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 would like to convey my Nigerien authorities’ deep appreciation of the strong relationship and constructive dialogue that Niger maintains with the Fund. In particular, they thank staff for their collaborative engagement. The valuable policy advice of staff has been critical in contributing to maintain the PRGF program on track, particularly in a context of security concerns in the northern part of the country, which is compounded by the high—and still rising—oil and food prices, as well as cereal security concerns. My authorities appreciate staff’s analysis on the key challenges facing the country over the medium term, and they look forward to continued dialogue on the policy priorities for the period ahead.
The successful implementation of the two consecutive PRGF arrangements over 2000-2004 and 2005-2008, as well as the lessons drawn from the satisfactory execution of the 2002- 2005 PRSP, has enhanced my Nigerien authorities’ program ownership. Such a positive development has contributed to improving their ability to manage Fund-supported programs, while enhancing the credibility of their commitment to future reforms. As many challenges still lie ahead, and given the remaining institutional and human capacity gaps, continuous Fund engagement in Niger is of critical importance. In this regard, in implementing a new Fund-supported program, my authorities intend to build upon the positive outcomes obtained during the current program, in particular by further improving the country’s financial position through the strengthening of existing revenue mobilization measures and a better control of quality expenditures, while taking advantage of lessons drawn from weaknesses experienced throughout these years.
Based on their policy and reform track record since the last review, my authorities request waivers for the two missed performance criteria and the completion of the sixth review under the current PRGF program. They also request Board’s approval of a successor PRGF program to enable them to tackle the remaining macroeconomic and structural reform challenges the country still faces.
I. Recent Economic Developments and Performance under the PRGF Program
Niger has made significant strides towards macroeconomic stabilization. GDP per capita has grown throughout the two PRGF-supported programs, with the exception of 2004 where drought shocks hit the economy with a significant adverse impact on agricultural production. Many social indicators, notably in the education and health areas have improved, enabling Niger to make progress among member countries in the UNDP Human Development ranking. Political stability, reflecting a good functioning of democratic institutions, and exceptional weather conditions are among the key reasons of these welcome developments.
Annual growth reached an average rate of 5.3 percent between 2005 and 2007 against 4.1 percent in 2002-2004. This reflects broad-based economic activities, stemming not only from the agriculture sector but also from construction, transport, and telecommunications sectors. However, facing the high political and social risks(including risk of riots) of the continued trend of increasing food prices, my authorities have suspended taxes on imported rice. They have also taken this opportunity to strengthen adequately food security, by accelerating the replenishment of cereal security stocks, which reached 78,000 tons at end 2007 against 65,000 tons last August. Efforts are underway aiming at boosting local rice production, revamping groundnut production and increasing oil refining.
With technical assistance from the Fund, the World Bank and other donors, my Nigerien authorities have diligently implemented several reform measures aimed at improving public finance management. These include the reinforcement of tax and customs administration, the simplification of tax code, the reduction of the number of nonfilers, the adoption of new budget classifications, which could facilitate the identification of poverty-related spending, the tightening of custom controls and procedures for procurement, and a better monitoring of budget execution. As a result, the level of revenue collection increased steadily, along with that of priority spending, while the basic budget deficit was brought back to an average of 1.1 percent of GDP between 2005 and 2007 (from 2.9 percent of GDP in the period 2002-2004). The good track record of policy implementation helped Niger benefit from HIPC and MDRI debt relief, bringing thereby the debt-to-GDP ratio from 52 percent at end 2005 to 16.3 percent at end 2007.
Thanks to the growing interest of external investors in the mining and telecommunications sectors, as well as the positive effect of the upward adjustment of 50 percent in uranium export prices, the external current account improved markedly. As for the capital account, capital inflows originated from both public and private external sources, with the later comprising mainly direct investments.
On the monetary and financial front, positive developments reflected banking sector’s holding of substantial external assets. Credit to the economy has also continued to expand, accompanied by several reforms aimed at improving the financial soundness of banking institutions. Other structural endeavors comprise efforts to ensure financial soundness of public enterprises and to improve the business environment.
The program performance since the last review has been broadly satisfactory. All quantitative performance criteria were met, except that related to the reduction of domestic arrears, which was missed by a small margin and was observed in February 2008. A preliminary assessment at mid-May 2008 shows continuous observance of these criteria up to date.
As regards structural performance criteria, all of them were met at end-2007. However, the continuous structural performance criterion on the pricing of petroleum products was missed in May 2008. This nonobservance is due to a recourse to tax deferment given that, with the current level of international oil prices, it became impossible to apply the full pass-through without incurring the risk of violent social unrests, similar to those experienced in March 2005 and recently experienced in many countries in the region. I have many times in the Board raised concerns over such real difficulties experienced by a number of countries in my constituency in the application of the automatic oil price adjustment mechanism. The approach to this problem should be reconsidered more profoundly by the Fund with the aim to take into account the capacity and political economy constraints facing the individual countries, particularly in face of the current world oil and food price shocks. Regarding the structural benchmarks, 8 out of 11 of them were met. Regarding the two among the three missed benchmarks related to the settlement of arrears with local companies, my authorities are seeking a credible framework of negotiations, which could be acceptable by both parties. The completion of the third benchmark, which is related to the reduction of threshold of contracts on public procurement from CFAF 300.to CFAF 100 million, was rescheduled for September 2008.
II. Key challenges and Medium-term objectives
My Nigerien authorities are in full agreement with the staff on the key challenges they face going forward, which have been laid out in their Accelerated Development and Poverty Reduction Strategy. These include the need to consolidate growth and reduce poverty while preserving fiscal and debt sustainability.
Regarding the annual rate of 5 percent retained as medium-term growth objective under a new PRGF arrangement, my authorities recognize that it is not sufficient to meet all the MDGs by 2015. However, this objective has been set based on realistic assumptions which are consistent with the current economic and structural constraints facing the Nigerien economy, in particular the limited access to financing, the inadequate private sector support mechanisms in the country, and the weak business environment whose improvement requires several reforms currently underway. Other reforms aimed at boosting growth include measures to modernize agriculture, diversify the production and export bases, and enhance competitiveness.
In their new strategy of poverty reduction, my authorities have put emphasis on developing infrastructure. To this end, they have taken steps to finalize the medium-term expenditure framework (MTEF) for infrastructure and transportation, after those already achieved for education, health, and rural sectors. In their efforts to track priority spending, they have established since 2007 a standard list aimed to identify this category of expenditure, and envisage for the coming years to raise the level of these outlays beyond the current 13.2 percent of GDP. In their daunting endeavors to build infrastructure and reduce poverty, my authorities greatly appreciate the timeliness and predictability of external aid while highlighting the need to move ahead with appropriate reforms in order to maintain donor confidence. Timely external assistance is all the more critical as Niger is facing acute challenges with (i) tensions in world cereal markets, which makes it difficult to raise the country’s security stock of cereals to a more comfortable level, and (ii) the sharp rise in international hydrocarbon and food prices, which may necessitate an augmentation of the PRGF arrangement going forward.
In order to maintain debt sustainability reached following debt relief under the HIPC and MDRI, my authorities remain committed to contract debt on concessional terms, on the same basis as during the ending program. They will also continue to strengthen public debt service to improve debt planning and monitor sustainability. I would like to take this opportunity to reiterate my authorities’ call to the Fund to contribute actively to the efforts they are making to address the aforementioned challenges and preserve the gains achieved in macroeconomic stability and debt sustainability going forward.
III. The 2008 program
Fiscal Policy
The fiscal policy envisaged in 2008 puts more emphasis on the financing of priority sectors, including health, education, agriculture and governance, complying thereby with the objectives set forth in the DRPS. In so doing, my authorities will pay closer attention to the quality and transparency of fiscal management, and to accelerating the implementation of the Public Expenditure Management and Fiscal Accountability Review (PEMFAR). Taking into account the difficult situation created by the high food and oil prices and also incorporating additional foreign financing and budgetary support, notably from the Islamic Conference, the US Millennium Challenge Account and the WAEMU, a supplementary budget has been approved by the Council of Ministers recently and should be passed by the National Assembly soon.
On the revenue side, efforts underway in tax and customs administration will be reinforced in order to attain the 2008 revenue collection objective of 11.5 of GDP. Key measures towards strengthening the Investigation and Research unit and the Audit unit, improving tax audit, preparing the investment law, and enhancing real estate tax collection are being adopted. Concerning the latter measure, my authorities request technical assistance from the Fiscal Affairs Department to assess its impact on investment decisions in this area. Higher-thanprojected revenue at end-April helps offset the revenue shortfall expected from new tax-reducing measures to alleviate the burden on the populations of rising prices of rice, vegetable oils, milk, sugar and flour.
With regard to expenditure, the envisaged measures aim to enhance fiscal oversight and the procurement units in the ministries, increase staffing in the Directorate having in charge the control of government procurement, improve the functioning of spending units, and further strengthen the audit court. In order to speed up the consumption of budget appropriations, a pilot unit will be created by mid-2008 with the specific objective of accelerating spending procedures. My authorities are well aware of the need to clear domestic arrears. In this regard, they are committed to meet the target of eliminating CFAF 15.2 billion in 2008, by giving priority to private suppliers.
Monetary Policy and Financial Sector
While pursuing their policy of keeping inflation under control, in particular by channeling government financing towards the regional capital market, my authorities will continue to remove the existing obstacles to financial intermediation, particularly by favoring credit to the economy. Their goal is to reach the projected credit growth of 12 percent in 2008. Regarding the financial sector, in spite of its relatively sound financial position, my authorities intend to pursue the reforms underway. In this regard, the decree organizing the procedures for settling deposits at the former postal savings office will be adopted before end-September 2008. The new postal institution is scheduled to start its operations in 2008, and World Bank’s assistance is expected to support the process. Likewise, the microfinance network will be strengthened. My authorities welcome the scheduled FSAP mission for September 2008. Its program, which includes analyses of factors limiting access to credit, is consistent with the government’s objectives of improving financial intermediation and the business climate.
Other Structural Reforms
My authorities are fully committed to press ahead with the implementation of the structural reform agenda. As regards the business climate, they have already put in place an action plan which is being enriched by World Bank and private sector’s inputs. In order to render the mining sector more attractive, the mining law adopted two years ago has been revised in early 2008. With the acceptance of Niger as an EITI candidate country in September 2007 and taking into account the increasing interest shown by external investors in the mining sector, my authorities are making every effort to obtain a full EITI membership status.
IV. Conclusion
My Nigerien authorities have shown firm commitment to sound macroeconomic policies and reforms, as evidenced by the satisfactory implementation of the ending PRGF-supported program, as well as the important accomplishments made in the implementation of the PRSP, in particular in the health and education sectors. The finalization of a new poverty reduction strategy, largely supported by donors at the Conference held in Brussels last October, is also an important achievement. My authorities believe that an adequate approach to boost growth requires the firm implementation of their strategy, which supposes strengthening domestic revenue collection, maintaining macroeconomic stability, pursuing efforts to diversify production, executing steadfastly priority programs, and enhancing the business environment.
Maintaining a sustainable debt position while seeking additional financing needed to carry out their DPRS and make progress towards the MDGs remains an important challenge for my Nigerien authorities. More predictable and timely donor support is required to meeting the country’s economic and developmental goals without endangering debt sustainability. In this regard, the authorities rely on the continuous support of the Fund, in particular through its catalytic role in mobilizing development partners’ assistance. On their part, my authorities remain committed to pursuing a prudent external debt strategy in the post-HIPC and MDRI era. They will continue to aim at contracting debt only with a grant element of at least 35 percent in 2008 and beyond. As for the management of existing debt, they continue to apply a prudent approach, consisting of avoiding the accumulation of arrears and building capacity to develop a medium-term debt strategy and to analyze debt sustainability.
Based on their demonstrated track record of macroeconomic policy and structural reform implementation, and their commitment to a sound and realistic economic program going forward, I would like to ask Directors' approval of two waivers for the nonobservance of performance criteria and their support for the completion of the sixth review under the current PRGF arrangement. In light of the remaining challenges and the shocks stemming from the rising world oil and food prices, I also request the Board’s support of my authorities’ request of a successor PRGF arrangement.