bank, the BCEAO.

On the fiscal front, improvements in fiscal management under the program helped contain the basic fiscal deficit to around 2.4 percent of GDP on average. Nonetheless, revenue levels at less than 10 percent of GDP have remained low. In view of improved expenditure control, overall government spending was contained. It is to be noted that social spending (health and education) rose slightly to 5.2 percent in 2003. At the same time, the government reduced its stock of domestic arrears from 10.6 percent of GDP at end-2000 to 3.1 percent of GDP at end-2004.

On the monetary and financial fronts, the good implementation of budgetary policy described above limited government borrowing from the banking sector, facilitating a moderate increase in credit to the private sector. The regional Central Bank implemented a prudent monetary policy consistent with the CFA franc’s parity vis-à-vis the Euro and aiming at preserving the financial health of banking system in the member countries. Accordingly, the health of the banking system remained broadly satisfactory, and almost all commercial banks are in compliance with the prudential ratios required by the regional Banking Commission.

In the structural area, although reforms have been slower than envisaged, the telecommunications company, SONITEL, was privatized and the sector was further liberalized with the licensing of two new cellular phone operators. The government also signed a 10-year contract with a private company for the production and distribution of safe water. It also set up a multisector regulatory entity in 2003. However, the privatization of the petroleum importing company, SONIDEP, was delayed despite the government’s efforts to finalize the process as agreed with the World Bank. My authorities have solicited new bids which resulted in the sale of 6.9 percent of its shares in SONIDEP to oil importers in the private sector. The privatization of the electricity company, NIGELEC, proved difficult, due to the substantial amount of financing needed for rehabilitation and expansion and the lack of interest expressed by potential regional and international buyers. The restructuring of state-owned companies in the financial sectors, mainly the National Postal and Savings office (ONPE) and two other financial institutions was also delayed.

In view of the progress achieved and the authorities’s good performance under the PRGF arrangement, Niger reached the completion point under the HIPC Initiative in April 2004. However, macroeconomic developments in 2004 were mixed contrasting with the significant progress made under the last program between 2001 and 2003. A drought, a locust plague, and the recent rise in energy prices have limited real GDP growth to around 1 percent, against an initial forecast of 4.1 percent. Inflation is estimated to be around 4 percent. On the fiscal side, total revenue mobilization increased slightly reflecting improvements in revenue administration. The government has also implemented measures to improve expenditure management. MTEFs have been finalized for the health and education sectors and used for the preparation of the 2005 budget. In addition, the government has begun to implement measures identified in the Public Expenditure and Financial Accountability Review (PEMFAR) conducted with the assistance of the World Bank and the European Union.

III. New PRGF Program

Notwithstanding the progress in stabilizing the macroeconomic framework and liberalizing the economy, the authorities are fully committed to address the major challenges facing the economy in the context of the medium-term program covering the period 2005 to 2007.

Aligned to the PRSP objectives, the macroeconomic goals of the successor PRGF program covering the period 2005–07 are to (i) achieve average annual GDP growth of at least 4 percent; (ii) keep the annual inflation rate below 3 percent; and (iii) reduce the external current account deficit (excluding official transfers) to 6.3 percent of GDP by 2007 against 7.3 percent in 2004. To reach the objectives described above, the government intends to direct its strategies on the development of irrigation infrastructure in order to improve the productivity in agriculture and livestock, and reduce the vulnerability to droughts. It also intends to implement the strategy of export diversification by intensifying the mineral and oil explorations and promoting tourism activities.

In the fiscal area, continued efforts at fiscal consolidation will be the cornerstone of the medium-term strategy. To this end, my authorities are determined to take steps to increase revenues and pursue a prudent spending policy while keeping social outlays in line with their PRSP objectives. To this end, the basic fiscal balance will improve gradually over the same period, to reach an equivalent of 0.2 percent of GDP in 2007. To increase revenue, the government intends to reform the tax system and improve tax and customs administration, with a view to broadening the tax base and improving the performance of the revenue agencies. My authorities are requesting TA from various development partners to achieve these revenue objectives. They would also like to receive assistance from the IMF’s FAD and the AFRITAC-West to enhance the capacities of their customs and tax administrations. The government will continue improving the prioritization of public spending, in accordance with the PRSP relying on such tools as the MTEFs and the PEMFAR. On public expenditure management, the government envisages to complete the computerization of five regional treasury offices, create a computer link between the Treasury and the Budget Department and set up a committee to review the outstanding domestic financial claims of the government. My authorities are well aware of the necessity to conduct an appropriate debt management policy so as to preserve the country’s debt sustainability. To this end, they will continue to rely mainly on grants and concessional loans.

As regards structural reforms, my authorities are committed to press ahead with the implementation of the reform agenda, including privatization. In addition, they will undertake a review to appreciate the adequacy between the size and the incentive mechanism of civil servants, and the services delivered. As for the privatization program, my authorities plan to continue technical discussions with the World Bank with a view to completing the privatization of NIGELEC and SONIDEP Concerning the creation of an environment conducive to the development of private sector activities, the government plans to undertake other structural reforms including the reform of the judiciary system. In the financial sector, the establishment of a unit to manage the reform process should help to make further stride in the privatization of CDN and the restructuring of ONPE and CPCT.

IV. Program For 2005

The key macroeconomic objectives of the program for the first year are to achieve real GDP growth of about 4 percent while keeping the inflation rate below 3 percent.

In the fiscal sector, the 2005 budget contains several measures, which are consistent with the Medium-term objectives. On the revenue side, the measures envisaged are (i) the extension of the VAT to several food products such as milk, sugar, wheat flour, (ii) the reduction of VAT exemptions on water and electricity consumption, and (iii) the imposition of an excise tax on soft drinks and sodas. The government intends to implement additional measures to strengthen the efficiency of tax and customs administration and improve tax collection. To this end, monthly performance indicators will be set for the main customs offices along with a credible plan to reduce exemptions and combat tax fraud. On the expenditure side, the wage bill is expected to be contained to 3.6 percent of GDP and the reduction of domestic arrears will be pursued further. The government will also ensure that budget allocations for priority sectors are protected.

As regards monetary policy, the Central Bank of West African States (BCEAO), will continue to conduct a policy consistent with the objective of low inflation while preserving the parity of CFA to the Euro. In this context, broad money in Niger is expected to increase by 10.6 percent in 2005. While net bank credit to the government is expected to remain roughly unchanged, credit to the economy should rise by about 7 percent. My authorities intend to issue treasury bills on the regional financial market to repay the statutory advances from the central bank.

Concerning structural reforms, Niger’s agenda for 2005 seek to (i) continue strengthening public expenditure management under the PEMFAR, (ii) advance the privatization process of the electricity and petroleum importing companies, and (iii) initiate the reform of the judiciary system. In the area of public expenditure management, my authorities intend to further improve the effectiveness and transparency of government financial operations. As for the financial sector reforms, a unit has been established with the assistance of the World Bank to manage the financial sector reform. In 2005, the unit will privatize the CDN and restructure the ONPE and the CPCT. This unit will also assess the training needs of Niger’s insurance companies to help strengthen their management.

V. Poverty Reduction Strategy

The PRSP remains a key instrument for the authorities’ policies and actions to alleviate poverty in Niger. While the second annual progress report underscores the commendable results obtained on the education and health sectors, it has also highlighted some areas where further improvements are needed. These include the absence of identification of the sources of growth and their impact on poverty, the inadequate monitoring and evaluation capacities of the PRS, and the lack of population and reproductive policies. My authorities intend to take into account the recommendations made and update their PRSP.

VI. Conclusion

To reiterate, Niger has under past Fund-supported programs, implemented sound macroeconomic policies and achieved a remarkable economic performance. These achievements constitute a strong foundation for the full implementation of the poverty reduction strategy. Despite the progress made, there remains daunting challenges that need to be addressed in order to boost economic growth, diversify the economy so as to mitigate major risks such as drought and other exogenous shocks, and reduce poverty. My authorities are strongly committed to continue the reform process. They would like to build on past and recent achievements to consolidate their reform efforts and put their economy on a sustainable growth path. In so doing, they call for the continued support of timely and predictable assistance from the international community to which they would like to renew their gratitude. They are also requesting a new three-year PRGF Arrangement which will be paramount to help Niger attain the MDGs. However, in view of their large financing needs over the medium term, my authorities would have preferred a much higher access PRGF. They are hopeful that donors will continue to give them their full support.