Abstract
The staff report for Niger’s 2008 Article IV Consultation, first review under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility, and request for Waivers and Modification of Performance Criteria is discussed. The authorities initially suspended taxes on critical foodstuffs but also relied on targeted interventions for vulnerable groups, which made it possible to end the tax suspensions in September. They also froze the retail price of petroleum products, in effect suspending part of the tax on fuel.
On behalf on my Nigerien authorities, I thank staff for the constructive dialogue they had during the Article IV consultations and the first review under the PRGF arrangement 2008-11. I would also like to thank the Executive Board and Management for the continued support to the Republic of Niger. My authorities appreciate the set of reports, which highlight the key challenges facing the country over the medium-term. In particular, they share the staff’s analysis on the macroeconomic impact of scaling-up aid, which put emphasis on the positive effects of increasing aid on growth and the pace of poverty reduction. For the period ahead, they look forward to continue benefiting from Fund’s policy advice, as it contributed over the three last successive PRGF arrangements to enhance the macroeconomic stability, strengthen revenue mobilization, and restore Niger’s creditworthiness.
My authorities intend to build upon the positive outcomes obtained since 2000, continuing thereby to extend their program’s ownership. They are committed to pursue their reform agenda, despite the existing gaps of human and institutional capacity, for which they rely on continuous Fund’s engagement on technical assistance. Their determination for a steadfast reform implementation has been deepened and the lessons drawn from their positive experience of revenue mobilization were instrumental in strengthening the country’s financial position. In this regard, while pursuing their strategy of diversifying the economy, through mining, irrigation, and transportation programs, my authorities attach value to a better management of public finances, as well as the need for aligning the budget to PRSP priorities, with the aim to enhancing public expenditure efficiency.
Based on their track record of policy implementation, as well as their commitment to reforms, my authorities request waivers for the two missed performance criteria, modification for two performance criteria, and the completion of the first review under the PRGF arrangement.
I. Recent Economic Developments and Performance Under the Program
Macroeconomic performance over recent years was strong, reflecting a growing interest to Nigerien economy from external investors, attracted by mining and petroleum sectors opportunies. At the same time, exceptional weather conditions contributed to boost the agricultural production, with record levels attained in 2006, 2007 and 2008. The combined effects of these factors have had a positive impact on GDP, pushing higher the growth rate of this aggregate over this period. Accordingly, Niger appeared as the best performer among WAEMU member countries with regard to the GDP, its average growth rate reaching 5.8 percent in 2005-07. The investment ratio, slightly below 14 percent in 2000-04, rose roughly to an average of 23.4 percent in 2005-07, a level much higher than the average of Sub-Saharan African countries, but close to that of industrial economies. In their strategy to design an adequate policy response to world-wide rising food and fuel prices, my Nigerien authorities have put in place a range of measures, including not only the suspension of taxes on imported food and fuel, but also the reactivation of existing targeted programs such as (i) the programs of food for work and cash for work; (ii)food distribution to vulnerable people at moderate prices and free distribution in the lean season ; (iii) funding and setting up cereal banks; and (iv) the nutritional programs. With the benefits of hindsight, my authorities recognized the positive role played by the targeted programs, in contributing to contain the demand pressures and curb the rising inflation trend, but remained skeptical about the fiscal measures effectiveness. Inflation, which mounted to 15 percent at end-August 2008, from 4.7 percent at end-December 2007, is expected to decline to 8.5 percent at end-December 2008, and come back to its historical trend of 2 percent by end-December 2009.
Cognizant of the importance of public finance management with regard to the macroeconomic stability, my Nigerien authorities focused their efforts on the revenue mobilization, as well as on the expenditure management, with the aim to ensure a better use of hardly collected fiscal resources. Consequently, revenue performed well, on account of good performance in 2007 and in the first half of 2008 on tax and nontax revenue collection. Even if the exceptional revenue pertaining to the signature bonus received from petroleum sector has not been included in the total, the revenue target for June 2008 could have been observed easily. As regards the expenditure side, close attention was given to education, health, and rural sectors, in line with the priorities set in their respective medium-term expenditure frameworks. Though with some delays, the program of domestic arrears clearance remains on track, evolving successfully since 2001.
Due to the increasing imports of mining equipment and petroleum products, the external current account deficit widened in 2007, and my authorities expect so in 2008 and the coming years, as far as the expected exports from the development of uranium and oil begin to offset the impact of imports on the external accounts. In the meanwhile, the increase in uranium revenue following the recent price revision could just soften the deteriorating effects of imports on the external current account.
On the monetary and financial front, positive developments reflected increased credit to economy, as well as banking sector’s holding of substantial external assets. While the expansion trend of credit to the economy has continued, the ratio of nonperforming loans was declining. This development could prove that the ongoing reforms aiming at improving the soundness of banking institutions were bearing fruit. My authorities welcome the Financial System Stability Assessment (FSSA), which underscored the soundness of Nigerien financial sector, while stressing the low access to financial services in Niger, seen as one of the lowest in the world. They also believe that given the small size of banking system, the costs of a systemic crisis would be limited, and could not exceed anytime 2.25 perecent of GDP. Against this backdrop, my authorities are committed to pursue steadfastly their efforts to strengthen controls and supervision over the financial sector institutions, while seeking an appropriate way to promote financial services in a healthy and more dynamic environment.
The program performance has been broadly satisfactory. All quantitative performance criteria and indicators for end-June 2008 were met, except that related to the reduction of domestic arrears and the one pertaining to the establishment of procedures for repaying the frozen deposits of the former ONPE (National Postal and Savings Office). The criterion on domestic arrears reduction was missed by a margin of 1.2 billion, which has been cleared in July 2008, thanks to government’s further efforts of reduction. Steps are being taken to reach the total objective of 15 billion of arrears reduction set for end-December 2008. Likewise, regarding the criterion on the adoption of procedures for repayment of the frozen deposits, the needed efforts have been made in early December 2008.
II. Medium-term Outlook and Policy Discussions
My Nigerien authorities appreciated the quality of the discussions they had with staff last September, which focused on the challenges and opportunities to sustain growth over the medium-term, make noticeable progress in reducing poverty, preserve the balance payments position in the current context of rising imports for mining equipment and petroleum products, and put debt in a sustainable path. In this connection, they expressed their agreement with the analysis outlined in Box 4 of the staff report, which underscores the critical importance of scaling-up aid to Niger, as it could help make faster and significant progress in poverty reduction (1-2 percent increase of annual GDP and a reduction poverty level of 25percent by 2015), compared to what have been made so far. The model, from which staff drew its findings, suggests that a sustained aid attaining 15 percent of GDP from the current level of 10 percent of GDP is just sufficient to help achieve such an important progress, without incurring any risk of jeopardizing the macroeconomic stability.
As regards the financing of PRSP priorities, my authorities’ decision to allocate the signature bonus of 5.3 percent of GDP, collected in 2008 from petroleum sector, to rural development, roads, electricity generation, shows their commitment to the success of PRSP, as well as their determination to accomplish their part of efforts, by promoting a policy of better use of their scarcely resources. They have also reached an agreement with staff on the need to anchoring the future budget decisions in a multi-year perspective, and steps have been taken towards the elaboration of these frameworks. Turning to the impact of increased imports on the balance of payments account and debt sustainability, my authorities agreed with the staff’s findings showing that Niger remains at moderate risk of debt distress and the impact on the balance of payments could be reversed after 2012, once expected export flows from mining and oil sectors get started.
III. The 2009 program
Fiscal Policy
The authorities’ program for 2009 places the public finance management on the centerpiece of their strategy.
On the revenue side, several measures are envisaged, in particular the reduction of corporate tax designed to attract foreign investment and promote economic diversification, and further simplification of corporate and personal income tax, with the aim to eliminate nonessential tax advantages and limit in time, without extension, some advantages set forth in the investment Code. Moreover, some revisions related to real estate tax and income tax on securities, stock and shares will be undertaken in 2009.
In light of the need for designing a multi-year budget framework, consistent with the PRSP priorities, the 2009 budget was prepared in a closer coordination between the Directorate of budget, the PRSP coordinating unit, and the action plans for priority sectors. In the same vein, the authorities decided that the preparation for 2010 budget law will include projections for the main budgetary revenue and expenditure aggregates for the period 2010-2012, and agreed with staff that this measure be raised as a structural benchmark. Given the need for strengthening institutional capacity, my authorities have requested technical assistance from IMF aiming at helping them in the preparation of MTEF document. After those on education, health and rural sectors, the MTEF for the infrastructure and transport sectors are currently being elaborated. In order to improve public finance management, several actions are underway, including (i) the strengthening of financial controls, by increasing the numbers of controllers and their training, (ii)the strengthening of General Directorate for the supervision of public procurement (DCGMP), (iii) the revamping of information circulation network between general Directorate and decentralized budget office in the regions. As positive effects of authorities’ efforts to strengthen debt management, semiannual reports on recent borrowing and debt prospects are already produced. Although the current debt ratio trends seem appropriate and do not raise any matters of concerns, my Nigerien authorities pay close attention to debt dynamics, as well as the occurrence of any exogenous shock, from which could emerge any risks of debt distress.
Exchange Rate, Monetary and Financial Sector Policies
My authorities gave due consideration to the assessment made by staff, suggesting that the present level of exchange rate is consistent with fundamentals, and does not constitute a threat for international competitiveness, in view of the current FDI inflows, as well as the expected receipts from mining and petroleum exports. While pursuing their policy of keeping inflation under check, with regard to the growing credit demand, they intend to continue implementing the ongoing financial sector reforms, with the view to strengthen banks and microfinance institutions.
Other structural reforms
The authorities are determined to move ahead with the reforms aiming at improving the business environment. After the progress made in the simplification of procedures and the reduction of the number of days necessary to create a business, they intend to focus their efforts on the reduction of costs, notably those related to the enrollment fees in the register of commerce at the courts. My authorities reached an agreement with staff, which enabled to retain this measure, as a structural benchmark for end-June 2009.
IV. Conclusion
Niger has made important strides over the last decade, as evidenced by the significant progress achieved since 1979 in macroeconomic stability, revenue mobilization, expenditure management, and restoration of country’s creditworthiness. However, my Nigerien authorities are aware of the challenges laying ahead, in particular the need for achieving a sustained healthy growth, which could help meet the MDGs, while making a decisive turn in their fight against poverty. They have also taken steps to address the challenge of reconciling the increasing movements of FDI over the coming years with the need to maintain the current sustainable debt path. This is why my authorities have focused their efforts on the implementation of their new strategy for poverty reduction, the PRSP with the view to fostering the development of priority sectors, through the promotion of agriculture, mining, petroleum, and irrigation projects. The allocation of the entire amount of signature bonus windfall to PRSP priority sectors, besides normal appropriations for these sectors, show the authorities’ determination to accomplish their part of efforts in the financing of poverty reduction strategy. More predictable and timely support is expected from donors in order to ensure an effective implementation of this strategy, if we are to meet the country’s economic and developmental goals. In this regard, the authorities rely on the continuous support of the Fund, in particular through its technical assistance as well as its catalytic role in mobilizing development partners’ assistance. They will continue to aim at contracting debt with a grant element as high as possible, but not below 35 percent in 2008 and beyond. As for the management of existing debt, they continue to apply a prudent approach, and building capacity to develop a medium-term debt strategy and to analyze debt sustainability.
Based on their demonstrated track record of policy and 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 first review under the current PRGF arrangement and 2008 Article consultation.