Abstract
Niger’s Fourth Review Under the Poverty Reduction and Growth Facility and Request for Waiver and Modification of Performance Criteria are examined. Economic growth in 2006 has been satisfactory at 4.8 percent, owing to a good harvest for the second year in a row, and strong mining, telecommunications, and construction activities. Inflation has been low, and food security improved, partly because of continued donor support. The fiscal deficit in 2006 has been smaller than programmed because of underspending and exceptional mining receipts.
On behalf of my Nigerien authorities, I would like to express my appreciation to staff for the constructive policy dialogue held in the context of the fourth review of the three year arrangement under the PRGF-supported program. I also wish to convey to management and Executive Board my authorities’ appreciation of their support to Fund’s continued involvement in Niger. Reflecting their broad agreement with the staff’s analysis and policy recommendations, my authorities have consented to the publication of the letter of intent as well as the staff report.
My authorities are well aware of the challenges ahead, in particular the need for improving social indicators, strengthening domestic revenue collection, and enhancing the business climate. They are cognizant that further commitment is needed to reduce the high vulnerability of the Nigerien economy, which has undermined over the past their efforts to put the economy on the path of a solid and sustainable growth, less sensitive to weather vagaries, locust invasion, and other exogenous shocks. To this end, my Nigerien authorities have maintained their resolve to implement the PRGF program achieving all but two program performance criteria for end 2006. Corrective actions for the two missed criteria have been taken. Furthermore, the medium-term expenditure framework for rural sector and transport has been completed; food security has been strengthened and a new poverty reduction strategy is being finalized. Several reform measures to reinforce public expenditure management and strengthen domestic revenue are being implemented, including measures to ensure more transparency in the management of natural resources. Through the ongoing policy actions, my Nigerien authorities expect to achieve significant improvement of human development indicators. My authorities request waiver for missed performance criteria. They are also requesting modifications of the two quantitative performance criteria for the remainder 2007 as well as the completion of the fourth review under the PRGF.
I. Objectives and Policies for 2007
1. Fiscal Policy
The objectives of fiscal policy for 2007 are to provide more resources to priority programs-taking into account a higher-than-programmed external budget support-, while increasing revenue mobilization and tax administration efforts and safeguarding debt sustainability.
The revenue mobilization efforts will be based on the implementation of the reforms under way at the Customs and Tax Departments which include the gradual electronic interconnection between regional customs offices and those at the border so as to better monitor customs declarations at the destination centers; and reinforcing the monitoring of exemptions, while imposing strict limitation on exemptions for certain food and petroleum products. The Tax Department will also be further enhanced notably through the strengthening of tax audits; and strengthening joint controls by customs and tax departments on companies benefiting from exemptions, and the follow-up of the use of exempted products.
On the expenditure side, transfers and expenditures on goods and services are expected to increase by CFAF 5.2 billion in comparison with the December 2006 MEFP fiscal program to provide additional support for education and community development. Domestically financed investment outlays would also be higher than initially programmed, in part, because of the decision of the government to participate in new mining initiatives of the private sector, as provided for in the new mining code.
Domestic arrears repayments in 2007 will continue to be made according to the new arrears reduction plan that was finalized in April 2007. The priority in 2007 will be given to the sectors supporting the recovery of economic activity, and in particular to the banking and financial sectors, counterpart obligations related the reconstitution of the national grain security stock, and the petroleum products distribution sector.
The authorities will also continue to strengthen public expenditure management by fully integrating budget preparation with the medium-term expenditure framework and strengthening expenditure monitoring at the commitment, liquidation, payment order and payment stages, with particular attention to priority expenditures. Their intention is also to reduce delays in the establishment of treasury accounts. In this regard, my authorities are requesting an amnesty for the entry balances before 1997 and the revision of the related performance criterion because of a lack of documentation including on budget execution corresponding to that period due to continued political and social unrest that has disturbed the good functioning of public services in Niger from 1990 up to the end 1998.
2. Monetary Policy and Financial Sector Reforms
Monetary policy will continue to be conducted at the regional level with the objective of containing inflation and maintaining adequate level of reserves. Credit to the economy is expected to grow rapidly (around 19 percent) because of sustained expansion in mining and telecommunications, while credit to government will remain limited. Net foreign assets are expected to rise more moderately-especially the banking system-, as banks envisage increasing their medium and long term external borrowing. Accordingly, broad money growth is projected at about 11.5 percent.
The government will continue to advance financial sector reforms in 2007. In order to enable better access to credit that remains constrained by the slowness in issuing legally valid land titles, and the slow and costly legal and judicial procedures for recovering collateral, my authorities are continuing at national and within the context of WAEMU to examine ways to remove these obstacles. Furthermore, the offer for sale of Crédit du Niger will be launched in June 2007. Regarding the two largest microfinance institutions that are in financial difficulties, the government will implement a restructuring plan with assistance from development partners. The microfinance regulatory agency will be provided with adequate human and material resources to carry out effectively its functions.
3. Structural Reforms
In the agricultural sector, the priority of the rural development strategy will be to increase production and yields especially on irrigated land. The situation of the cooperatives along the Niger River that continue to face significant difficulties is now being reviewed by a World Bank study to be concluded in few months. Appropriate corrective actions will be adopted on the basis of the study’s recommendations. The rehabilitation of Riz du Niger that is under majority government ownership is a key priority, and is expected to benefit from donor support.
In the mining and petroleum sectors, revised codes were adopted by Parliament in August 2006 and January 2007 respectively. These are based on international best practices and have tax provisions consistent with the WAEMU norms. Implementing decrees will be adopted soon, as well as model contracts. Under the Extractive Industry Energy Initiative (EITI), which the government joined in 2005, the government has appointed in late 2006 the national consultative committee including representatives of the civil society. A first audit report reconciling revenue paid by mining companies with government receipts is planned to be issued in late 2007. My authorities have also decided to establish in March 2007 a priority investment fund to make use of the exceptional resources related to the mining sector. The related draft bill has been transmitted to the National Assembly.
II. Conclusion
My Nigerien authorities have shown their firm commitment to sound macroeconomic policies and reforms, as evidenced by the satisfactory implementation of the current PRGF-supported program, as well as the important achievements made so far, in particular the finalization of the new PRSP and the completion of sectoral medium-term expenditure frameworks for health and education sectors, and more recently for rural sector. They are aware of the high vulnerability of Nigerien economy highlighted by the 2004 drought and locust invasion shocks, which undermined the positive outcomes recorded during the last PRGF-program. My authorities believe that an adequate response to the vulnerability requires the firm implementation of the new PRSP, which supposes continued efforts to diversify production, execute priority programs, enhance the business environment and strengthen the domestic revenue collection. My authorities also continue to count on timely donor support.
Maintaining a sustainable debt position while seeking additional financing needed to carry out their PRSP and make progress towards the MDGs remains a serious challenge. In this regard, the authorities rely on the continuous support of the Fund, in particular through its catalytic role in mobilizing development partners’ assistance. My authorities remain committed to pursuing a prudent external debt strategy following the debt relief obtained under the MDRI. They will continue to aim at contracting debt only with a grant element of at least 50 percent in 2007 and beyond.
On their behalf, I would like to ask Directors’ support for my authorities’ request for waiver and modification of performance criteria and the completion of the fourth review under the PRGF arrangement.