Niger
Sixth Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility, Request for Waiver of Nonobservance of Performance Criteria, and Request for a New Three-Year Arrangement Under the Poverty Reduction and Growth Facility: Staff Report; Staff Statement; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Niger
Author:
International Monetary Fund
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Publication Date:
02 Jul 2008
eISBN:
9781451828818
Language:
English
Keywords:
ISCR; CR; September-October harvest; oil price projection; successor SDR; authority; SDR; IMF staff estimate; long-term debt; financial support; budget expenditure; revenue effort; Credit; rate of return; GDP ratio; GDP deflator
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This paper examines Niger’s sixth review under the three-year arrangement under the Poverty Reduction and Growth Facility (PRGF). A successor PRGF-supported program would support the authorities’ efforts to move toward meeting the Millennium Development Goals (MDGs) while preserving economic stability. Among the risks to the new program are adverse climatic shocks, higher food and international oil prices, and the insurgency in the North. IMF staff supports the requests for the waivers for nonobservance of two performance criteria, and the request for a new PRGF arrangement.

Abstract

This paper examines Niger’s sixth review under the three-year arrangement under the Poverty Reduction and Growth Facility (PRGF). A successor PRGF-supported program would support the authorities’ efforts to move toward meeting the Millennium Development Goals (MDGs) while preserving economic stability. Among the risks to the new program are adverse climatic shocks, higher food and international oil prices, and the insurgency in the North. IMF staff supports the requests for the waivers for nonobservance of two performance criteria, and the request for a new PRGF arrangement.

I. Program Performance and Recent Developments

A. The Economy Is More Stable and Creditworthiness Is Being Restored

1. Niger has recently made significant progress in stabilizing the economy, mobilizing revenue, managing expenditure (see table), and restoring creditworthiness. For 2005–07, facilitated by political stability and reasonable rainfall, annual growth averaged 5.6 percent with low inflation. Fiscal space increased considerably from 2003, by about 5 percent of GDP because of higher government revenue and debt relief from the Heavily Indebted Poor Countries Initiative (HIPC) in 2004 and the Multilateral Debt Relief Initiative (MDRI) in 2006.1 This made it possible to spend more on priority sectors and still keep the basic budget deficit (which excludes foreign-financed expenditure) moderate, at 1.1 percent of GDP on average in 2005-07, with no recourse to domestic financing. Meanwhile, the external current account deficit increased after a major increase in investment. After Niger reached the HIPC completion point in April 2004, MDRI debt relief in January 2006 reduced its debt-to-GDP ratio from 52 percent at the end of 2005 to 14 percent; as agreed, new loans contracted by the authorities have been on highly concessional terms, with a grant component of at least 50 percent, except for one that had a 46 percent grant component.2

uA01fig01

GDP Growth, Investment and Aid are all Increasing

Citation: IMF Staff Country Reports 2008, 211; 10.5089/9781451828818.002.A001

Sources: Nigerien authorities; and IMF staff estimates.

Macroeconomic and Fiscal Performance is Satisfactory

(Average, percent of GDP, unless otherwise indicated)

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Source: Nigerien authorities

2. Public finances are being managed more effectively, with technical assistance from the Fund, the World Bank, and other donors. The Ministry of Finance and Economy has been reorganized, the taxation and customs directorates were reinforced, and the tax code was simplified for smaller taxpayers. Broadening the domestic tax base and improving compliance compensated for trade liberalization and the abolition of customs duties for ECOWAS intraregional trade.3 There was progress in reducing the number of nonfilers, monitoring exonerations, and tightening customs controls through better transmission of data between the border offices and Niamey. New budget classifications were adopted to make it easier to identify and monitor poverty-related spending. Better monitoring of budget execution made possible more timely reporting to donors. After financial mismanagement was identified at the Ministry of Education in 2006, procurement and control procedures were tightened and a Directorate General for Control of Public Procurement established. In 2006 and 2007 substantial payments were made to reduce domestic arrears (6 percent of GDP) incurred when public finances were under strain during political upheavals in the 1990s. 4

uA01fig02

Creating Fiscal Space, 2001 - 2011

Citation: IMF Staff Country Reports 2008, 211; 10.5089/9781451828818.002.A001

Source: Nigerien authorities; and IMF staff estimates and projections.

3. The financial sector is being reformed and the cost of doing business reduced. The banking system is profitable and relatively sound, although capitalization has declined somewhat in recent years and nonperforming loans (which are largely provisioned) have risen. Although credit to the economy has been expanding rapidly, financial intermediation is still underdeveloped; the deposit-to-GDP ratio is among the lowest in the WAEMU. Reform measures have included restructuring microfinance networks in difficulties; establishing a microfinance supervisory authority; launching the privatization of Crédit du Niger; and restructuring the post office to separate postal from financial services. The cost of doing business has been reduced by a one-stop window for new businesses, simpler procedures for registration at the social security agency, deferral of payment of the license tax for new businesses, and cuts in fees for registering contracts.

Financial Soundness Needs to Improve

(Percent)

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Source: BCEAO and UMEOA Banking Commission.

4. Although the MDG objective of halving poverty may not be met in 2015, Niger is moving ahead in education (higher primary school enrolment) and health (reduction in infant mortality, increased access to safe water) (Figure 1). According to the November 2007 UNDP Human Development Report, Niger has moved up three positions in the human development indicators table since the previous edition.5

Figure 1.
Figure 1.

Niger: Selected MDG Indicators

Citation: IMF Staff Country Reports 2008, 211; 10.5089/9781451828818.002.A001

Source: Nigerien authorities.

5. Regional integration is progressing: At the beginning of 2007 customs duties on intra-ECOWAS trade were abolished, increasing Niger’s trade with Nigeria and Ghana. This has led to some trade diversion and to revenue losses of about 0.7 percent of GDP, but these are being offset by more effective controls. Discussions on an Economic Partnership Agreement (EPA) with the European Union (EU), which are coordinated at the ECOWAS level, are ongoing.

6. The progress achieved is in line with the recommendations of the June 2004 Ex-Post Assessment report, which urged increases in investment and savings ratios, a more forceful revenue effort, more public sector accountability, revamping the financial sector, and enhancing the investment climate to create a solid foundation for sustained growth (Box 1).

B. Performance in 2007 Was Satisfactory

7. Macroeconomic performance was satisfactory, although growth decelerated:

  • In 2007 economic growth slowed to 3.2 percent (the harvest was disappointing after two years of exceptional growth), and average inflation (for the consumer price index as a whole and for core inflation6) was close to zero (Table 2). However, higher oil and food prices in the last quarter brought end-of-year inflation to 4.7 percent on a 12-month basis. In the first three months of 2008, food prices continued to increase.

  • The present level of the exchange rate, staff estimates, is aligned with fundamentals and should not be a hindrance to growth (see Figure below).7 The appreciation of the real effective exchange rate (REER) since 2001 is consistent with the favorable movement of Niger’s terms of trade resulting from higher prices for both uranium and agricultural and livestock exports.

  • Broad money increased rapidly, reflecting foreign direct investment in mining and exploration; and credit to the economy remains buoyant.

Table 1.

Niger: Proposed Scheduled Disbursements Under the Successor PRGF, 2008–11

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Source: IMF.

In addition to the generally applicable conditions under the PRGF arrangement.

Table 2.

Niger: Selected Economic and Financial Indicators, 2005-11

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Sources: Nigerien authorities; and IMF staff esti ates and projections.

Commitment basis per payment orders issued.

Including budget reserve.

Percent of beginning-of-period money stock.

Total revenue, excluding grants, minus total expenditure, excluding foreign-financed investment projects.

After HIPC and MDRI debt relief starting in 2006.

Main Findings of the 2004 Ex-Post Assessment of Performance Under IMF-Supported Programs and Developments After 2004

8. After three consecutive years without droughts, the increase in the national stock of cereal provides a safeguard against food shortages for the immediate future. However, a recent survey of vulnerable areas indicates that food security has become more precarious than a year ago, with some regions at heightened risk. The government is taking actions to protect the most vulnerable populations, with donor assistance (MEFP,¶4). In March 2008 higher imported-food prices (notably for rice and vegetable oil) that affected the urban population were addressed by suspending taxes on imported rice for three months.8 The authorities are also moving to boost local rice production and considering a revamping of groundnut production and oil refining to decrease reliance on imports.

uA01fig03

Despite the nominal appreciation of the CFAF against the U.S. dollar…

Citation: IMF Staff Country Reports 2008, 211; 10.5089/9781451828818.002.A001

Sources: Nigerien authorities; and IMF staff estimates.
uA01fig04

the real effective exchange rate remains aligned with fundamentals.

Citation: IMF Staff Country Reports 2008, 211; 10.5089/9781451828818.002.A001

Source: Estimates based on methodology used in IMF Working Paper 07/194.

9. Budget performance in 2007 was satisfactory (Table 3). Tax revenue exceeded the target by 0.6 percent of revised GDP, and in December the Treasury received the proceeds of the sale of a new telecom license (CFAF 31 billion, 1.6 percent of GDP) that the program did not envisage. Since aggregate domestically-financed expenditures were in line with the program, both the basic and overall budget deficits were smaller than expected. Outlays authorized by the 2007 supplementary budget law were mostly used to boost security (see Country Report # 07/388).

Table 3a.

Niger: Financial Operations of the Central Government, 2005-11

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Sources: Nigerien authorities; and staff estimates.

Multilateral Debt Relief Initiative stock estimates including cancellation of debt treated under the HIPC Initiative, shown on accrual basis.

Table 3b.

Niger: Financial Operations of the Central Government, 2005-11

(percent of GDP)

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Sources: Nigerien authorities; and IMF staff estimates and projections.

Multilateral Debt Relief Initiative stock-of-debt operation, including cancellation of debt treated under the HIPC Initiative, shown on accrual basis.

10. The quantitative performance criteria and indicative targets through mid-May 2008 have been met, except for the performance criterion on reducing domestic arrears (Appendix I, Table 1a), which fell short by a small margin (CFAF 1 billion). The December 2007 domestic arrears reduction target was met in February 2008.

11. The structural performance criterion for December 2007 has been met (Appendix I, Table 2a): the simplified tax regime for small- and medium-sized enterprises was adopted as part of the 2008 budget law. However, the continuous structural performance criterion on the pricing of petroleum products, which had been met consistently from November 2007 to April 2008, owing to retail price increases of 9 percent to16 percent according to products, was not met in May 2008 when taxes were below the March 2007 floor, because of higher deferment. This was done in order to dampen the effect of further increases in international prices on the purchasing power of the population. 9 The tax shortfall in May was minor; over the November 2007–May 2008 period the average monthly tax take on petroleum products was significantly higher than the March 2007 benchmark level (Table 9) 10 Three structural benchmarks for December 2007 have not been met, and one was met with delay (Appendix I, Table 2a). The three still not implemented are (i) the finalization of arrears settlement with commercial banks, for which negotiations have been protracted; (ii) the reduction of the threshold for contracts requiring approval by the General Directorate of Public Procurement, which has been rescheduled to September 2008 to avoid bottlenecks while the new directorate begins operations; and (iii) the arrears compensation with SONITEL, which is still under discussion (that with NIGELEC was completed in December 2007).

Table 4.

Niger: Monetary Survey, 2005-11

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Sources: BCEAO; and IMF staff estimates and projections.
Table 5.

Niger: Balance of Payments, 2005-11

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Sources: Nigerien authorities; and IMF staff estimates and projections.

Multilateral Debt Relief Initiative stock-of-debt operation, including cancellation of debt treated under the enhanced HIPC initiative, on an accrual basis.

Table 6.

Niger: Indicators of Capacity to Repay the Fund, 2006-15 1/

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Sources: IMF staff estimates and projections.

Assumes access of 35 percent of quota for the prospective PRGF arrangement (SDR 23.03 million).

Total debt service includes IMF repurchases and repayments.

Table 7.

Niger: External Financing Requirements and Sources, 2005-11

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Sources: Nigerien authorities; and IMF staff estimates.

Excluding the IMF; breakdown between multilateral and bilateral institutions is available.

Includes both loans and grants; excluding the IMF; breakdown between multilateral and bilateral institutions is available.

Includes those transactions undertaken for the purpose of financing a balance of payments deficit or an increase in reserves.

Includes all other net financial flows, and errors and omissions.

Table 8.

Niger: Budget Expenditure on Social and Rural Sectors, 2004-08

(Millions of CFA francs)

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Sources: Nigerien authorities; and IMF staff estimates.

Outturn for externally financed investment provisional.

Table 9.

Niger: Petroleum Products Taxation, November 2007-May 20081

(CFA francs per liter)

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Source: Nigerien authorities.

Ad valorem customs duties, ad valorem value-added tax, and specific excise tax (CFAF 75 per liter of gasoline and CFAF 29 per liter of diesel).

12. In early 2008 the three foreign shareholders of the two uranium operating companies reached an agreement with the government increasing by 37.5 percent the export price of uranium for 2008, after a 50 percent increase in 2007. The principal shareholder, the French company AREVA, also confirmed its commitment to invest about €1 billion to develop the Imouraren uranium mine over the next few years. This would double uranium production by about 2014. The agreement allows the government company SOPAMIN to market about 10 percent of production at the higher spot price.

13. Niger meets most of the convergence criteria of the WAEMU (see table below). It does not meet the targets on the external current account deficit, and the basic balance, although both balances are sustainable given the high volume of foreign aid, and on the tax revenue (17 percent of GDP), which is very ambitious for a country at Niger’s stage of development.

Performance on WAEMU Convergence Criteria was Satisfactory, 20071

(Percent, unless otherwise indicated)

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IMF staff estimates. Bold numbers indicate that the criteria was met.

II. Key Challenges: Consolidate Growth, Preserve Macroeconomic Stability, and Improve Further Fiscal Management

14. The main challenges for Niger now are to consolidate growth and reduce poverty while preserving fiscal sustainability. It is also essential to further improve the composition of expenditures, increase revenue to provide resources for high-priority expenditure, and keep the fiscal deficit at a level that can be financed with foreign aid. Improvement in competitiveness and the investment climate is also needed to harness the growth potential of the private sector.

15. An average annual medium-term growth rate of 5 percent is achievable, assuming normal harvests, given the rapid expansion of the mining sector and the relatively high external aid projected for the next three years (10.5 percent of GDP). This scenario is close to the central scenario of the new PRSP (Strategy for Acceleration of Growth and Poverty Reduction 2008–2012).11 While even this growth rate will not allow Niger to attain the MDG on poverty, it would be consistent with reaching other MDGs if the authorities channel adequate resources to priority sectors and emphasize delivery of quality social services (see Figure 1 for selected MDG indicators). Modernization of agriculture and full development of Niger’s agricultural potential are essential to secure food self-sufficiency and reduce vulnerability to weather shocks and fluctuations of world food prices.

16. Public investment and supporting current expenditures must be increased and aligned with PRSP priorities to improve growth prospects, enhance the quality of social services, and attract the necessary external aid. This requires that (i) medium-term expenditure frameworks (MTEFs) be finalized especially for infrastructure and transportation, complementing those already prepared for the education, health, and rural sectors; and (ii) the annual state budget be formulated with a three-year horizon and systematically integrated with the MTEFs and the PRSP. Higher spending in priority sectors requires widening the tax base through further improvements in tax administration and some reforms in tax policy. Moderate tax cuts introduced in early 2008 to alleviate the increase in food prices are not expected to undermine the revenue effort.

17. Sustained growth and economic diversification also require a comprehensive strategy to improve competitiveness by reducing the cost of doing business over the medium term and improving access to financial services.12 In consultation with the World Bank, the government has prepared an action plan to raise Niger’s ranking in the World Bank Ease of Doing Business index (MEFP,¶48). Niger lags the average for WAEMU countries in most dimensions (see the next table).13 To encourage investment, the government also plans to reduce the tax rate on profits in 2009 (MEFP,¶41).

18. Timely and predictable disbursement of external aid is essential; scaling up would help accelerate growth. Hence it is necessary to maintain donor confidence with appropriate reforms. Staff simulations on scaled-up aid suggest that a sustained increase of aid of 5 percent of annual GDP would raise annual GDP growth by up to 1.3 percentage points (see figure below). However, the debt sustainability analysis conducted in October 2007 during the fifth PRGF review, as updated to reflect higher uranium prices, indicates that external aid would need to include a significant amount of grants. The staff baseline scenario assumes that grants will amount to 65 percent of external aid and that borrowing will combine loans on IDA terms with others on less concessional terms but still above 35 percent concessionality. An alternative scenario in which external loans are contracted with an average grant element of 35 percent would raise the NPV of debt-to-exports ratio significantly faster, though without breaching the policy-based 150 percent threshold (see figure).14 This shows the sensitivity of debt sustainability indicators to borrowing terms.

The cost of doing business is relatively high in Niger Doing Business Ranking Averages for 2007 1 Niger and Comparator Groups

(excluding Niger)

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Source: World Bank. Notes:

Rankings among 178 countries.

Defined as Sub-Saharan countries with at least 6% real GDP growth for 2006-2007 that are not oil producers, not islands and not post-conflict. For 2007, countries included are: Burkina Faso, Ethiopia, Ghana, Kenya, Mozambique, Tanzania, Uganda and Zambia.

Includes African and non-African countries.

uA01fig05

Higher aid can lead to higher growth…

Citation: IMF Staff Country Reports 2008, 211; 10.5089/9781451828818.002.A001

uA01fig005

... without endangering economic stability.

Citation: IMF Staff Country Reports 2008, 211; 10.5089/9781451828818.002.A001

Source: IMF staff estimates and projections.
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External debt is sustainable…

Citation: IMF Staff Country Reports 2008, 211; 10.5089/9781451828818.002.A001

Source: IMF staff estimates and projections.

III. The New PRGF Arrangement

19. A new PRGF arrangement will support the authorities in their efforts to accelerate progress toward the MDGs while keeping the economy stable. Since 2000 the authorities have demonstrated a solid track record on two successive PRGF arrangements and a commitment to promoting growth and reducing poverty while maintaining fiscal discipline. Fiscal sustainability will remain the cornerstone of the program; the emphasis will be on further improving management of public expenditures to strengthen the effectiveness of government policies for poverty reduction, and promoting an environment conducive to growth. To meet the challenges outlined in Section II, the broad axes of the three-year program will be (i) a macroeconomic framework designed to fully absorb and spend aid and keep debt sustainable; (ii) better integration of budgetary expenditures with the PRSP and the MTEFs and widening of the tax base; and (iii) structural reforms to stimulate private investment and diversification of the economy by reducing the cost of doing business and facilitating access to financial services. A road map for reforms, policy measures, and structural conditionality is presented in Table 10.

Table 10.

Niger: Road Map for Structural Conditionality under the PRGF–Supported Program

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A. Maintain Macroeconomic Stability

20. The macroeconomic framework for the next three years assumes real GDP growth of about 5 percent a year, marginally lower than the PRSP intermediate growth target. The current account deficit of the balance of payments would increase by about 9 percent of GDP between 2007 and 2011 because surging investment in mining will largely be financed by foreign direct investment. The fiscal targets are based on the assumption that budgetary aid will increase slightly, to an average of 3.1 percent of GDP, through 2011, and grants and concessional loans for external project financing will hold at about 7 percent of GDP. The basic budgetary deficit would temporarily increase in 2008, to 4.6 percent of GDP, as exceptional revenue received late in 2007 is spent, but would decline to about 1.7 percent in 2011. The program would substantially reduce domestic arrears. The medium-term basic deficit target could be revised upward to accommodate any sustained increase in external budgetary support. Fiscal objectives include a gradual increase of tax revenue from 11.7 percent of GDP in 2007 to 13.1 percent in 2011. Total revenue, including nontax mining and telecom revenue, would decline from the exceptional 15.5 percent of GDP in 2007 to 14 percent.15

B. Strengthen Public Finance Management and Improve Investment Climate

21. Management of public finances would be improved in five areas:

  • Medium-term alignment of annual budgets with PRSP priorities for 2008–12 and the MTEFs for health, education, and rural development. The MTEFs for transport and infrastructure will be finalized. Annual state budgets will include a three-year projection of government spending, as is done in other WAEMU countries, with current and capital expenditures presented by sector. The budget for priority sectors as defined by the PRSP will remain at or above 13.3 percent of GDP throughout the program (MEFP,¶25).

  • Consistency of budgetary execution with priorities. Monitoring of timely execution of propoor expenditures will be reinforced, and funds allocated promptly to the decentralized units in charge of education and health services (MEFP,¶24).

  • Further improvements in transparency and controls. The new Directorate General of Procurement and the Audit Court are benefiting from technical assistance in these areas from a number of donors (MEFP,¶27).

  • Broadening the tax base. More detailed audits will curtail fraudulent practices, such as relatively large operators that stay in the informal sector. Exemptions under the investment code will be reviewed and would be accompanied by a reduction of the profit tax, currently 35 percent (MEFP, ¶31, ¶40, and ¶41). Petroleum products price adjustments will continue to be governed by the pass-through rule established in August 2001, with some flexibility; the average monthly tax take on these products, calculated on a rolling six-month period, should not fall short of the March 2007 level (MEFP,¶43).

  • Reinforcing Finance Ministry capacity to manage debt. The debt office will become a well-staffed monitoring and planning unit tasked with tracking closely how planned borrowing would affect long-term debt sustainability (MEFP,¶32).

22. To keep debt sustainable, all new borrowings will be contracted on concessional terms, with a minimum grant element of at least 35 percent. While this floor is lower than under the previous program, it is in line with that of PRGF arrangements for other WAEMU countries with debt sustainability positions broadly similar to Niger’s. It will give the authorities greater flexibility to contract loans for high-priority investments needed to sustain growth. The authorities will endeavor to seek terms as favorable as possible. They will keep in close contact with the staff to monitor external borrowing terms, and will prepare semi-annual reports on debt contracted and on the forthcoming borrowing program (structural benchmark, MEFP,¶48).

23. Structural reforms will focus on the financial sector and measures to enhance the investment climate and reduce the cost of doing business. Specific elements of the latter are being coordinated with the World Bank through a new Development Program Loan currently being appraised, and will build on Bank analytical work (MEFP,¶49).

C. The Program for 2008

24. The main assumptions for 2008 are that GDP will grow at about 4.4 percent and the GDP deflator will increase by 5.7 percent, reflecting the carryover to 2008 of the CPI increase in the last quarter of 2007 and the first months of 2008, as well as the increase in the contractual uranium export price. Despite the increase in exports in value terms, the external current account is projected to deteriorate slightly because of higher imports related to mining investment and more profit repatriation.16

25. The basic fiscal deficit is expected to widen by about 3.7 percent of GDP because of spending covered by privatization revenue and uranium sale proceeds received late in 2007 (see above, ¶20). The government is preparing a supplementary budget to be submitted to parliament in June 2008 to cover resources received late in 2007 and not taken into account in the original 2008 budget (see table below), and also additional mining revenue expected in 2008. It also takes into account the reduction in revenue (CFAF 4 billion) caused by the three-month suspension of the VAT and customs duties on rice (MEFP,¶37). The supplementary spending will be CFAF 67 billion (3 percent of GDP), higher than projected during the fifth review; about 57 percent is allocated to development expenditures and the rest to salary increases and security outlays (MEFP,¶38). The program for 2008 is fully financed, with budgetary support to be provided by IDA, the African Development Fund, the European Union, and bilateral donors.

26. The authorities are committed to continuing improvement in budgetary transparency and reporting (MEFP,¶35). A Public Expenditure and Financial Accountability (PEFA) assessment and a fiscal ROSC will be undertaken in 2008. Execution of the budget throughout the year will be improved by timely transfers to the decentralized spending units (MEFP,¶¶24 and 35).

27. Total budgetary revenue is programmed to decline by 2.7 percentage points of GDP in 2008, to 12.8 percent, because exceptional revenue was received in 2007. Tax revenue would decline marginally as a share of GDP, reflecting emergency tax relief measures to alleviate the increase of basic food prices.

28. Efforts to combat fraud and control the tax base will continue. The authorities will also prepare measures to be implemented in 2009, such as reimbursement of VAT credits to exporters and a new allocation of real estate and business taxes between central government and local authorities (MEFP,¶¶ 40 and 42).

Draft Supplementary Budget Law for 2008

Additional Resources to be Allocated

(CFAF billions)

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Source: Nigerien authorities.

29. Financial sector reforms initiated in the previous program will continue. A decree will spell out procedures for settling deposits frozen at the former postal savings office (September 2008 structural performance criterion). The network of microfinance institutions will be reinforced. With World Bank technical assistance the new postal bank will be operational in 2008 (MEFP,¶¶ 44 and 47). An FSAP scheduled for September 2008 (MEFP,¶ 34) will analyze factors that limit access to credit, such as insufficient availability of long-term financing, limited availability of collateral and land titling, and how the courts function.

30. With World Bank support, an action plan has been drawn up to further reduce the cost of doing business. It draws on the Investment Climate Assessment and the Diagnostic Trade Integration Study recently prepared by the Bank. The plan for 2008 is to significantly reduce the number of steps required to create businesses; shorten the delays required to transfer real estate ownership; and set up a fast-track procedure for recording titles to land (MEFP,¶49).

D. Program Modalities, Monitoring, and Risks

31. Access under the proposed arrangement is 35 percent of quota, the norm for a fifth successive PRGF arrangement and consistent with Niger’s need for external balance of payments support, given the large import content of the required investment in infrastructure and social sectors (Table 1).

32. The program will be monitored against quantitative performance criteria and indicators (Appendix I, Table 1b); the structural performance criteria and benchmarks (Table 9 and Appendix I, Table 2b) are very streamlined. The two proposed structural performance criteria and the structural benchmarks are critical to program objectives. Adoption of a decree on the procedures for reimbursing frozen postal deposits is essential to give the private sector confidence that the authorities are seriously committed to reducing domestic arrears and restructuring the financial sector. Drawing up procedures to reimburse exporting companies for the VAT is vital to making the tax environment more attractive to private firms. The proposed structural benchmarks focus on improving expenditure execution, aligning the budget with the PRSP, and strengthening debt management, all critical program objectives.

33. There are three main risks to the program: (i) The economy is vulnerable to natural shocks (droughts, locusts) and terms of trade swings, such as a decline in uranium prices that would reduce revenue, and increase in prices of imported food and petroleum products; (ii) the continuing insurgency in the North could require additional military expenditures and disrupt mining and agriculture; and (iii) the presidential and legislative elections scheduled for 2009 could cause fiscal discipline to relax.

IV. Staff Appraisal

34. Niger is at a critical stage of its development. For the last three years it has maintained commendable economic stability, the rate of growth has accelerated, and until the last few months of 2007 inflation declined. The authorities appropriately supplemented the fiscal space provided by debt relief with revenue mobilization and allocated significantly more resources to the social sectors and infrastructure. Progress was achieved in budget preparation, monitoring of budgetary execution, transparency, and controls.

35. The financial sector was also reformed, and significant steps were taken to improve the business climate and reduce the cost of doing business.

36. Nevertheless, Niger faces daunting challenges, given rapid population growth, very low social indicators, and the need for major investments in agriculture and infrastructure to sustain growth and improve food security. International food price increases make the need to fully tap Niger’s agricultural potential more urgent. On present and projected trends, it is unlikely that all the MDGs will be reached.

37. The proposed program appropriately focuses on promoting growth within a stable macroeconomic framework. This calls for fiscal discipline—especially more forceful budget preparation, execution, and controls so as to align the composition of budget expenditures closely to the new PRSP. The boost to security expenditures in 2008 is modest; it is hoped that such expenditures can be contained in the future. The authorities expect that better financial management will induce donors to increase their assistance to Niger, and to that end they have recently strengthened coordination with donors and accepted a PEFA assessment.

38. A key challenge is to preserve debt sustainability, while attracting adequate external financial support. That support must be on favorable terms, such as grants or highly concessional loans. The authorities should strengthen their debt management capacity to ensure that borrowing on less concessional terms does not jeopardize debt sustainability.

39. Growth demands continuous reforms to improve the investment climate. The proposed program would reduce the profit tax, reform other business taxes, further reduce the cost of doing business, and modernize the financial sector.

40. Staff recommends completion of the sixth review of the current PRGF arrangement and approval of the request for two waivers and supports the request of the authorities for a new PRGF arrangement. Niger’s solid track record of program implementation and ownership augurs well for good performance in a new program. Nevertheless, there are risks to the program, especially adverse climatic conditions affecting agriculture and further increases in international food and oil prices.

Appendix I

May 12, 2008

Mr. Dominique Strauss-Kahn

Managing Director

International Monetary Fund

Washington, D.C. 20431

Dear Mr. Managing Director:

1. The government is continuing to implement the policies and reforms envisaged in the PRGF-supported program, which will expire at end-May 2008. By mid-May 2008 all the performance criteria were met, with the exception of two; firstly, the criterion on domestic arrears reduction for end-December 2007, in respect of which we have already taken corrective steps and for which we request a waiver; and second, the increase on the deferment of taxes on petroleum products in early May 2008 above the agreed limit, which was made necessary by the strong increase in international prices, and for which we also request a waiver.

2. Moreover, all the structural measures serving as benchmarks up to end-March 2008 were observed, with the exception of a few structural benchmarks, for which measures are in process of adoption.

3. Economic activity in 2007 was positive, with GDP growth driven by activity in the mining, telecommunications, and construction sectors. Consumer prices, after trending favorably until mid-2007, rose sharply at year-end as a result of increases in the prices of imported agricultural products and petroleum products, so that year-end inflation, on a rolling basis, stood at 4.7 percent.

4. Basic budgetary expenditure in 2007, excluding externally financed investment, remained below program estimates, whereas revenue exceeded the projections. As a result, the fiscal deficit and domestic financing were smaller than anticipated in the program.

5. The government of Niger requests completion of the sixth review under the PRGF-supported program and a new arrangement under the PRGF for the period 2008-11, in support of a program of reforms and measures aimed at sustainable growth and poverty reduction, in a context of macroeconomic stability. The reforms will aim in particular at enhancing the efficiency of public expenditure, mobilizing domestic resources, and strengthening the financial system and the business environment. This program, the main components of which are described in the attached Memorandum on Economic and Financial Policies, is aligned with the objectives of the Accelerated Development and Poverty Reduction Strategy for 2008-12, which was adopted in October 2007. Given the scope of the policies to be implemented, the successful implementation of the 2005-08 program, and the substantial need for external resources in support of growth, the government requests that this new arrangement under the PRGF amount to SDR 23.03 million (35 percent of quota), with a possibility to augment this amount, should this be needed because of further increases in the import prices of hydrocarbon and food staples.

6. As in the past, the government consents to the publication by the IMF of this letter of intent, the MEFP, the technical memorandum of understanding, and the IMF staff report. The government believes that the policies set out in the attached MEFP are adequate to ensure attainment of the objectives of its program but will take any additional measures that may become appropriate for this purpose. Niger will consult the IMF on the adoption of such measures and prior to any change in the policies set out in the MEFP, in accordance with IMF policies on such consultations.

Sincerely yours,

/S/

Ali Mahaman Lamine Zeine

Minister of Economy and Finance

Attachments:

Memorandum on Economic and Financial Policies

Technical Memorandum of Understanding

Appendix I—Attachment I Memorandum of Economic and Financial Policies of the Government of Niger for 2008-11

I. Introduction

1. This memorandum describes the economic and financial policies that the government plans to implement with the support of a new three-year Poverty Reduction and Growth Facility (PRGF) arrangement. The government’s program is based on the policies set out in the Accelerated Development and Poverty Reduction Strategy (DPRS) for 2008-12, which was adopted in October 2007 and is the reference for the assistance provided by Niger’s technical and financial partners. The program emphasizes three components: (i) maintaining a stable macroeconomic framework to ensure that available resources, both internal and external, are used effectively, without having to resort to excessive monetary financing or an external borrowing that is unsustainable over the long term; (ii) improving consistency between budget programming and execution and DPRS priorities, combined with a strategy to expand the tax base to help mobilize the required resources; and (iii) a set of reforms to stimulate growth in the private sector and diversify the economy by reducing the cost of doing business and improving access to financial services.

2. The arrangement is the fifth since the Stand-By Arrangement of March 1994, and the third since the reestablishment of a civilian government in January 2000, following the 1999 elections. Niger made substantial progress in these successive programs. Real growth in GDP per capita was positive, except in 2004 due to the drought; the investment GDP ratio increased; inflation remained moderate; and fiscal revenues and priority public expenditures, including investments financed with own resources, rose significantly.

II. Performance Under the 2005-2008 Program and Recent Economic Developments

3. These achievements were particularly significant during the 2005-2008 program. Average growth reached 5.3 percent from 2005 to 2007, reflecting solid performance in the agricultural, construction, transport, and telecommunications sectors. The investment ratio averaged 22 percent, and was characterized by robust performance in both private and public investment, the latter supported by external assistance. Inflation declined in 2006. Nevertheless, rising hydrocarbon and cereal prices in the second half of 2007 brought the inflation rate at end-2007 to 4.7 percent on a 12-month basis.

4. Food security increased in 2006 and 2007, owing to a record harvest in 2006 and to the reconstitution of the cereal security stocks, which reached 78,000 tons at end-2007. However, as the 2007 harvest was somewhat lower than expected, the vulnerability of the population has increased in some areas. To address this, a plan of action is underway, based on the type of interventions of previous years. It includes food-for-work and cash-for-work programs, sales of food at reduced prices, and nutritional programs for infants and young children.

5. Exports developed favorably in 2005 and 2006, and particularly in 2007 (32 percent growth) following the upward adjustment of 50 percent in uranium export prices. Thus, the current account deficit fell from 9.3 percent of GDP in 2005 to 7.7 percent in 2007; from 2005 to 2007, the capital account recorded substantial surpluses, owing to external public financing and direct investment, and to strong sales of mining assets and of a telecom license in 2007. As a result, Niger’s net international reserves increased substantially.

6. Fiscal revenue (which had stagnated at 8.4 percent of GDP on average throughout the 1990s) grew from 10.8 percent of GDP in 2005 to 15.5 percent in 2007. This increase together with the additional fiscal space resulting from external debt relief under the Heavily Indebted Poor Countries (HIPC) Initiative in 2004 and the Multilateral Debt Relief Initiative (MDRI) in 2006, allowed for an increase in public expenditure from 20.4 percent of GDP in 2005 to 22.3 percent in 2007, and a substantial reduction in domestic arrears. Expenditure in the education, health, and rural development sectors, which rose to 7.8 percent of GDP in 2002, reached 8.1 percent in 2005 and 9 percent of GDP in 2007.

7. The overall fiscal deficit (on a commitment basis) was reduced from 9.6 percent of GDP in 2005 to 6.9 percent of GDP in 2007, and the basic deficit (which excludes public expenditure directly financed by foreign assistance) from 2.8 percent of GDP in 2005 to 0.9 percent in 2007. The outcome reflects a strong fiscal revenue performance in 2007 (11.7 percent of GDP, in comparison with 11 percent in 2006 and 10.3 percent in 2005), with strong growth in VAT and BIC (business profits tax) revenue, and very high nontax revenue (3.6 percent of GDP) from the sale of mining assets and the sale of a telecom license. In 2006 and 2007, the marked increase in nontax revenue helped to accumulate Treasury deposits in the central bank.

8. The money supply grew by 16 percent between 2005 and 2007, and the ratio to GDP increased from 14.2 percent to 18 percent, mainly as a result of increased deposits, reflecting deepening of bank intermediation. Credit to the economy grew from a relatively low starting point by an average of 24 percent per year. The net external assets of the banking system showed significant growth due to uranium mining revenue (issuance of licenses, and special dividends), and the sale of a telecom license in December 2007.

9. The reforms implemented have substantially improved fiscal management. Improvements in the tax and customs administrations have helped to increase revenues. The tax base was expanded and the number of delinquent taxpayers reduced. The monitoring of imports improved, thanks mainly to the establishment of a computer network linking offices in border areas and in Niamey, thereby increasing the effectiveness of oversight. The government also took steps to improve the management of mining resources by amending the oil and mining laws and renegotiating contracts with uranium mining companies in 2007. This, together with the granting of new mining concessions, helped to substantially increase nontax revenue in 2007.

10. At the same time, significant progress was made in expenditure management. A new standardized list established in 2007 helps to identify and track public expenditure on poverty reduction. The improved IT structure of the expenditure system now allows budget execution to be monitored on a monthly and quarterly basis. Priority expenditure funds allocated to the President’s Special Program were closely monitored. The Public Procurement Regulatory Agency regularly publishes the results of public tenders. Financial comptrollers were assigned to all ministries in 2007, and a procedures manual was prepared with technical assistance from the European Union and subsequently adopted. A general directorate for public procurement control, responsible for ex ante controls, was established in 2007, but its various units will not become fully operational until 2008.

11. The 2005 budget accounting law (Loi de règlement) was adopted by the National Assembly in November 2007, and the 2006 law is being reviewed by the Audit Court and will soon be submitted to the National Assembly. The amnesty law for validating the provisional opening balances of 1997 will be approved in 2008. The separation of accounting and administrative functions in the Treasury was established by a decree adopted in 2007.

12. An audit of arrears at end-1999 was conducted in 2005 and a plan to reduce arrears was formulated in April 2007. Since the plan’s inception, arrears have been reduced by an average of CFAF 13.7 billion per year (0.7 percent of estimated GDP in 2007). From 2005 to 2007, priority was given to the payment of wage arrears and public and private supplier arrears.

13. In addition to the reforms aimed at enhancing fiscal management, the government launched initiatives to improve the business climate and commenced an in-depth overhaul of the financial sector. The privatization of Crédit de Niger has been completed. The creation of a new postal bank, Finaposte, is underway and the licensing application will be submitted to the Banking Commission by end September 2008; the microlending sector was reorganized by creating a regulatory authority and recapitalizing Taimako and the savings and loan association Caisses Populaires d’épargne et de Crédit - MCPEC.

14. The results of the 2007 program show that since the last program review, all quantitative performance criteria and indicators at December 31, 2007 were observed, with the exception of the criterion for reducing domestic arrears (CFAF 14.8 billion were cleared, compared with a target of CFAF 15.8 billion)(Table 1a).

Table 1a.

Niger: Quantitative Performance Criteria and Indicative Targets, January 1, 2007-December 31, 2007

(CFAF billions)

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Note: The terms in this table are defined in the TMU.

Performance criteria for program indicators under A and B; indicative targets otherwise.

The ceiling on domestic financing of the budget will be adjusted if the amount of disbursements of external budgetary assistance, as defined in footnote 4, exceeds or falls short of program forecasts. If disbursements are less than programmed, the ceiling will be raised pro tanto up to a maximum of CFAF 20 billion at the end of each quarter of 2007. If disbursement exceeds programmed amounts ceilings will not be adjusted downwards for the the first CFAF 5.0 billion.

Minimum.

External budgetary assistance (including traditional debt relief and HIPC Initiative assistance, but excluding net financing from the IMF) less external debt service and payments of external arrears.

Excluding ordinary credit for imports or debt relief.

Excluding debt relief obtained in the form of rescheduling or refinancing; 50 percent minimum concessionality for new loans from 2006.

Minimum, defined as the difference between total revenue, excluding grants and revenue from the settlement of reciprocal debts between the government and enterprises, and total expenditures, excluding externally financed capital expenditures. If external budgetary assistance (defined in footnote 4), exceeds the amounts programmed, the basic budget balance will be decreased by no more than CFAF 5.0 billion, CFAF5.0 billion.

Minimum. Excluding (i) revenue from the settlement of reciprocal debts between the government and Nigerien enterprises; and (ii) revenue from the privatization of public enterprises that is included in financing.

Table 1b.

Niger: Quantitative Performance Criteria and Indicative Targets, January 1, 2008-December 31, 2008

(CFAF billions)

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Note: The terms in this table are defined in the TMU.

Performance criteria for program indicators under A and B; indicative targets otherwise.

The ceiling on domestic financing of the budget will be adjusted if the amount of disbursements of external budgetary assistance, as defined in footnote 4, exceeds or falls short of program forecasts. of 2008. If disbursement exceeds program med amounts by more than CFAF 5.0 billion, the ceilings will not be adjusted downwards for the the first CFAF 5.0 billion.

Minimum.

External budgetary assistance (including traditional debt relief, HIPC Initiative assistance, but excluding net financing from the IMF) less external debt and payments of external arrears.

Excluding ordinary credit for imports or debt relief.

Excluding debt relief obtained in the form of rescheduling or refinancing.

Minimum, defined as the difference between total revenue, excluding grants and revenue from the settlement of reciprocal debts between the government and enterprises, and total expenditures, excluding externally financed capital expenditures.

Minimum. Excluding (i) revenue from the settlement of reciprocal debts between the government and Nigerien enterprises; and (ii) revenue from the public enterprises that is included in financing.

15. The following structural performance criteria and structural benchmarks were observed (Table 2a):

Table 2a.

Structural Performance Criteria and Benchmarks under the January 2007–January 2008 Program

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16. Regarding the structural benchmark on the regularization of Treasury depositors’ overdrawn accounts and the closure of inactive accounts, the largest account receivable was closed in December 2007 (Francophone Games account), and inactive accounts were closed in March 2008. The reduction of the threshold amount for public procurement projects to be submitted to the General Directorate for Control of Government Procurement, from CFAF 300 million to CFAF 100 million, was postponed until September 30, 2008 to avoid disrupting the implementation phase of this new directorate.

17. Cross-arrears settlement between the Treasury and the telephone company Sonitel is still under discussion. Agreements to settle Treasury arrears with banks could not be reached, due to:

III. Medium-Term Objectives and Macroeconomic Framework for 2008–11

18. The government’s main challenge is to consolidate economic growth and reduce poverty while maintaining the fiscal equilibrium required for macroeconomic stability. In accomplishing this, the government’s strategy is to maintain the budget deficit at a level that can be financed using external assistance; increase domestic tax revenue to allocate more resources to priority spending, while improving the effectiveness of public spending; and promote the development of the private sector, which is essential for long-term growth, by systematically improving the business climate.

Macroeconomic framework

19. The macroeconomic framework of the 2008–11 program is based on an average annual growth rate of about 5 percent, which is compatible with the intermediate scenario of the DPRS, and which corresponds to the average of the past three years. Growth will be supported by investments in the agricultural sector in the context of the implementation of the rural sector strategy (increasing irrigated lands, building new dams and hydraulic facilities, and improving livestock), highway infrastructure, transport, energy, and the mining sector (development of new uranium mines). Uranium production should more than double by 2012. The growth rate could be higher if external financing exceeds the current projections of a flow of external aid remaining at about 10 percent of GDP. As for inflation, the objective is to limit the average annual rate to 2 percent for the duration of the program, in compliance with WAEMU convergence criteria.

20. The external current account deficit may rise, despite increases in both the volume and the value of uranium exports, due to substantial investments in the mining sector and infrastructure, with a significant import component. Large amounts of private capital inflows, as well as official development assistance, should finance this deficit and lead to some increase in net foreign assets.

21. The basic fiscal deficit for 2009–11 is expected to remain at close to 2 percent of GDP to be financed by external budgetary assistance. The deficit will rise in 2008, reflecting additional priority expenditures financed by special nontax revenue received in 2007.

22. One of the primary objectives of the program is to improve fiscal management in terms of budget preparation, execution, and oversight, in particular to ensure that the annual government budget is consistent with DPRS priorities and the Medium-Term Expenditure Frameworks (MTEF) for priority ministries (education, health, and rural development, whose MTEFs are being updated, as well as equipment and transport, whose MTEF is being prepared). The annual DPRS implementation reports will be prepared in July each year, so that the status of priority programs is taken into account in the preparation of the budget for the following year.

23. The 2009 budget law will include as an annex the investment programs for 2009-12 for priority sectors of the DPRS and the MTEFs for these sectors; nevertheless, these MTEFs should be validated according to the macroeconomic framework in order to ensure their compatibility with available resources. To meet additional needs for implementing the DPRS, efforts will be made to mobilize donor assistance and fiscal resources. The 2009 budget will also include in an annex a presentation by programs of DPRS priority actions, and list the available internal and external resources and the remaining gaps. An overall public expenditure framework will be prepared by 2010.

Fiscal management

24. The government is currently reinforcing the tracking of poverty-reducing expenditures to prevent any delays in implementation. To this end, (i) funds have been disbursed more rapidly at the beginning of the year; (ii) procedures for expenditure commitments and authorizations will be expedited through the new pilot unit, of the Ministry of Finance expected to begin operations on June 1, 2008. In the long term, in common with other countries in the subregion, the main line ministries should gradually assume responsibility for payment orders. Reports on physical and budgetary execution will be prepared at semiannual intervals for the health and education sectors, and will be sent to development partners, who provide budgetary support to the various sectors. The release of funds for the decentralized budgetary units will be accelerated so that these units can effectively fulfill their duties. The computerization of the decentralized centers (centres de sous-ordonnancements), which is already underway, will help to expedite the monitoring of the execution of these outlays.

25. Budget allocations to DPRS priority sectors (health, education, rural development, equipment, water resources, the environment) have increased in recent years, and also in the 2008 supplementary budget law, and will account for 13.2 percent of GDP in 2008. This ratio will remain at this level or be increased from 2008 to 2011. Resources for road maintenance will be substantially increased from just CFAF 3 billion in 2007 to at least CFAF 5.5 billion in 2009.

26. Given the burden of domestic arrears on the production sector, we established specific targets for reducing these arrears by creditor type have been established from 2008 to 2011.

27. The government will continue to strengthen the transparency and oversight of fiscal management. In particular, it will increase the resources available to the General Directorate of Government Procurement (DGCMP) and the Audit Court, which were recently created and which benefit from technical assistance from a number of donors. The law transforming the accounts chamber into an independent Audit Office was promulgated on October 15, 2007 and published in the Official Gazette dated March 27, 2008. Training for verifiers and auditors in the Audit Court will benefit from the technical assistance from development partners, including the partners who helped to develop the manual of procedures. This training will be enhanced.

28. The General Inspectorate of Finance is being strengthened. Government inspections will focus on physically verifying results in the priority sectors by preparing detailed and periodic reports, which will facilitate the monitoring of DRPS implementation.

29. Inspections of the implementation and results of the President’s Special Program, funded with HIPC resources, are programmed for 2008.

30. The public finance and expenditure accountability assessment (Public Expenditure and Financial Accountability Program–PEFA) will be carried out in 2008 in coordination with the development partners. To this end, a technical committee was created in February 2008 to monitor this assessment. The team of international experts will be selected by end-April 2008 and will conduct the assessment by end-September 2008.

31. The tax base will be expanded by enhancing the research and inspection units, in particular by increasing the number of economic agents subject to the account based taxation regime and by improving audits. Real estate taxation will be reinforced, mainly to increase revenues from local governments. Initiatives in the customs administration will focus on using data on cargos at the port of embarkation and on ex post controls. target goal is to increase fiscal revenue by 1.5 percent of GDP in three years so as to attain 13.1 percent of GDP in 2011.

32. External debt management will continue to be monitored carefully to avoid any accumulations that could compromise debt sustainability. The Public Debt Directorate will be strengthened by providing adequate training for staff so that it can effectively discharge its duties of analyzing the impact of the new loans being negotiated on long-term debt sustainability.

33. Given the importance of avoiding unsustainable debt levels, the government encourages its external partners to scale up their financial aid through grants or highly concessional loans so as to proceed more rapidly toward achieving the MDGs. The macroeconomic framework for 2008-11 could be updated to account for the additional commitments made by our partners, which we hope will surpass 2007 levels (8.5 percent of GDP). The government expects that Niger could absorb much more aid inflows than in 2007 without threatening macroeconomic stability.

Improvement in the business climate and the financial sector

34. Efforts are needed to improve the business climate and facilitate access to financial services to support growth. A series of measures was developed (see below), as a continuation of those already taken over the past few years, which included lowering the business registration tax and startup costs. To improve access to financial services, the government will complete the reforms underway to establish FINAPOSTE and unfreeze deposits in the former savings bank (performance criterion for end-September 2008). One of the government’s priorities for the development of financial services is to enhance credit to agriculture. In this regard, emphasis will be put on the development of finance networks, which are less developed in Niger as they are in other WAEMU countries. Following the WAEMU financed sector regional assessment conducted in 2007, the government will participate in the Financial Sector Assessment Program (FSAP) for Niger and use the conclusions and recommendations of that assessment to develop the most useful reforms.

IV. 2008 Program
A. Macroeconomic framework and fiscal policy

35. The main objectives of the 2008 program are to support the growth of GDP, which should surpass 4 percent as a result of continued structural reforms, and to maintain fiscal balance by allocating additional resources from the mining sector and the sale of the telecom license to priority sectors in compliance with DPRS objectives. Growth in GDP should be supported by the impact of investments in the mining sector and infrastructure, both private and public, and by growth in the construction, energy, and transport sectors. The current account deficit is expected to increase in comparison with 2007 and reach 9.7 percent of GDP, despite surging uranium export prices, due to the sharp increase in the price of imported food products and petroleum products and to investment-related imports.

36. Efforts to improve the quality and transparency of fiscal management will be reinforced as part of the PEMFAR (Public Expenditure Management and Fiscal Accountability Review) initiative. Particular attention was given to the more rapid consumption of budget envelopes for priority sectors, thanks to the fact that competitive bidding procedures for procurement were launched in 2008 without waiting for appropriations. The establishment of a pilot unit, planned for mid-2008, will expedite expenditure procedures, particularly appropriation commitments. Eventually, in 2009, financial comptrollers in the ministries can be given responsibility for confirming expenditure commitments, thereby reducing the centralization of expenditure in the Ministry of Finance.

37. In addition to the initial budget for 2008, approved in December 2007, a supplementary budget will be submitted to the National Assembly in June 2008 to allocate additional resources of CFAF 70 billion (3.2 percent of GDP). The bulk of these resources were obtained at end-2007, and includes 15 billion from extra dividends of mining companies, 20 billion from the sale of mining assets, and 31 billion from the sale of a telecom license. Moreover, in order to dampen the strong increase of prices of imported food staples, the government has proposed, in the context of the supplementary budget for 2008 presently under consideration by the National Assembly, some detaxation of key products (rice, vegetable oil, sugar, and wheat flour). These would bring about a hortfall of tax revenue of CFAF 12.4 billion (0.56 percent of GDP), and would be offset by a projected increase of revenue from the profit tax on mining companies and mining royalties, as a result of the renegotiation of the export price of uranium for 2008, and tax compensation from the WAEMU and the ECOWAS, for a total of CFAF 11.9 billion (0.53 percent of GDP), with a net shortfall of CFAF 0.6 billion. These measures complement those underway in the rural areas to increase food security for the most vulnerable groups. Over the medium-term, the actions undertaken to strengthen agricultural production in the context of the rural development strategy should increase the country’s self-sufficiency and reduce its exposure to international food price fluctuations.

38. The supplementary budget increases expenditures by CFAF 78.4 billion (3.6 percent of GDP). It allocates more funds for security and development expenditures (CFAF 10 billion and CFAF 45.5 billion, respectively), and includes an adjustment of CFAF 11 billion for wage allowances. Development expenditures include an additional allocation of CFAF 3.8 billion to ensure free health care for children and expectant mothers, bringing the total of CFAF 7.8 billion, Substantial funding is provided for agricultural and livestock development (irrigated lands, land management, animal vaccinations, purchase of fertilizers, modern slaughterhouse, improvement of livestock, modernization of rice ginning by Riz du Niger).

39. Expenditures will be managed more rigorously by (i) enhancing financial oversight and the procurement units in the ministries through training programs supported by the Public Procurement Regulation Authority (ARMP); (ii) increasing staff in the General Directorate for Control of Government Procurement; (iii) improving the functioning of the decentralized spending units centers; and (iv) further to strengthening the Audit Court by recruiting additional staff. In addition, the ARMP will conduct procurement audits, with the assistance of the European Union. In the Treasury, the computerization of General Fund (Caisse Générale) operations, essential for improving its functioning and transparency, is underway and should be completed in the first half of 2009.

40. Tax revenue is projected to 11.5 percent of GDP in 2008. CFAF 15 billion arises. Nontax revenue is expected to reach CFAF 26.5 billion (1.2 percent of GDP), of which special dividends from uranium companies received by the Treasury in January 2008. The tax and customs administration will pursue their efforts to combat tax evasion and monitor the tax base. The key measures being taken in the tax directorate are to: (i) enhance the investigation and research unit and the audit unit by recruiting more personnel; the primary objective should be to increase the number of registered economic agents with a tax identification number to cover unregistered economic agents, of taxpayers registered erroneously under the regime of the synthetic tax (regime NIF P, designed for small operators); (ii) improve tax audit, especially for businesses outside Niamey; (iii) prepare an effective VAT credit refund system for exporters, and monitor exemptions under the investment law more carefully; to this end, a law or decree will be adopted by end-December 2008 to spell out the principles and modalities for the full refund of VAT credits to all exporting enterprises, including mining companies (performance criterion); (iv) increase the collection of real estate taxes, particularly from individuals in 2008, by hiring more registry personnel. The distribution of revenue from real estate taxes and the global business license tax (patente synthétique) between central government and the local authorities will be reviewed in the 2009 budget law with a view to increasing revenue for the latter.

41. Additional taxation reforms will be launched as part of the current overhaul of the Tax Code, which should include a review of the tax advantages granted under the investment law. Thus, a reduction of the business profits tax (BIC), as in the other countries of the region, together with a review of the tax advantages granted under the investment code, appears appropriate. Regarding the real estate tax on the fixed capital formation of corporations, an assessment of this tax’ possible disincentive effect on investment will be made. The government will request a technical assistance from the Fiscal Affairs Department of the Fund before finalizing these reforms.

42. Efforts in the customs administration will focus on: (i) introducing measures to monitor cargos en route to Niger from their ports of embarkation using cargo tracking forms; this form became mandatory in a joint decree issued by the Ministries of Finance and Transport and adopted in February 2008; (ii) linking the main border offices and regional customs offices to allow for more rigorous monitoring of merchandise undergoing customs clearance; (iii) improving valuation controls with the assistance of the inspection company; and (iv) enhancing ex post controls, including site visits and warehouse inventories.

43. In addition, to protect fiscal revenue, the government will continue to apply the monthly pricing mechanism with respect to retail prices of petroleum products, in accordance with the provisions set forth in the August 2001 decree. The overall tax per liter in CFA francs on an average monthly basis, calculated on a rolling six month period, will not fall below the level of March 2007. In the event of an emergency situation necessitating a review of this policy, the government will consult with Fund staff on the adoption of appropriate measures.

44. The target for reducing domestic arrears in 2008 has been set at CFAF 15.2 billion, which includes the reduction of outstanding Treasury balances (Restes à payer–RAP) for the 2006 fiscal year and previous years. This reduction was broken down by sector, and focuses on eliminating arrears with private suppliers and finalizing the agreement with commercial banks and the National Social Security Fund (CNSS). The frozen deposits of the former National Post and Savings Office (ONPE) will be paid back gradually, in accordance with the procedures to be defined by end-June 2008 (performance criterion). Reductions in arrears for 2009 and 2010 should help to clear virtually all arrears. The balances of RAPs at end-2008 for the 2008 fiscal year should not exceed those recorded at end-2007 for the 2007 fiscal year. Any excess will be considered as an accumulation of arrears to be deducted from the reduction of arrears as defined at the beginning of this paragraph.

45. Following the substantial accumulation of CFAF 36 billion in deposits (1.8 percent of GDP) in the BCEAO in 2007, some CFAF 47 billion of these deposits are expected to be used in the 2008.

B. Money, credit, and reforms in the financial sector

46. In 2008, monetary policy will continue to be pursued at the regional level with the aim to containing inflation and maintaining a sufficient level of international reserves. Growth in credit to the economy is projected at about 12 percent, and the money stock could increase faster than nominal GDP, as it did in 2007. The central bank’s foreign assets should continue to grow at a moderate rate.

47. Financial sector reforms will continue, with the beginning of Finaposte operations expected in the second quarter, the resumption of the activity of the Crédit du Niger, and the enhancement of microfinance networks, supported by technical assistance from a number of donors. The monetary authorities will remain vigilant to ensure compliance with prudential ratios and safeguard the good quality of loans to stem the increase in the rate of nonperforming loan observed in 2006-2007 (nonperforming loans ratio was 21.8 percent at end-2007).

C. External Financing

48. The amount of budgetary assistance is expected to reach CFAF 80.8 billion in 2008, including the disbursement of the amounts already programmed for EU (CFAF 10.5 billion) and World Bank (CFAF 12 billion) budgetary assistance in 2007. The government will not contract loans with a grant element of less than 35 percent. Moreover, the government will endeavor to contract new loans at the most favorable terms, with grant elements higher than this floor. It will consult with IMF staff on any borrowing under consideration when the grant element, although higher than 35 percent, is close to this minimum. In addition, the government will enhance public debt service to improve debt planning and verify debt sustainability; to that end, it will conduct yearly a debt sustainability assessment. The Ministry of Finance will prepare semi-annual reports on debt contracted and terms, and on the forthcoming borrowing program for the next six months, with envisaged terms (structural benchmark).

D. Other Structural Reforms

49. Improving the business climate is a key factor for ensuring sustained growth over the medium term and for diversifying the economy. In this regard, the government has formulated action plan, which was discussed with the World Bank and representatives of private investors. The plan emphasizes the following measures: (i) reducing the number of procedures required to set up a business from 11 to 8 by end-2008; (ii) reducing the number of days required for property transfers from 49 in 2006 to 19 in 2008; and (iii) streamlining procedures for registering land titles, through improvements in the management of the land registry. In terms of essential business services, the provision of electricity improved in 2007 following completion of the grid interconnection with Nigeria by Nigelec.

50. The government is committed to making the mining sector transparent and attractive to investors, in compliance with WAEMU rules. The mining law adopted in 2006 was amended in early 2008 to make the institutional framework more attractive for large investments.

51. Niger endorsed the principles of the Extractive Industries Transparency Initiative (EITI) in 2005. The first report on the reconciliation of payment data by mining operators and government revenues for 2005-06 will be prepared by an independent consultant in 2008, and will be followed by a second report for 2007. Using the resources in the EITI Trust Fund, an action plan will be implemented in 2008 to (i) boost the capacity of the various actors (Ministry of Finance, Ministry of Mines, civil society, businesses) and (ii) improve the communications system.

V. Program Monitoring

52. Program monitoring will be based on continuous and semiannual quantitative performance criteria, structural performance criteria (including some continuous criteria), and quantitative and structural benchmarks (Tables 1b and 2b). The performance criteria and benchmarks are defined in the Technical Memorandum of Understanding. The quarterly ceiling on domestic financing—net of the position with the IMF—will be adjusted upwards in case external budgetary assistance (net of external debt service) falls short of program projections, up to a maximum of CFAF 30 billion. This should allow for execution of the program of priority expenditures for poverty reduction and—in the event of an overrun—facilitate more rapid execution of this program.

53. Niger will conduct two reviews with the Fund to evaluate the progress made during the first year of program implementation; the first review will be carried out by end- November 2008, and the second by end-April 2009.

Table 2b.

Structural Performance Criteria and Benchmarks under the March 2008–March 2009 Program

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Appendix I—Attachment II Technical Memorandum of Understanding

Niamey, May 12, 2008

1. This technical memorandum of understanding defines the performance criteria and indicative targets for Niger’s program under the Poverty Reduction and Growth Facility (PRGF) for the period 2008–11. The performance criteria and indicative targets for end-June and end-December 2008 are set out in Table 1 of the government’s Memorandum of Economic and Financial Policies (MEFP) dated May 12, 2008 and attached hereto. This technical memorandum of understanding also sets out the data-reporting requirements for monitoring the program.

I. Definition of Terms

2. For the purpose of this technical memorandum, the following definitions of "debt," "government," "payments arrears," and "government obligations" will be used:

  • (a) As specified in point 9 of the Guidelines on Performance Criteria with Respect to Foreign Debt adopted by the Executive Board of the IMF on August 24, 2000, debt will be understood to mean a current, that is, not contingent, liability, created under a contractual arrangement through the provision of value in the form of assets (including currency) or services, and which requires the obligor to make one or more payments in the form of assets (including currency) or services, according to a specific schedule; these payments will discharge the obligor of the principal and/or interest liabilities incurred under the contract. Debts can take a number of forms, the primary ones being as follows: (i) loans, that is, advances of money to the obligor by the lender made on the basis of an undertaking that the obligor will repay the funds in the future (including deposits, bonds, debentures, commercial loans, and buyers’ credits) and temporary exchanges of assets that are equivalent to fully collateralized loans, under which the obligor is required to repay the funds, and usually pay interest, by repurchasing the collateral from the buyer in the future (such as repurchase agreements and official swap arrangements); (ii) suppliers’ credits, that is, contracts where the supplier permits the obligor to defer payments until some time after the date on which the goods are delivered or services are provided; and (iii) leases, that is, arrangements under which property is provided that the lease holder has the right to use for one or more specified period(s) of time that are usually shorter than the total expected service life of the property, while the lease grantor retains the title to the property. For the purpose of this guideline, the debt is the present value (at the inception of the lease) of all lease payments expected to be made during the period of the agreement, excluding those payments necessary for the operation, repair, or maintenance of the property. Under the definition of debt set out above, arrears, penalties, and judicially awarded damages arising from the failure to make payment under a contractual obligation that constitutes debt are debt. Failure to make payment on an obligation that is not considered debt under this definition (for example, payment on delivery) will not give rise to debt.

  • (b) Government refers to the central government of the Republic of Niger; it does not include any political subdivision, public entity, or central bank with a separate legal personality.

  • (c) External payments arrears are external payments due but not paid. Domestic payments arrears include (i) arrears outstanding at end-1999 identified by the audit conducted by the Ministry of Finance in 2005; (ii) the reste à payer at the Treasury related to the budgetary years 2004, 2005 and 2006, remaining due at December 31, 2007.

  • (d) Government obligation is any financial obligation of the government accepted as such by the government (including any government debt).

II. Quantitative Performance Criteria

A. Net Domestic Financing of the Government
Definition

3. Net domestic financing of the government is defined as the sum of (i) net bank credit to the government, as defined below; (ii) net nonbank domestic financing of the Government, including government securities issued in CFA francs on the WAEMU regional financial market and not held by resident commercial banks, proceeds from the sale of government assets, and privatization receipts net of the cost of structural reforms to which these proceeds are earmarked.

4. Net bank credit to the government is equal to the balance of the government’s claims and debts vis-à-vis national banking institutions. Government claims include cash holdings by the Nigerien Treasury, deposits with the central bank and commercial banks, and secured obligations. Government debt to the banking system includes debt vis-à-vis the central bank (excluding net financing from the IMF’s Poverty Reduction and Growth Facility (PRGF), but including government securities) and to commercial banks (including government securities held by commercial banks), and deposits with the postal checking system.

5. The scope of the net bank credit to the government as defined by the BCEAO includes all central government administrations. The net bank credit to the government and the amounts of government treasury bills and bonds issued in CFA francs on the regional financial market of the WAEMU are calculated by the BCEAO, and the net nonbank financing of the government is calculated by the Nigerien Treasury, whose figures are those deemed valid within the context of the program.

6. Nonbank net domestic financing includes: (i) the change in the amount of government bonds issued in the regional WAEMU market and not held by Niger’s commercial banks; (ii) the change in the deposits of Treasury correspondents; (iii) the change in "comptes de consignations" at the Treasury.

7. The 2008 quarterly targets are based on the change in the level of stock between end-December 2007 and the date considered for the performance criterion or the indicative target.

Adjustment

8. The ceiling on net domestic financing will be subject to adjustments if disbursements of external budgetary support less external debt service and arrears payments, including disbursements under the PRGF, fall short of projected amounts. For 2008, external budget support is calculated from end-December 2007.

9. In the event disbursements fall short of projected external budgetary assistance for each end of quarter in 2008, the corresponding quarterly ceilings on net domestic financing will be raised pro tanto, up to a maximum of CFAF 30 billion.

Reporting requirement

10. Detailed data on domestic financing to government will be provided monthly within six weeks following the end of each month.

B. Reduction of Domestic Payments Arrears
Definition

11. Domestic payments arrears comprise: (i) arrears identified at end-1999 on the basis of the audit conducted by the Ministry of Finance in 2005; (ii) the restes à payer(RAP) at the Treasury regarding the budget years 2006 and earlier, outstanding at end-2007. The stock of arrears will be reduced to the minimum of the amounts indicated in Table 1 annexed to the MEFP. The quarterly objectives for 2008 are based on the changes in the stock of arrears at end-December 2007 and the date selected for the performance criterion or indicative target. The stock of RAP at end-2008 regarding the 2008 budget year will not exceed the stock of RAP outstanding at end-2007 regarding the 2007 budget year; any excess will be considered an increase in arrears, that will be deducted from the reduction of arrears as defined as the beginning of this paragraph.

12. The Centre d’Amortissement de la Dette Intérieure de l’Etat (CADDIE) and the Treasury are responsible for calculating the stock of domestic arrears, and recording their repayments.

Reporting requirement

13. Monthly data on the outstanding balance, accumulation (including changes in the restes à payer at the Treasury), and repayment of domestic payments arrears on government obligations will be provided monthly within six weeks following the end of each month.

C. External Payments Arrears
Definition

14. Government debt is outstanding debt owed or guaranteed by the government. Under the program, the government undertakes not to accumulate external payments arrears on government debt (including treasury bills and bonds issued in CFA francs on the WAEMU regional financial market), with the exception of external payments arrears arising from government debt being renegotiated with external creditors, including Paris Club creditors.

Reporting requirement

15. Data on the outstanding balance, accumulation, and repayment of external payments arrears will be provided monthly within six weeks following the end of each month.

D. External Nonconcessional Loans Contracted or Guaranteed by the Government of Niger

Definition

16. The government will not contract or guarantee external debt with original maturity of one year or more with a grant element of less than 35 percent. Nonconcessional external debt is defined as all debt with a concessionality level of less than 35 percent. To calculate the level of concessionality for loans with a maturity of at least 15 years, the discount rate to be used is the ten-year average commercial interest reference rate (CIRR), calculated by the IMF on the basis of the rates published by the OECD; for loans of less than 15 years, the six-month average CIRR is to be used. The Ministry of Finance will communicate regularly to the Fund staff the list of loans under negotiations. It will prepare semi-annual reports on external debt contracted and its financial terms, and on the borrowing program for the next six months and the envisaged financial terms, and will transmit these reports to Fund staff.

17. This performance criterion applies not only to debt as defined in point 9 of the Guidelines on Performance Criteria with Respect to Foreign Dept adopted by the Executive Board on August 24, 2000, but also to commitments contracted or guaranteed for which value has not been received. However, this performance criterion does not apply to financing provided by the Fund, to debt rescheduling in the form of new loans, and to treasury notes and bonds issued in CFA francs on the WAEMU regional financial market.

Reporting requirement

18. Details on any external government debt will be provided monthly within six weeks following the end of each month. The same requirement applies to guarantees extended by the central government.

E. Short-Term External Debt of the Central Government

Definition of the performance criterion

19. The government will not accumulate or guarantee new external debt with original maturity of less than one year. This performance criterion applies not only to debt as defined in point 9 of the Guidelines on Performance Criteria with Respect to Foreign Debt adopted on August 24, 2000, but also to commitments contracted or guaranteed for which value has not been received. Excluded from this performance criterion are short-term, import-related trade credits and short-term treasury notes issued in CFA francs on the regional financial market.

Reporting requirement

20. Details on any external government debt will be provided monthly within six weeks following the end of each month. The same requirement applies to guarantees extended by the central government.

III. Quantitative Targets

A. Definitions

21. Total revenue is an indicative target for the program. It includes tax, nontax, and special accounts revenue, but excludes revenue from the settlement of reciprocal debts between the government and enterprises.

22. The basic fiscal deficit is defined as the difference between: (i) total fiscal revenue as defined in paragraph 23; and (ii) total fiscal expenditure excluding foreign financed investment (but including HIPC-financed investment).

23. This information will be provided to the IMF monthly within six weeks following the end of each month.

IV. Additional Information for Program-Monitoring Purposes

A. Public Finances

24. The government will report to IMF staff the following:

B. Monetary Sector

25. The government will provide the following information within eight weeks following the end of each month:

C. Balance of Payments

26. The government will provide IMF staff with the following information:

D. Real Sector

27. The government will provide IMF staff with the following information:

E. Structural Reforms and Other Data

28. The government will provide the following information:

Summary of Main Data Requirements

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1

From 2003 to 2007 the decrease in external debt service was equivalent to 2.3 percent of GDP and the increase in government revenue to 2.7 percent of GDP.

2

A waiver for this loan was granted at the time of the fourth review under the arrangement (IMF Country Report (CR# 07/261).

3

Although between 2000 and 2007 the tax revenue/GDP ratio rose by 3.1 percentage points of GDP, it remains below the WAEMU average. Compared to other landlocked Sahelian countries, the ratio for Niger is in line with Burkina (12.2 percent of GDP), better than Chad (10.1 percent of nonoil GDP), but lower than Mali (15.1 percent of GDP).

4

This amount includes frozen deposits at the former postal savings bank.

5

Results published in 2007 are based on 2005 data.

6

Core inflation is defined here as nonfood inflation.

7

The real effective exchange rate (REER) is 18 percent below its predevaluation level (staff estimates update the calculations of WP/07/194 using a similar methodology).

8

In March 2008, the food component of the consumer price index was 15.5 percent above its March 2007 level; the prices of rice, unprocessed cereals, and vegetable oil were respectively 20 percent, 25 percent, and 27 percent higher.

9

Waivers for this PC were granted at the time of the fourth and fifth reviews to cover failure to eliminate tax deferments on petroleum products between April and October 2007.

10

Under the proposed new PRGF arrangement, the pricing of petroleum products—no longer a performance criterion—will be subject to a minimum tax take calculated on a rolling six-month period (MEFP ¶43).

11

The PRSP also contains a high-growth scenario of 7 percent average growth, which would make it possible to cut poverty in half by 2015, thus attaining the first MDG. However, this scenario requires a tripling of external aid from 11 percent of GDP in 2007. The Joint IDA-IMF Staff Advisory Note for the new PRSP was circulated to the Executive Board on March 18, 2008 (Country Report # 08/167).

12

According to World Bank, Doing Business 2007, Niger ranks 160th out of 175 countries on ease of doing business.

13

Niger outperforms the WAEMU average in three dimensions: property registration, payment of taxes, and contract enforcement.

14

This result is different from that in the October 2007 DSA, when the NPV of debt-to-exports ratio threshold was breached when all loans contained a 35 percent grant element; the difference is due to the significantlyhigher export profile resulting from the recent increase of uranium export prices.

15

The one-off revenue from mining is the result of exceptional dividends agreed during negotiations for a new export price and special fees for exploration rights in areas where discoveries had previously been made but not exploited. Although opportunities for similar revenue may arise again, the amounts are likely to be much lower.

16

Exports in volume would remain stable in 2008 because of some decline in uranium production in existing mines, while new capacity is not yet operational, and a reconstitution of cattle herds after large drought-related exports in recent years.

Other IMF Content

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Cover IMF Staff Country Reports
Niger: Sixth Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility, Request for Waiver of Nonobservance of Performance Criteria, and Request for a New Three-Year Arrangement Under the Poverty Reduction and Growth Facility: Staff Report; Staff Statement; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Niger
Author:
International Monetary Fund
Volume/Issue:
Volume 2008: Issue 211
Publisher:
International Monetary Fund
ISBN:
9781451828818
ISSN:
1934-7685
Pages:
90
DOI:
https://doi.org/10.5089/9781451828818.002

GDP Growth, Investment and Aid are all Increasing

Creating Fiscal Space, 2001 - 2011
Figure 1.

Niger: Selected MDG Indicators

Despite the nominal appreciation of the CFAF against the U.S. dollar…

the real effective exchange rate remains aligned with fundamentals.

Higher aid can lead to higher growth…

... without endangering economic stability.

External debt is sustainable…