Abstract
This paper discusses key findings of the Fifth Review Under the Poverty Reduction and Growth Facility (PRGF) for Niger. Growth prospects for 2007 are favorable, particularly because of strong agricultural production and buoyant investments. Inflation remains low. Growth prospects for the medium term have been improved by the rising price of uranium, which supports continued exploration and development of existing mines, although insecurity in the northern mining areas, if not checked, could slow the expansion. The IMF staff recommends completion of the review.
1. I would like to convey to the Executive Board and Management my authorities’ appreciation of their support to Fund’s continued involvement in Niger. I also wish to thank staff for the constructive and fruitful policy dialogue it has had with my authorities in the context of the fifth review of the three-year arrangement under the PRGF. My Nigerien authorities value the critical assistance that Fund staff has provided in the preparation of their new Accelerated Development and Poverty Reduction Strategy (DPRS) for 2008-12, notably in the formulation of a budgetary framework consistent with this strategy as well as with the medium-term fiscal framework. In support of the DPRS, the Donors Conference, held last month in Brussels pledged assistance amounting to 3.5 billion US dollars. My authorities are hopeful that they can count on the Fund’s catalytic role, along with other bilateral and multilateral initiatives, to translate the donors’ promises into effective, full and timely disbursements in favor of Niger.
2. The staff report provides an array of important achievements mainly reflected in the part devoted to the recent economic developments and performance under the PRGF program. This document also highlights medium-term outlook and macroeconomic objectives for 2007-08, revealing thereby the type of policies envisaged for the coming years. As in previous staff reports under the current arrangement, my authorities expressed their consent to the publication of the report on the fifth review.
I. Recent Economic Developments and Performance under the PRGF program
3. My Nigerien authorities are determined to pursue strong growth path (above 5 percent) in order to accelerate poverty reduction. In 2007, real GDP growth should reach about 5.6 percent, owing to broad-based activities notably in the agriculture (benefiting from goods rains), mining, telecommunications, and construction sectors. Inflation remains very low, under 1 percent over the last two years. Private investment is increasing, reflecting growing external investors’ interest in Niger’s mining sector. The volume of investments is expected to reach 20 percent over the coming three years. My Nigerien authorities are committed to press ahead with their efforts to reduce the cost of doing business and enhance the investment climate.
4. The basic fiscal balance at June and September 2007 improved significantly, posting an important surplus instead of projected deficit. This favorable development reflects not only the efforts made by the authorities in strengthening revenue collection but also the measures to restrain spending in order to offset possible shortfalls in external assistance.
5. As the country is exposed to frequent adverse climate conditions, my authorities continue to pay close attention to the food security situation, which has been improved significantly. Indeed, the national stock attained 65,000 tons last August. Replenishment actions aimed to reach the programmed level of 80,000 tons have been taken. Likewise, grain banks have been created. Further efforts are underway to scale up the food security reserve to 110,000 tons, deemed as being the more appropriate national security stock level.
6. The situation of the banking system is sound. The banking credit increased steadily, reflecting the positive development in the investments projects from private sectors. New banks have also contributed to the steady expansion of credit. My authorities are exploring measures to address the issue of nonperforming loans, including the lifting of the level of provisions.
7. Regarding structural reforms, my authorities continue to make important strides in the implementation of the required measures. These include current efforts to strengthening public finance management, at both the revenue (tax and customs administrations, overhauled tax code) and expenditure ends; progress made in implementing the Public Expenditure and Fiscal Management (PEMFAR); the adoption of a new mining code, as well as that of the petroleum code. As regards the business climate, progress in simplifying the procedures and reducing the costs related to the establishment of new businesses has been accomplished. In the extractive industry sector, my authorities are also cognizant of the benefits of transparency and are committed to the principles of the Extractive Industry Transparency Initiative (EITI). They have obtained in September 2007 the acceptance of Niger as an EITI candidate country.
8. Reflecting the positive achievements on the policy implementation and structural fronts, performance under the PRGF-supported program has been highly satisfactory since the previous review. Indeed, all quantitative performance criteria and all indicative criteria were met. However, one structural benchmark and one continuous performance criterion were missed. Regarding the latter criterion, the nonobservance is related to a tax deferment introduced in April 2007 in the petroleum pricing mechanism when it appeared quite impossible to apply the full pass-through without incurring the risk of violent social unrests, similar to those experienced in March 2005. Nevertheless, the deferred tax amount has been reduced in July and the authorities have eliminated the remaining amount on November 1, 2007. This point illustrates well the issue I raised a few weeks at the Board, pertaining to the real difficulties experienced by a number of countries in my constituency (and beyond) in the application of oil pricing full pass-through mechanism. It is important that the Fund examines more profoundly the approach to this problem taking into consideration the capacity and political economy constraints facing the individual countries.
9. While the risks of debt distress remain low, the Joint Fund-Bank Debt Sustainability Analysis underscores Niger’s daunting need for external financing, which if fulfilled on concessional basis, could preserve its debt sustainability over a long run.
II. Macroeconomic Objectives and Policies for 2007 and 2008
Fiscal Policy for the rest of 2007
10. Determined to increase transparency in fiscal management and to strengthen the quality of fiscal data, my authorities have revised the 2007 budget program with the view to take into account exceptional resources amounting to1.5 percent of GDP stemming from mining permit receipts. The revised budget program also reflects the projected shortfall of 0.7 percent of GDP in external assistance. For the whole year 2007, it is expected that the combined effects of restraining spending and increasing revenue collection, notably in the area of VAT mobilization, lead to a lower basic deficit than initially programmed.
11. Regarding the exceptional resources from mining sectors, my authorities have since May 2007 put in place a Priority Investments Fund (PIF), a budgetary framework defining clearly the modalities for the use of these resources. Expenditures related to security, rural development, infrastructure, and development support have been retained as priority areas designated to benefit from this Fund. Facing the surge of security problems in the northern part of the country, which poses serious threats to a well-functioning of democratic institutions built and consolidated in recent years, my authorities intend to use the bulk of these resources in the area of security. Recent developments indicate a real improvement in the way of bringing peace back in this region, thanks to negotiations efforts undertaken with the involvement of regional stakeholders.
12. On the domestic arrears side, while sustained efforts led to reduce by almost half the stock between 1999 and 2006, many other actions towards the complete clearance of these arrears are underway. These include settlement of debt arrears with private sector suppliers; settlement with public utility companies which will start soon; and the unfreezing of deposits of the former National Saving Bank, which is scheduled for mid-2008.
Fiscal Policy for 2008
13. The 2008 fiscal policy will put more emphasis on the financing of the priority sectors of education, health, and rural development. While pursuing the implementation of this priority spending, my authorities intend to pay close attention to the preservation of debt sustainability.
14. On the revenue side, the ongoing measures aimed to curb tax and customs exemptions and combat evasion will be implemented steadfastly. In this vein, priority will be given to achieving electronic interconnection between the main border offices and regional customs offices, with the view to allowing more rigorous monitoring of merchandise undergoing customs clearance. On-site customs controls will be better targeted. As regard taxes, many specific actions are being adopted at the tax administration directorate, including the simplification of VAT payment procedures, the enhancement of tax supervision, the implementation of an effective system of refunding VAT credits, the establishment of an information base for real estate and taxation, and the adoption of a new software program which will be more effective for tax collection registration.
15. In this context, my Nigerien authorities expect that the basic fiscal deficit will decline from 3.6 percent of GDP in 2007 to 2.8 percent in 2008.
Structural Reforms
16. My Nigerien authorities are fully aware of the critical role that structural reforms will play in the attainment of their main macroeconomic objectives; in particular those related to the achievement of a growth rate of at least 7 percent consistent with the aim of improving social indicators and meeting the MDGs.
17. In the area of public management, my authorities’ resolve is focused on further strengthening domestic revenue collection, through a set of tax and customs administration measures which will be implemented steadfastly. Moreover, ongoing efforts to strengthen financial controls and supervision will be continued, notably by expanding and streamlining the general directorate for the control of government procurement.
18. As regards the financial sector, the authorities have launched the call for tenders for the privatization of Credit du Niger. Steps undertaken in the restructuring of the financial branch of post office and microfinance institutions will be pursued in 2008. Due to the need to ensure the soundness of the new institution that will take over the financial activities of the post office, which requires injection of fresh public funds, the start of operations for this structure is expected for mid-2008. This is the reason why my authorities are requesting to remove the performance criterion related to the payment of frozen deposits by end-December 2007.
19. As evidenced by the new position of Niger in the World Bank’s Doing Business 2007 report, which ranked it 160 out of 175 countries against 170 in 2005, important efforts were made and continue to be accomplished in the way to improving the business climate. The most visible efforts include the simplification of procedures within the two employment agencies and the reduction and deferment of costs of registration or starting business.
III. Medium-Term Prospects and the PRSP
20. Based on Niger’s favorable achievements and bright economic prospects, reflecting the increasing investment opportunities in the mining sector, my authorities undertook and finalized the revision of their poverty reduction strategy which is now more focused on growth acceleration and the attainment of MDGs. The new strategy for 2008-2012 was built on four pillars, namely preserving macroeconomic stability, boosting public investment in human capital and physical infrastructure, strengthening economic governance, and developing the private sector. Drawing lessons from the unpredictability of aid as experienced in recent years, my Nigerien authorities have adopted a prudent and flexible approach, based on the elaboration of three scenarios of growth with linkages to different levels of expenditures which in turn depend on the degree of resources mobilization. In this approach, the first scenario called “baseline scenario” underpins the staff medium-term current framework. The second scenario envisages an increase of expenditures of about 20 percent compared to the first one. The third and last scenario (“MDG scenario”), which is the most optimistic of all, envisions an increase of expenditure amounting to 86 percent with respect to that set out in scenario one. It is expected that this last scenario leads to an average growth rate of not less than 7 percent over the period 2008-2012 against a growth rate of about 6 percent in the second (intermediate) scenario.
21. In terms of the resources needed to finance all the specific programs comprised in the revised strategy, the amount of 3.5 billions US dollars pledged by donors during their round-table held on October 25-26, 2007 appears to be more consistent with the intermediate scenario described above. It is, therefore, far from what is needed to incline the trend of social indicators in a way to attain the MDGs. My authorities intend to intensify their efforts to mobilize internal resources while seeking a more appropriate way to elicit other development partners’ interests, namely those who have not yet announced their financial intention to support Niger’s new growth and poverty reduction strategy. Strong bilateral actions are needed to close the resource gap, and my authorities have strongly engaged in reaching a positive outcome.
22. In view of the current trend and unpredictability in aid flows, the assumption made by some analysts that very few African countries could attain the MDGs by 2015 is likely to come true if concerted efforts towards fulfilling the promises made under the Monterrey Consensus are not undertaken. In this regard, we strongly urge the Fund to keep take up its part of responsibilities, especially by putting more emphasis on its catalytic role in favor of countries like Niger which have made impressive efforts towards macroeconomic stabilization and reform implementation but still faces stringent constraints to finance their development and poverty reduction efforts.
IV. Conclusion
23. My Nigerien authorities have shown 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 accomplishments made so far in the finalization of the new PRSP and the achievement of an average annual growth rate beyond 5 percent since 2005. My authorities believe that an adequate response to boost growth requires the firm implementation of the new PRSP, which supposes maintaining macroeconomic stability, strengthening domestic revenue collection, pursuing efforts to diversify production, executing priority programs, and enhancing the business environment.
24. 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 for my Nigerien authorities. More predictable and timely donor support is required to meeting the country’s economic and developmental goals without endangering its debt sustainability. In this regard, the authorities rely on the continuous support of the Fund, in particular through its catalytic role in mobilizing development partners’ assistance. On their part, my authorities remain committed to pursuing a prudent external debt strategy in the post-MDRI era. They will continue to aim at contracting debt only with a grant element of at least 50 percent in 2007 and beyond. As for the management of existing debt, they continue to aim at prudent strategy, consisting of building capacity to develop a medium-term debt strategy and to analyze debt sustainability, while still striving to maintain dialogue with remaining non-Paris Club creditors, with the view to benefiting from debt relief on terms comparable to those already obtained.
25. Based on their demonstrated track record of policy and reform implementation, including in undertaking corrective actions when necessary, I would like to ask Directors’ support for my authorities’ request for waiver and modification of performance criteria and the completion of the fifth review under the PRGF arrangement. I also call on the Board to grant Niger an extension of the current arrangement to May 31, 2008 instead of January31, 2008, to allow for the completion of the sixth and final review on the basis of the December 2007 test date.