Abstract
Niger’s current account balance deteriorated in 2013, mostly on account of higher food and capital goods imports. The deficit is expected to widen further in 2014-15, mainly driven by large investment in the extractive industry and basic infrastructure. The current account is projected to gradually improve from 2016 as important projects in infrastructure will come to end, the oil and mining sectors come on stream and public and private savings increase. While aid and foreign direct investments are the main sources of external financing, external borrowing–mainly on concessional terms–has increased significantly. Model based-analyses do not suggest significant current account disequilibria or real effective exchange rate misalignments, but broader competitiveness indicators point to important issues.
Niger’s current account balance deteriorated in 2013, mostly on account of higher food and capital goods imports. The deficit is expected to widen further in 2014-15, mainly driven by large investment in the extractive industry and basic infrastructure. The current account is projected to gradually improve from 2016 as important projects in infrastructure will come to end, the oil and mining sectors come on stream and public and private savings increase. While aid and foreign direct investments are the main sources of external financing, external borrowing–mainly on concessional terms–has increased significantly. Model based-analyses do not suggest significant current account disequilibria or real effective exchange rate misalignments, but broader competitiveness indicators point to important issues.
A. External Sector Development
The current account deficit, without grants, deteriorated slightly in 2013. This deterioration mainly reflected the expansion of imports of goods and services connected to projects in the extractive industries and in basic infrastructure, which more than compensated the increase in oil exports. Also higher food imports and a deterioration in the country’s terms of trade contributed to the widening of the deficit. The deterioration in the current account position is expected to continue in 2014-15, reflecting continued large investment in the oil and uranium sectors. The deficit is expected to ease gradually starting in 2016, when the project of exporting crude oil kicks off from 2017. However, the potential impact on the current account of expanded uranium production would be delayed as the government and AREVA agreed to defer the project to 2019-20 when it is expected to be again profitable with rising uranium prices. Over the medium term, with the implementation of major projects in the resources sectors and in infrastructure, capital and intermediary goods will comprise most of imported goods. These projects would also trigger FDI (Figure 1).
Niger: Balance of Payment Characteristics 2000, 2005 and 2010-19
Citation: IMF Staff Country Reports 2015, 064; 10.5089/9781498323789.002.A001
Sources: Nigerien authorities; and IMF staff calculations.Niger: Balance of Payment Characteristics 2000, 2005 and 2010-19
Citation: IMF Staff Country Reports 2015, 064; 10.5089/9781498323789.002.A001
Sources: Nigerien authorities; and IMF staff calculations.Niger: Balance of Payment Characteristics 2000, 2005 and 2010-19
Citation: IMF Staff Country Reports 2015, 064; 10.5089/9781498323789.002.A001
Sources: Nigerien authorities; and IMF staff calculations.The services and the primary income balances are continuously negative in Niger. The services are dominated by freight and the primary income balance is largely impacted by interest payments and profit repatriation by foreign investors in the mining and banking sectors. Remittances flows are limited.
The size and structure of external financing changed over the past few years. The contribution of grants declined1 in favor of large foreign direct investments (FDIs), connected to important projects in the extractive industry and infrastructure, and large borrowing. In 2013 FDIs remained the main source of external financing (about 53 percent of the total), albeit declining with respect to 2012; this may be linked to deterioration in security conditions. The decline in FDIs was more than compensated by higher loans and grants (for project financing), which represented respectively 17 percent and 49 percent of total external financing. While declining with respect to 2012, the overall BOP balance remained positive. In the near-term external financing will continue to be driven by large projects in the extractive industries and in infrastructure. FDIs are expected to remain high2 and external borrowing, mainly on concessional terms, to rise. The debt outlook could further deteriorate in case of additional participation in the financing of future projects in the extractive industry, including the financing of the new oil pipeline.
Foreign reserves remain adequate. As a member of the WAEMU, Niger may be able to sustain large current account deficits, as it has access to the pooled reserves of the Central Bank of West African States.3 The level of pooled reserves in the WAEMU system remains adequate according to different metrics, corresponding to 4.7 months of 2015 imports, 50 percent of broad money, and about 91 percent of short-term liabilities in the region.4
B. Model-Based Assessment
The assessment of real effective exchange rate (REER) does not suggest any significant misalignment. In 2013 the real effective exchange rate appreciated by about 3.6 percent, mostly related to the euro appreciation, reversing the significant depreciation recorded in the years 2008-2012 due to negative inflation differentials with trading partners. Over the period 1995-2013, the observed moderate cumulative appreciation may signal some erosion in external competitiveness (Figure 2).
Niger: Results of the Equilibrium Real Exchange Rate Assessment
Citation: IMF Staff Country Reports 2015, 064; 10.5089/9781498323789.002.A001
Source: IMF staff calculations using WEO data.Niger: Results of the Equilibrium Real Exchange Rate Assessment
Citation: IMF Staff Country Reports 2015, 064; 10.5089/9781498323789.002.A001
Source: IMF staff calculations using WEO data.Niger: Results of the Equilibrium Real Exchange Rate Assessment
Citation: IMF Staff Country Reports 2015, 064; 10.5089/9781498323789.002.A001
Source: IMF staff calculations using WEO data.Model-based assessments (Box 1) do not point to significant misalignments of Niger’s real effective exchange rate. Using the three methodologies of the CGER to assess the real exchange rate shows conflicting results as the equilibrium real exchange rate method (REER) suggests an undervaluation while the macroeconomic balance (MB) and the external sustainability (ES) approaches suggest an overvaluation. However, the 90 percent confidence interval for the MB and REER approaches are very wide and contain negative and positive values, which reinforce the overall assessment of an absence of major misalignment for Niger.
Model-Based Real Effective Exchange Rate Assessments
An exchange rate assessment based on the Consultative Group on Exchange Rate (CGER) methodology suggests that Niger is close to its equilibrium value as of end-2013.
The macro-balance approach, that compares Niger’s medium-term current account balance (“underlying current account”)1 to a current account norm, based on country’s fundamentals, suggests an overvaluation of the real exchange rate of about 6.19 percent;
The equilibrium real exchange rate estimated as a function of medium-term fundamentals points to a 4.1 percent undervaluation.
The external sustainability method, which compares the underlying current account balance with the balance that stabilizes net foreign assets at its 2010 level (-44.3 percent of GDP)2, indicates a misalignment of about 9.64 percent.
Overall Niger’s exchange rate does not show significant misalignment from its equilibrium value. It must be stressed, however, that assessments are subject to large margins of uncertainty, due to limitations in data availability and to the fact that the country is undergoing important structural changes.
Exchange Rate Assessment, 2013
Values are expressed as % of GDP.
The elasticity of 0.63 is the median of the trade balance elasticity of small and low income countries from Tokarick (2010). The value is consistent with the elasticity used in the WAEMU exchange rate assessment.
The CA account norm of -6.3 is the average for the model prediction for the period 2013-2019.
Exchange Rate Assessment, 2013
| Approach | CA Norm* | NFA* | NFA-Stabilizing CA* | Underlying CA* | GAP* | Elasticity** | Misalignment |
| Macroeconomic Balance*** | -6.30 | -10.20 | -3.90 | -0.63 | 6.19 | ||
| Equilibrium Exchange Rate | -4.00 | ||||||
| External Sustainability | -44.30 | -4.13 | -10.20 | -6.07 | -0.63 | 9.64 | |
| EBA-lite | -6.10 | -10.20 | -4.10 | -0.63 | 6.51 |
Values are expressed as % of GDP.
The elasticity of 0.63 is the median of the trade balance elasticity of small and low income countries from Tokarick (2010). The value is consistent with the elasticity used in the WAEMU exchange rate assessment.
The CA account norm of -6.3 is the average for the model prediction for the period 2013-2019.
Exchange Rate Assessment, 2013
| Approach | CA Norm* | NFA* | NFA-Stabilizing CA* | Underlying CA* | GAP* | Elasticity** | Misalignment |
| Macroeconomic Balance*** | -6.30 | -10.20 | -3.90 | -0.63 | 6.19 | ||
| Equilibrium Exchange Rate | -4.00 | ||||||
| External Sustainability | -44.30 | -4.13 | -10.20 | -6.07 | -0.63 | 9.64 | |
| EBA-lite | -6.10 | -10.20 | -4.10 | -0.63 | 6.51 |
Values are expressed as % of GDP.
The elasticity of 0.63 is the median of the trade balance elasticity of small and low income countries from Tokarick (2010). The value is consistent with the elasticity used in the WAEMU exchange rate assessment.
The CA account norm of -6.3 is the average for the model prediction for the period 2013-2019.
The EBA-lite methodology was consistent with the general assessment of the CGER methodology. The fact that the norm and the fitted value were very close in 2013 suggests that there was a little or no policy gap and that the large recent increase in the current account deficit is mostly driven by the large FDI-driven import, which is expected to return to trend after 2019.
C. Broader Competitiveness Indicators
The quality of the business environment remains poor, well below SSA averages. The 2014 Doing Business report ranks Niger 176 out of 189 countries. In the WAEMU only Senegal and Guinea Bissau ranked below Niger (at positions 178 and 180 respectively); in addition, Niger moved 2 notches down compared to the 2013 ranking (Figure 3). Nigerien firms face more severe challenges than average WAEMU and SSA in (i) trading across borders, (ii) starting a new business, (iii) resolving insolvency, and (iv) dealing with construction permits (Figure 4). The 2009 WB-IFC Enterprise Survey reported that firms identified as main obstacles the presence of a large informal sector that poses competitive challenges to the formal sector, and the difficult access to finance (Figure 5).
Niger: Doing Business Ranking, 2014
Citation: IMF Staff Country Reports 2015, 064; 10.5089/9781498323789.002.A001
Source: WB-IFC-Doing Bussiness report.Niger: Doing Business Ranking, 2014
Citation: IMF Staff Country Reports 2015, 064; 10.5089/9781498323789.002.A001
Source: WB-IFC-Doing Bussiness report.Niger: Doing Business Ranking, 2014
Citation: IMF Staff Country Reports 2015, 064; 10.5089/9781498323789.002.A001
Source: WB-IFC-Doing Bussiness report.
Niger: Now Niger Ranks on Doing Business Topics, 2014
Citation: IMF Staff Country Reports 2015, 064; 10.5089/9781498323789.002.A001
Source: WB-IFC Doing Business Indicators, 2014.Niger: Now Niger Ranks on Doing Business Topics, 2014
Citation: IMF Staff Country Reports 2015, 064; 10.5089/9781498323789.002.A001
Source: WB-IFC Doing Business Indicators, 2014.Niger: Now Niger Ranks on Doing Business Topics, 2014
Citation: IMF Staff Country Reports 2015, 064; 10.5089/9781498323789.002.A001
Source: WB-IFC Doing Business Indicators, 2014.
Niger: The Main Obstacles for Doing Business
Citation: IMF Staff Country Reports 2015, 064; 10.5089/9781498323789.002.A001
Source: World Bank and International Finance Corporation corporate survey data of 2009.Niger: The Main Obstacles for Doing Business
Citation: IMF Staff Country Reports 2015, 064; 10.5089/9781498323789.002.A001
Source: World Bank and International Finance Corporation corporate survey data of 2009.Niger: The Main Obstacles for Doing Business
Citation: IMF Staff Country Reports 2015, 064; 10.5089/9781498323789.002.A001
Source: World Bank and International Finance Corporation corporate survey data of 2009.D. Conclusion
Assessment of the real effective exchange rate suggests that there is no indication of significant misalignment, but broader indicators show that structural competitiveness issues remain. Therefore, fast-tracking structural reforms aim to help improve the business climate. The rule of law, the financial sector deepening, political stability, and the informal sector regulation will improve productivity and enable Niger to overcome a number of its development challenges, including diversifying the economy, achieving broad and stable growth, and reducing poverty.
This note was prepared by Daniela Marchettini and updated by Mamadou Barry.
The IMF program supported by the ECF was able to change the downward trend of the donor support.
In 2014 the authorities expect to finalize a large financial operation connected to the refinancing on concessional terms of the loan to build the refinery SORAZ (US$ 880 million or CFAF 435 billion). This loan will refinance an existing non-concessional loan, which was initially provided by the Chinese investment partner (CNPC) with 40 percent guarantee by the state. The operation, neutral on the overall balance of the financial account, is recorded in BOP as an outflow of FDIs and the contraction of a new loan. Netting out this operation FDIs are expected to increase in 2014 (Figure 1).
An additional safeguard is represented by the fact that the French Treasury guarantees the convertibility of the CFAF into Euros.
See 2014 WAEMU SR.
