This study focused on the macroeconomic framework, food security needs, implementation of priority investment projects, and domestic petroleum pricing policy. The new fiscal program contains a number of new measures, and it is a precise policy for domestic petroleum pricing. The execution of the revenue mobilization strategy is needed to increase Niger’s low revenue-to-gross domestic product (GDP) ratio and to meet the expenditure needs associated with the Millennium Development Goals (MDGs). IMF staff encourages the authorities to activate the pace of structural reforms.
On behalf of my Nigerien authorities, I would like to convey their appreciation for the constructive relationship with the Fund. In particular, they thank staff for the collaborative engagement. Their valuable policy advice has been critical in contributing to maintain the PRGF program on track, in spite of the profound social and economic disruptions experienced during 2004–05. My authorities appreciate the analysis on the main challenges facing the country over the medium and long term, and they look forward to continued dialogue on the policy priorities for the period ahead
As regards the food security situation, drawing the lessons of the last severe food crisis, my Nigerien authorities have focused their efforts on assisting people that are still suffering from the effects of the 2004 drought and developing contingency plans for future droughts so as to react effectively when any food crisis occurs in the future. With the support of the international community, steps are being taken to break off from past practices and render the economy more resilient to exogenous shocks, especially those related to drought and locust invasion. To that end, the government envisages the building of an agriculture production system less vulnerable to weather vagaries by promoting the development of important irrigation projects and other rural infrastructure aimed at increasing agricultural production.
While taking steps to strengthen the resiliency of the Nigerien economy, my authorities remain committed to preserving the macroeconomic stability as well as promoting a broad-based growth by exploiting all the economic potentialities set out in the PRSP. Their determination to achieve the program's objectives, despite the fiscal implications of the food crisis, has contributed to keep the program on track. In accordance with the staff's policy advice, they are considering the appropriate way to ensure the best use of the debt relief provided under the MDRI.
II. Recent Economic Developments and Performance under the Program
The Nigerien economy experienced a number of adverse shocks in in 2004–05, including drought, locust invasion, high oil prices and avian flu. These shocks have resulted in a food crisis that affected more than 3.4 million people in 2005. Despite the invaluable support of the international community and the exceptional hike in agricultural production recorded at end 2005, about 1.8 million people are still under the threat of food shortages. The other resulting effects of the shocks have been significant a livestock destruction and a drastic reduction of household income particularly in rural areas. In many cases, this situation compelled the population to increase its private indebtedness in order to meet its food needs.
The severe food shortages and higher prices led to violent and growing social unrests throughout the country, and placed a severe threat to the still fragile democratic process. As a result my authorities were obliged to suspend the removal of VAT exemptions on food imports.
Notwithstanding such a difficult social context, my Nigerien authorities remained determined to keep the program on track. As a result of their firm engagement, all quantitative performance criteria were observed. Fiscal revenue was higher than programmed, due to higher trade-related taxes on account of larger imports and improvements in customs and tax administration. Overall expenditure was lower than envisaged due, not only to the late disbursements of external budget support for food security, transfers and subsidies, but also the efforts made by the government to reduce other lower-priority spending, especially those related to Francophonie Games.
Turning to structural reforms, three out of the five performance criteria were met. As regards the criterion for the application of the petroleum mechanism, the government deferred payments of some petroleum-based taxes and reduced margin to the state-owned oil importing company with the view to render bearable domestic prices, and to preserve the fragile social situation. The two remaining structural performance criteria were also met but with a delay. Regarding the establishment of an office to carry out specific-oriented audits for medium-size taxpayers, given that this structure has been already created, the government plans to complete the required number of audits by the end of this year. However, the authorities believe that the initial date projected to achieve the audits became not realistic given the recent creation of the audit office. Commendable progress was made, with World Bank assistance, on strengthening expenditure management and restructuring of the financial sector.
III. The Economic Outlook and Policy Discussions
For 2006, the macroeconomic outlook shows a growth rate of 3.5 percent of GDP, an inflation estimate at 1 percent and higher external and fiscal deficits, reflecting the authorities' priority focused on the need for ensuring food security by increasing related spending.
On the revenue side, my authorities are implementing a three-year program to strengthen tax and customs administration. In this regard, they intend for 2006 to reduce the number of VAT non-filers at the large taxpayers office, strengthen the auditing of large enterprises, and establishing the ex-post control of import valuation and exemptions in key border posts. Many other measures, including the sale of villas built for the Francophonie Games, the introduction of a new real estate tax, the collection of deferred petroleum-based taxes, have been envisaged. My authorities expect that these measures will help to raise the revenue-to-GDP ratio.
Regarding the expenditure side, my authorities' immediate concern is centered on the need to ensure food security, in particular on behalf of the 1.8 million people identified as highly vulnerable. Accordingly, the program was reviewed to take into account the additional costs, including food security needs as well as that of the new priority investment comprising irrigation projects, the replenishment of strategic grain reserve and the coal mining. My authorities envisage to use the resources drawn from the Fund MDRI to finance those projects aimed at improving the food security situation over the medium-term. In order to find a definitive solution to the effects of recurring droughts, the government, in collaboration with development partners, in particular the World Food Program is working towards the elaboration of contingency plans that would be presented to donors for assistance.
IV. PRSP and Structural Reforms
The recent food crisis calls for the need to strengthen the resilience of Niger economy to shocks, create the conditions of sustainable growth and accelerate the pace of poverty reduction as reflected in the PRSP. As prior task to the achievement of these objectives, my authorities have put emphasis on the process of updating the PRSP. To that end, they have taken steps to finalize by end-June 2006 the third annual progress report on the implementation of this important document deemed as the only vehicle for mobilizing donor financing.
With regard to structural reforms, my authorities are committed to press ahead with the implementation of the reform agenda. In this regard, they intend to give a new impulse to the process of deepening the financial intermediation by fully privatizing the Crédit du Niger by end-December 2006, and completing the restructuring of the National Postal and Saving Office. As regards the electricity and petroleum-importing companies, a new strategy for sale is being considering by the authorities with the financial and technical assistance of the World Bank.
Aside from the privatization and restructuring reforms as described above, other reforms aimed at reinforcing the economic governance are underway. They are focused on the following recommendations of the Public Expenditure Management and Accountability Review (PENFAR): (i) strengthening the preparation and the execution of budgetary operations, including through reforms of the Treasury and reinforcing collaboration between line ministries and the Ministry of Finance and Economy; (ii) aligning the budgets with the poverty reduction strategy; (iii) enhancing internal and external controls of public financial operations, including through securing additional human and financial resources for the office of internal audit and the Audit Office (Cour des comptes).
Looking ahead, my Nigerien authorities plan to finalize the medium-term expenditure frameworks for the rural and transports sectors by end-2006 with the objective to integrate them into the 2007 budget. Likewise, with assistance from the World Bank, they envisage to introduce improvement to the list of priority programs with the aim to ensure a best use of the Poverty Reduction resources. The government is also finalizing a medium-term plan aimed at reducing progressively the stock of domestic arrears. Given that the preliminary assessment shows a significant part of the arrears stock is due to suppliers, my authorities expect that the reduction of these arrears will contribute to foster the economic activities.
As regards to the pricing of petroleum products, my authorities reaffirm their commitment to ensure a full-pass through in accordance with the decree of August 2001. They underscore that the measure to defer some tax and margin payments taken during August-December 2005 is exceptional and was aimed at avoiding any resurgence of violent social unrests experienced during March and April 2005. My authorities renew their commitment to the flexible petroleum pricing mechanism. However, if new surges in oil prices for which the full pass-through could compromise the social stance, the government will consult the Fund before undertaking any adjustment of the mechanism.
Despite, a very difficult domestic environment, Niger made important progress in the implementation of the PRGF-supported program. However, Niger's food security situation remains a serious concern, and could adversely affect program implementation. As described above, my Nigerien authorities are developing a plan to address the recurrent food crisis. They are very grateful for the assistance already provided which has prevented a more serious human tragedy, but in their ongoing efforts they will require the continuous assistance of the international community which they hope will be forthcoming. Fund support will remain critical in developing and implementing the required macro framework. My authorities remain fully committed to the objectives of the program and will pursue steadfastly their implementation efforts. In this context, I would request Directors for their support for my authorities' request of waivers, and the completion of the second review under the PRGF arrangement.