Niger’s First Review Under the Poverty Reduction and Growth Facility, and Requests for Waiver of Nonobservance of Performance Criteria and Augmentation of Access are discussed. The sharp rise in food prices pushed up inflation in 2005, while the food shortage affected one-fourth of the population, resulting in malnutrition and the spread of diseases, especially among children. Increased drought-related imports and a significant deterioration in the terms of trade, mainly because of higher oil prices, have weakened Niger’s external position.
On behalf of my Nigerien authorities, I would like to thank the Board, Management, and Staff for their continuous involvement and support for Niger. IMF advice has helped my authorities design a macroeconomic strategy, in the context of profound economic disruption, the wake of the food crisis, and the social unrest which arose in early 2005.
As Directors may recall, Niger has experienced a severe food crisis in 2005 which has clouded the commendable progress in macroeconomic stabilization made during the last PRGF program 2000-2003. The crisis which resulted from the drought and locust plague in late 2004, showed once again the high vulnerability of the Niger economy to exogenous shocks as well as the in-country limited means to fight against these natural disasters. Even though important efforts have been made both by the government and the international community to bring relief to the three million people affected by the crisis, the impact of food shortages has led to a further deterioration of the social indicators profile.
My authorities are grateful to the international community for its support in helping to mitigate the adverse effects of food shortage in 2005, but they recognize that much more support is needed. The government’s intention is to break off from the past and render the economy more resilient to exogenous shocks, including those related to drought or locust invasion. The achievement of such objectives requires the building of an agriculture production system less vulnerable to weather vagaries, namely by encouraging, among others, the development of important irrigation projects. Despite their limited capacity, my authorities remain firmly determined to address these challenges, in close collaboration with its development partners.
In view of the adverse shocks experienced lately, my authorities are proposing a revised program for this year and 2006, one that is based on financing the unexpected fiscal effects through the strengthening of domestic revenue collection, the acceleration of sectoral reforms, the enhancement of growth and the economy’s resilience to shocks. However, the financing needs are daunting, requiring urgent external assistance. Therefore, they are requesting an augmentation of access to Fund resources to complement the already committed resources from the World Bank. The contribution of bilateral donors are also mostly desired.
II. Recent Developments and Performance Under PRGF program
The combined-effects of drought, locust plague, higher oil prices and lower-than-projected external assistance had a significant adverse impact on macroeconomic performance in 2004 and 2005. Due to a 15 percent decline in agricultural output, real GDP stagnated in 2004, against an annual average growth rate of 5.1 percent during the last PRGF program 2000-2003. Inflation was driven by food price increases and accelerated especially in early 2005, while the external position weakened, affected by the impact of higher food imports and world oil prices. The severe shocks to the economy also weakened government finances, as the primary budget deficit increased to 8.4 percent of GDP in 2004, and is projected at 8.6 percent for 2005.
The simultaneous consequences of food shortages and the introduction of VAT on milk, wheat flour, and cooking oil also contributed to trigger a strong civil unrest which paralyzed activities in the country during several weeks. In view of the hardships being felt by the population, and the need to ensure social stability in an already fragile political context, my authorities took the decision to repeal the VAT measures and also suspended customs duties on food imports.
Despite the large shocks to the economy, my authorities have remained determined to keep the program on track. In this regard, it is to be noted that all structural performance criteria and benchmarks, at end-June 2005, have been observed except for one which was met on August 2005, due to delays in receiving the needed external technical assistance. Five out of the eight quantitative criteria and benchmarks have been observed. The targets missed were related to the impact of the food crisis-which induced more spending than projected and less revenue collection. Thus, my authorities are requesting a waiver of nonobservance of performance criteria.
III. The economic outlook and policies
For the near-and-medium-terms outlook, the authorities are focusing their efforts on meeting the challenge caused by the food crisis. They are also making efforts to strengthen the revenue collection in order to preserve the program on track beyond 2005 while tackling the major challenge of putting the Niger economy on the path of sustainable growth. In particular, they are envisaging, with donor support, to replenish grain reserves so as to reinforce the food security mechanism dried up by the later crisis, implement effectively sectoral strategies, and boost irrigation and rural development projects.
On the revenue side, my authorities are well aware that raising the level of revenue collection remains critical. In this connection, they intend to introduce in 2006 a tax of 0.25 percent on the transit and reexports of tobacco products. They have also identified several structural measures to strengthen customs and tax administration. As for the medium-term, a strategy of revenue mobilization, based on recent FAD technical assistance, is being developed. To ensure that this strategy will be effectively elaborated in the needed time limit, my authorities have requested technical assistance from several development partners.
On the expenditure front, my authorities’ immediate concern is on the need to ensure an orderly adjustment which would take into account the impact of drought and locust invasion estimated at 2.9 percent of GDP. To this end, in collaboration with the staff, the program was revised to accommodate the cost of replenishing the grain reserves. With a view to limiting the imbalance resulting from this revision as well as that due to the expenditures related to the Francophonie Games, my authorities have taken the decision to reduce government spending by 7 billion of CFA franc, while protecting priority spending. They have thus ordered the establishment of a master list of poverty reduction expenditure as well as a monthly mechanism to ensure their monitoring. For 2006, the revised program, based on donor support, envisages an additional expenditure aiming at improving food security.
PRSP and Structural Reforms
The main objectives, over the medium term, remain the strengthening of the resilience of Niger economy to shocks, creating the conditions of sustainable growth and accelerating the pace of poverty reduction as reflected in the PRSP. My authorities’ intention is to expedite the implementation of sectoral strategies described in this program, which include developing the irrigation infrastructure and improving the agricultural productivity. In this regard, they have already completed the costing of the sectoral program of road and transport and expect to finalize by mid-June 2006 that of the sectoral program for the rural sector strategy. In light of the 2005 international community mobilization which has been effective in mitigating the food crisis, my authorities would like to organize, in collaboration with the World Bank, a donor conference during 2006 which will be devoted to the financing of these sectoral strategies. In order to better align the budget with the PRSP objectives, the costing of sector strategies will be reflected through the budget of 2007.
As regards structural reforms, my authorities are committed to press ahead with the implementation of the reforms agenda. For the financial sector, they intend to finalize: (i) the government’s disengagement from Crédit du Niger, and (ii) the restructuring of the postal and savings institution. Important progress has been made, with World Bank support, towards the achievement of these objectives. Given the poor response shown so far by investors, my authorities are considering a new strategy of privatization, with World Bank assistance, to make more attractive the offers for the sale of NIGELEC and SONIDEP, respectively the electricity and petroleum-importing companies.
My Nigerien authorities, to reinforce economic governance, are implementing the following reforms related to the 2004 recommendations of Public Expenditure Management and Financial Accountability Review (PENFAR): (i) continued strengthening of the computerization program for central and provincial treasury offices (ii) strengthening internal and external controls of government financial operations, including a reactivation of the “Cour des comptes” and Parliament oversight of government finances. Concerning the domestic arrears situation, my authorities are committed to clarify it by end-December 2005 and elaborate a clearance strategy by March 2006. They are working with the regional central bank, BCEAO, on a timetable to repay statutory advances.
In view of the large financing needs for implementing sectoral strategies set forth in the PRSP and for creating necessary conditions for sustainable growth compatible with the objective of significantly reducing poverty, my Niger authorities appeal to the international community to provide for adequate and more predictable aid. To avoid the worsening of the existing difficult debt burden, my authorities express their preference for alternative sources of financing, including grants. However, given the magnitude of the current difficulties which demand urgent financing, that may not be obtainable at the concessional rates required in the program, I appreciate the staff’s recognition and support for my authorities’ request for a reduction of the grant element conditionality in order to enable them to mobilize the financing needed to address the current aftermaths of the drought and locust plague. Going forward, my authorities are committed to review, with World Bank assistance, all projects with a grant element of between 50 percent and 60 percent. They stress the need for more support from the Fund, in particular in playing its catalytic role towards the mobilization of aid from development partners.
Niger has under the last PRGF program implemented sound macroeconomic policies and made important progress in the stabilization of the macroeconomic stance. These achievements have created a strong foundation for the full implementation of the poverty reduction strategy. However, the recent economic and social disruption in the wake of drought and locust invasion that occurred in the last quarter of 2005 has once again shown the high vulnerability of the Niger economy to shocks. My authorities believe that a relevant response to the vulnerability requires continued efforts to diversify production and put the economy on a sustainable growth path, which would render it less dependent on weather conditions. In particular, they stress the need to encourage the development of irrigation infrastructure and the use of modern technology to improve agricultural productivity. To this end, they are committed to pursue their reforms agenda as well as the implementation of sectoral strategies developed in the PRSP. They also rely on the continuous support of the Fund and the international community to assist them in addressing these daunting challenges. I would like, therefore, to ask Directors for their support for the proposed decision, including an augmentation of access under PRGF arrangement.