Abstract
This paper discusses key findings of the 2006 Article IV Consultation and Third Review Under the Poverty Reduction and Growth Facility for Niger. Macroeconomic performance and policy implementation have been broadly satisfactory. After a drought in 2004, a bumper harvest in late 2005 and good rains in 2006 have helped economic recovery, improved food security, and eased inflation. The fiscal deficit in 2006 is expected to be narrower than programmed, reflecting mainly lower spending on investment and food security.
On behalf of my Nigerien authorities, I would like to express my deep appreciation to management and staff for their invaluable policy advice and assistance which have contributed to strengthening macroeconomic stability, after the profound economic disruption in the wake of the 2005 food crisis. I also wish to convey to Executive Directors my authorities’ appreciation of their support to Fund’s continued involvement in Niger. A testimony of my authorities’ gratitude has been well reflected in the staff report, as my authorities expressed their satisfaction about the effectiveness of Fund’s surveillance and technical assistance.
My Nigerien authorities have shown a strong commitment to sound policies and reforms in recent years which helped strengthen macroeconomic stability and growth, and support initiatives taken to reduce poverty. In this regard, several measures have been implemented, including those aimed at better formulating and executing the budget, increasing revenue collection, improving social indicators, and accelerating private sector development. As regards public expenditure management, my authorities have completed the medium-term framework for the rural sector for 2007-09 and finalized an action plan to strengthen financial control function. As a result, the basic fiscal deficit and the net domestic financing have been much lower than initially projected. Furthermore, the domestic financing target has been revised to take into account these developments. My authorities have also envisaged finalizing by end-December 2006 the revised PRSP, whose key-components include the expansion of irrigation, the use of modern inputs in agriculture, the investment on roads and transport, and the enhancement of human capital training. However, my authorities’ efforts have been hampered by adverse effects of exogenous shocks, including the 2004 drought with its subsequent food crisis which hit the Nigerien economy. With the favorable developments on agricultural production in 2005 and 2006 as well as the substantial donor support, the food security was improved in 2006 while the economy resumed its recovery from the drought effects. All performance criteria and benchmarks through end-September were met, except two, for which my authorities have already taken the needed correctives measures.
My authorities are fully aware of the challenges ahead, in particular the need for strengthening the execution of priority programs, improving the business environment, and enhancing domestic revenue. The achievement of such objectives requires further progress in fostering higher and broad–based growth, through the development of an agriculture production system less vulnerable to weather vagaries, with an emphasis on important irrigation projects. The rural sector accounts, on average, for 40 percent of the total value added of the Nigerien economy and it employs about 80 percent of active population. My authorities welcome the findings of the interesting Selected Issues Paper on Sources of Economic Growth in Niger which identifies investments on irrigation among others (foreign aid, financial sector development etc.) as one of the most relevant variables having high correlation with growth in Niger. Despite the capacity constraints facing the economy, my authorities remain determined to address the challenges ahead, in close collaboration with development partners. They are grateful to the international community for its support in helping mitigate the adverse effects of food shortage in 2005. In view of the investment programs and other necessary reforms to address the challenges described above, the financial needs are daunting and require substantial and timely external assistance. Given their strong commitment, the corrective measures taken, and the set of reforms underway, my authorities are requesting waivers for nonobservance of missed criteria, the completion of the third review under the PRGF Arrangement and that of the 2006 Article IV consultation.
I. Recent economic developments
A severe drought in late 2004 with its subsequent consequences on food security compromised the positive economic developments noted since 2000, showing once again the high vulnerability of Nigerien economy to exogenous shocks. Indeed, GDP growth rate felled to -0.9 percent in 2004 against an average growth rate of 5.1 percent achieved between 2000 and 2003. An exceptional harvest in 2005 and normal weather conditions in 2006 significantly increased the levels of agriculture production and pushed annual growth rates to respectively 7 percent and 3.5 percent. The combined effects of the favorable agricultural production during these two last years, the donor food assistance and the authorities’ sound economic policies--including sales at moderate prices, building of strategic grain reserves, and free distributions to vulnerable groups--helped reduce the number of vulnerable people from 1.8 million to 1 million. Those effects also contributed to easing the inflation rate which averaged about 0.3 percent a year. Thanks to donors support, including that from MDRI, the external current account deficit, estimated at 7.5 percent of GDP, could remain stable in 2006 in spite of the still high level of food imports.
On the revenue side, my authorities have tightened control of imports valuation and transit operations while reinforcing the auditing of large-and-medium taxpayers enterprises. Those actions could yield a little more revenue than envisaged initially. On the expenditure side, we note that the total expenditure, excluding those related to foreign-financed projects, could be lower by about 1.5 percent of GDP than envisaged under the program. As outlined in the authorities’ memorandum of economic and financial policies, the underspending resulted from lower spending on food security, as agriculture production improved throughout the country, lower interest payments to multilateral creditors in view of MDRI, and slower execution of investment projects constrained by lack of institutional capacity. Finally, the resulting effects of higher revenue collection, underspending, and important external support led to a 2006 basic deficit lower than envisaged and a revised domestic financing, reduced by 0.3 percent of GDP.
On the financial sector, my authorities take good note of the staff’s favorable assessment of the soundness of the Nigerien banking system as well as the development of credit to economy. They are working on the elaboration of a restructuring plan for the two largest microfinance institutions experiencing financial difficulties. My authorities reaffirm that Finaposte will be operational by December 2006 and the offer for sale of CDN will be launched by end-February 2007.
Regarding the program performance, all performance criteria and benchmarks through end-September 2006 were met, except those on the reduction of domestic arrears and the flexible pricing system for domestic petroleum products. As corrective actions, my authorities have increased the pace of arrears reduction while committing to elaborate a clearance plan by end-December 2006 in order to avoid any slippage in the future. As regards the overrun on the petroleum pricing, the government has already recovered part of the deferred tax in October and November 2006. In the event of a future decline in world fuel prices, my authorities will take steps to maintain stable domestic retail prices until deferred revenue is fully recouped.
II. Medium-term Outlook and Objectives
My authorities reached an agreement with the staff on the main economic priorities over the medium-term, with the view to strengthen economic growth, in particular by increasing productivity in agriculture, broadening diversification of the economic base, bolstering public and private investments, and improving business environment. The first priority of this agreement relates to the effective execution of growth-critical PRSP-based programs. Key-actions for its implementation are focused on the expansion of irrigation, improvement on credit access, higher investments on roads and transport, and better enhancement of human capital training. The second priority suggests the implementation of reforms conducive to the development of private sector with a great emphasis on measures aimed at reducing the cost of doing business, accelerating the pace of ongoing privatization and restructuring process, improving the development and supervision of microfinance institutions. The third priority is related to measures pertaining to the strengthening of revenue collection and public expenditure management.
The medium-term prospects, based on increased domestic revenue and higher international community support to finance the priorities set forth in the revised PRSP, appear favorable. In this context, a GDP growth rate above 4 percent is projected for 2007-09, starting from 4.1 percent in 2007 and growing steadily up to 4.5 percent in 2009. My authorities’ medium-term fiscal objectives are centered on a strategy that promotes the preservation of debt sustainability, through a large recourse to grants and highly concessional loans to finance basic budget deficit. While taking good note of the staff’s assessment concluding that Niger remains at moderate risk of debt distress, my authorities are eager to implement cautious debt policy focused on the mobilization of grants and concessional loans to finance their new investments. In the mining and agriculture sectors, their strategy aim to put emphasis on more productive projects which could have a high growth impact and ensure more income for rural people over the years.
Fiscal Policies for 2007
My authorities are developing a dynamic approach to revenue collection. They have set a revenue collection target of 12 percent of GDP for 2007. Building on their successful experience of the two last years, my authorities are envisaging to consolidate in 2007 the existing measures implemented so far, including the computerization of border posts and the extension of taxpayers’ audits and exemption controls. To be consistent with the objective of revenue collection described above, my authorities agreed that the existing measure of ex-post controls at the major regional customs offices could be shift to a structural performance criterion for end-December 2006. As new measures to be implemented in 2007, they envisage to introduce tax collection simplification and enhance the electronic information-sharing between border posts for goods in transit as well as for those declared at the main regional centers. Aware of the positive impact of qualified human resources and sufficient material on the level of revenue collection, my authorities are planning to have recourse to technical and financial assistance from development partners in these areas.
On the expenditure side, my authorities’ immediate concern is to ensure adequate budget resources to finance the priority programs set out in the 2007 budget law. To that end, they are envisaging to increase the resources allocated to priority spending from 5.7 percent of GDP in 2006 to 6.4 percent GDP in 2007. As rightly reflected in the staff report, most of these resources will be directed to health, education and rural sectors. Consistent with their commitment on public expenditure management, my Nigerien authorities intend to pursue steadfastly the implementation of PEMFAR recommendations. To that end, they will continue to (i) strengthen the preparation of the budget and fully integrate it with medium-term expenditure framework; (ii) enhance the execution and monitoring of expenditure; (iii) reinforce ex-ante and ex-post audits by allocating more human and material resources to agencies; (iv) streamline budget procedures and regulations to avoid delays in customs execution. In view of the need to increase transparency and governance in financial operations, my authorities are committed to publish quarterly reports on the execution of the budget, update and streamline treasury accounts.
PRSP and Structural Reforms
My authorities underscore the importance of the PRSP which remains the unique vehicle for mobilizing donor support. With the elaboration of this document, they intend to centralize and streamline agreed policy reforms aiming at achieving higher and sustainable growth with the goal to reducing poverty and making progress towards the MDGs. The process of updating it for the period 2007-09 is at its final stage and all stakeholders; including Civil society and development partners have been involved. Moreover, the results of recent surveys updating Niger’s poverty indicators have been taken into account and the sectoral strategies, the medium-term frameworks on health, education and rural sector, as well as the main conclusions of the 2005 annual progress report have been reflected, with assistance from World Bank and UNDP. Based on the fact that all their strategies are set out in this document and encouraged by the 2005 international community mobilization which has been effective in helping mitigate the food crisis, my Nigerien authorities would like to organize a donor conference in early 2007, at which they will seek commitments of financial and technical assistance from developments partners to put in place those reforms. They call upon the international community to increase their invaluable support, as domestic revenue remains insufficient despite the efforts made in recent years to improve revenue collection.
On the structural reforms, my authorities are committed to press ahead with the implementation of reform agenda. For the financial sector, some progress has been made during 2006. Indeed, regarding the Crédit du Niger (CDN), reports on financial situation of the bank and the privatization options have been completed and understandings have been reached with the central bank, the BCEAO, for repaying the CDN debt. The solicitation of investors’ interest will be launched on December 2006. The restructuring of the national postal office (ONPE) is advancing, with the establishment of two separate entities, NIGERPOSTE, for the postal branch, and FINAPOSTE, for the financial activities. Commitment to meet requirement for FINAPOSTE has been taken for end-December 2006 by the government and modalities of reimbursement of frozen postal deposits are to be finalized by end-December 2007. In order to strengthen the microfinance sector, a decree for creating a regulatory agency will be adopted by end-December 2006 and a restructuring plan for the two largest microfinance entities is being designed. Important strides have been achieved on the area of business environment. To that end, my authorities have recently reduced the number of procedures for starting business and adopted a new mining code to stimulate investment. In the same vein, they are working with the World Bank to review the land-tenure system and strengthen the judiciary system, especially the commercial courts. The discussions with the World Bank on the new strategy to render more attractive the offer for sale of the electricity company, the NIGELEC, are underway.
III. Conclusion
Under the last PRGF-supported program, my Nigerien authorities have implemented sound macroeconomic policies and made important progress in the macroeconomic stabilization. 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 2004 has once again shown the high vulnerability of the Niger economy to shocks. My authorities believe that an adequate 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, in particular the implementation of measures pertaining to the execution of priority programs, the improvement of business environment and that of the domestic revenue collection. They also rely on the continuous support of the Fund, in particular through its catalytique role in mobilizing the development partners to assist them in addressing these daunting challenges. I would like, therefore, to ask Directors for their support for my authorities’ request for waivers, and the completion of the third review under the arrangement as well as that of the 2006 Article IV Consultation.