Statement by Mr. Ngueto Tiraina Yambaye, Executive Director for Niger and Mr. Ousmane Mamadou, Advisor to Executive Director for Niger, November 30, 2015

This paper discusses Niger's Sixth and Seventh Reviews Under the Extended Credit Facility Arrangement, Request for Waivers of Nonobservance of Performance Criteria (PC), Request for Augmentation of Access, and Extension of the Current Arrangement. Niger's growth slowed in 2015 owing to lower agricultural and natural resource sectors activity. Over the medium term, real economic growth is expected to pick up as major projects in oil and mineral extraction come to fruition. The IMF staff supports the authorities' request for waivers for the unmet PC on domestic financing and domestic arrears repayments at end-December 2014, and that of domestic financing at end-June 2015.

Abstract

This paper discusses Niger's Sixth and Seventh Reviews Under the Extended Credit Facility Arrangement, Request for Waivers of Nonobservance of Performance Criteria (PC), Request for Augmentation of Access, and Extension of the Current Arrangement. Niger's growth slowed in 2015 owing to lower agricultural and natural resource sectors activity. Over the medium term, real economic growth is expected to pick up as major projects in oil and mineral extraction come to fruition. The IMF staff supports the authorities' request for waivers for the unmet PC on domestic financing and domestic arrears repayments at end-December 2014, and that of domestic financing at end-June 2015.

On behalf of my Nigerien authorities, I would like to express my appreciation to the Executive Board and Management for their continuous support to Niger’s policy efforts. I also wish to thank staff for the constructive dialogue with my authorities held in Niamey during the sixth and seventh reviews under the ECF arrangement. In particular, my authorities share staff’s analysis on the near-term policies and the strategy designed to enhance fiscal sustainability. Despite the challenging regional security situation heightened by impacts of several other shocks, including adverse commodities price developments, and poor agricultural production, the Nigerien economy has continued to register strong economic growth, averaging 5.3 percent between 2013 and 2015, in the context of subdued inflation. The medium-term economic prospects appear encouraging, with a projected annual GDP growth rate of 6.9 percent over 2016-20.

However, in the wake of attacks by terrorists, the authorities had to increase spending to strengthen the security situation inside the country and along its borders. Together with resources needed to assist an influx of refugees, this placed severe strains on the budget and adversely affected the implementation of the ECF program. As a result net domestic financing and net reduction in arrears, at end-December 2014, and the criterion for end-June 2015 of net domestic financing were not met. Corrective actions have since been taken to enhance fiscal sustainability, and based on the good macroeconomic performance as well as the authorities’ commitment to pursue steadfastly their reform agenda, my authorities are requesting waivers for the nonobservance of the performance criteria. They are also requesting an extension of the arrangement under the ECF, up to December 31, 2016 with an augmentation of access of 62.5 percent of quota, to meet larger BOP needs from the security and humanitarian situation.

Recent Developments, Outlook, Risks and Program performance

The Nigerien economy expanded in 2014, reaching a growth rate of 6.9 percent. For 2015, growth is projected at 4.4 percent, mainly due to lower agricultural output. Notwithstanding the shocks, inflation was kept under control. It was negative 0.9 percent in 2014 and is projected to increase to about 2.3 percent in 2015, mainly due to higher food prices. However, it should be noted that the government’s successful food programs, helped contain the food demand pressures, as well as the distorting effects on prices due to trade disruption on the southern border with Nigeria.

Fiscal developments in 2014 resulted in a deterioration of the basic balance deficit, which stood at 6.6 percent of GDP against 2.1 percent in 2013. This deterioration reflects spending pressures imputable largely to security-related issues, on one hand, and shortfalls in external financings compounded by under-performance in revenue collection, on the other. However, taking into account the adverse effects of such policies on the economy, my authorities have taken several corrective measures on both the revenues and expenditure sides. Among them, are the strengthening of fiscal control and exemption management and the recovery of tax arrears. The authorities also exercised a rigorous application of budgetary procedures and measures to better prioritize or postpone some expenditure, including on infrastructure projects. Significant arrears clearance was also made in the first half of 2015, and the authorities expect an improvement in the basic balance compared to 2014.

Developments on the monetary front in 2014 and 2015 reflect broadly the aforementioned rebounding of the economy. Credit to the economy rose by 10.4 percent in 2014 and 13.4 percent at end June 2015. This positive development reflects the buoyant activities in manufacturing, trade, transportation and telecommunications sectors.

The external current account in 2014 and 2015 highlights Niger’s vulnerability to external shocks. With the combined effects of declining prices of petroleum and mineral products and strong US dollar, imports related to infrastructure projects went up leading to a deterioration of 0.9 percent and 1.5 percent of GDP, respectively in 2014 and 2015.

Outlook and Risks

My Nigerien authorities agree with staff on their medium-term prospects, as well as their economic growth projections. While the country faces a number of risks, the outlook remains encouraging due to the positive outlook for the natural resources sector, the irrigated agricultural production through the 3 N initiative and the authorities’ resolve to pursue steadfastly the implementation of their public investment infrastructure projects, which are consistent with the priorities set out in the PRSP and in their Plan de Development Economique et Social (PDES).

My authorities are fully aware of the significant challenges facing the country, notably with regard to the risks associated with the regional security situation, the decline in oil and uranium prices and that pertaining to weather conditions. As regards the security situation, my Nigerien authorities believe that progress in this matter requires not only internal efforts from each member country facing these challenges in the region, but also a coordinated and timely support from the international community. With regard to the recurrent vulnerability of Niger to climate shocks, my authorities consider that the best alternative to overcome the issue of food insecurity is to increase investment in agriculture and human capital, as pointed out in the PDES. Regarding the risks stemming from further decline in oil prices, my authorities have only taken steps within their reach, which consisted of adopting transitional measures to avoid further deterioration of the financial position of the sector.

Program implementation

As noted in the report, program implementation has been constrained mostly by the negative impact of insecurity on the revenue collection and shortfalls in external financing. However, progress was reported in the implementation of reforms in the areas of debt management and Public Finance Management, as highlighted in paragraph 14 of the report. In particular, actions toward the improvement of budget execution, debt management, exceptional spending limitation and the opening of Treasury Single Account are being implemented.

A - Fiscal Policy

The fiscal framework for 2015 has been adjusted to accommodate additional spending intended to cover mainly the impact of recent development in the security and security-related front along with the remaining 2015 arrears balance, scheduled to be cleared before the end of the year. To that end, the basic balance has been relaxed by 1.8 percent of GDP compared to the original program. For 2016, the authorities’ projection, which targets a basic fiscal deficit of 3.7 percent of GDP from 5.5 percent in 2015, gives a clear indication of their determination to address fiscal imbalances and preserve debt sustainability. In this regard, steps will be taken to raise fiscal revenue from 17.2% in 2015 to 17.6% of GDP in 2016. To that end, my authorities will implement all the envisaged revenue measures outlined in Box 1, notably, the revision of customs code, the migration to a new automatic custom system, ASYCUDA, the reinforcement of tax audits and tax registration at the General Tax Administration, the establishment of a single interconnection server linking up offices, and a better control of exemptions and a limitation of loopholes of tax exoneration at the custom administration. On the expenditure side, the targeted efforts aim to reduce the domestically financed spending by 1.7 percent of GDP. Cost savings will come from capital spending and current expenditure. My authorities are exploring various ways to achieve this goal, including the phasing out of some projects, the postponing of some others, a better prioritization to retain critical investments and the implementation of measures to contain wage bill.

B - Management of Natural Resources

Although recent developments have made the management of natural resources much more challenging, the authorities are continuing with the efforts to expand the export base of mining products. Mining operators are being encouraged to focus more on exploration of mineral resources other than oil and uranium. Moreover, all operators will need to arrange for an upfront security deposit with a local bank, in order to ensure for signing bonus payments when mining permits are granted. In the uranium sector, a new formula for the calculation of prices has been adopted, and there is agreement for more participation of Nigeriens in the mining enterprises. As regards the oil sector, the drop in oil prices and the decline in the value of the CFA Franc have put pressure on the sector and led to losses at the oil state company. The authorities working closely with their partners have adjusted the prices through a reduction in the crude oil sale prices. Other proposals are being considered with the view of reducing the Refinery operating costs. Despite the current difficult situation, which is expected to be temporary, my authorities are moving ahead with the implementation of measures aimed at making Niger a crude oil exporter by 2017. Prior actions, including negotiations with neighboring countries and the financing arrangements for the construction of the pipeline are being implemented.

With regard to the need to ensure full transparency in mining and oil operations, my authorities have given a high priority to the supervision and accounting dimension of the activities in the natural resources sector. In this regard, they welcome staff’s recommendation on the need to strengthen the supervisory role of the public holding company, SOPAMIN; as this suggestion is consistent with the authorities’ strategic vision. To that end, some regulatory steps have been already taken.

C - Debt Management

My Nigerien authorities remain cognizant of the impact of their investment decisions on debt dynamics. In this regard, they highly appreciate the valuable and steady advice given by the Fund staff on the need to adopt a more cautious approach, which helps preserve their credibility, while maintaining a good relationship with creditors. In this regard, they have cancelled a planned issuance of Sukuk’s bonds and another non concessional loan. The emphasis put on the strengthening of fiscal framework as well as the efforts underway to clear the arrears are driven by the need to avoid any actions which could lead to debt distress. In line with the progress reported by staff, my authorities are taking steps to draft a medium-term borrowing plan before June 2016.

Business and Financial sector reforms

Taking good note of the progress reported in the Doing Business Index, my authorities are determined to remove the remaining obstacles, which constrain the development of private sector. The set of reform measures envisaged by the authorities and reported in paragraph 31 of the document, gives an indication of the authorities’ desire to see the private sector playing a greater role in Niger. The financial system lags behind its peers in the region as well as in Sub-Saharan Africa. The authorities are aware of the critical importance of the financial sector in promoting inclusive growth and they are working toward the implementation of the reforms aiming at improving depth and financial access (in paragraph 35).

Conclusion

Niger’s medium and long term outlook have improved significantly in light with the expected returns from the development of the natural resource sector. Important achievements have been made over the recent years in terms of macroeconomic stability, poverty reduction and other social indicators. However, considerable challenges still lay ahead, in particular, the need to achieve sustained growth, reduce poverty and achieve development objectives. My authorities are taking steps to address these challenges, in particular, by paying close attention to the implementation of structural reforms in the areas of public finance management and natural resources management.

Based on the strong commitment shown and the corrective actions taken by the authorities, I would request Directors’ support for the requested waivers and the proposed decisions.

Niger: Sixth and seventh Reviews Under the Extended Credit Facility Arrangement, Request for Waivers of Nonobservance of Performance Criteria, Request for Augmentation of Access, and Extension of the Current Arrangement-Press Release; Staff Report; and Statement by the Executive Director for Niger
Author: International Monetary Fund. African Dept.