Statement by Mr. Sembene, Executive Director for Niger and Mr. Alle, Senior Advisor to Executive Director for Niger January 23, 2017

Economic growth is estimated to have increased to 4.6 percent in 2016 from 3.5 percent in 2015, helped by a strong 2016-17 crop year and despite continued weakness in the oil and mining sectors, adverse spillovers from the economic downturn in Nigeria and continued elevated security threats. Inflation remains subdued. Notwithstanding recent macroeconomic gains, Niger still ranks last on the UN's Human Development Index with growth barely above the estimated rate of population growth (4.1 percent a year). President Issoufou secured a second term in the presidential and legislative elections held in February-March 2016, with the new administration reaffirming a focus on reinvigorating growth to create more employment opportunities, including by addressing infrastructure gaps, while strengthening food security.

Abstract

Economic growth is estimated to have increased to 4.6 percent in 2016 from 3.5 percent in 2015, helped by a strong 2016-17 crop year and despite continued weakness in the oil and mining sectors, adverse spillovers from the economic downturn in Nigeria and continued elevated security threats. Inflation remains subdued. Notwithstanding recent macroeconomic gains, Niger still ranks last on the UN's Human Development Index with growth barely above the estimated rate of population growth (4.1 percent a year). President Issoufou secured a second term in the presidential and legislative elections held in February-March 2016, with the new administration reaffirming a focus on reinvigorating growth to create more employment opportunities, including by addressing infrastructure gaps, while strengthening food security.

1. Our Nigerien authorities greatly appreciate Fund’s continuous support to the implementation of their economic and financial policies. They welcome the constructive policy dialogue that Management and staff continue to maintain with them as well as the Board’s constant support.

2. Fund program engagement has been instrumental in helping Niger to maintain macroeconomic stability and advance the authorities’ reform agenda amidst a challenging environment characterized by a succession of disruptive shocks, including security and climatic shocks, the fall in prices of oil and minerals, and a sharp drop in trade with neighboring countries. While delays in implementing some elements of the previous ECF arrangement were subsequently noted, major inroads were made in achieving the broad objectives of the Fund-supported program.

Recent Developments and Outlook

3. The recent period has been characterized by a benign macroeconomic environment challenged by exogenous shocks of different nature. Despite the authorities’ efforts in maintaining macroeconomic stability, the economy was adversely affected both by low international prices for uranium and petroleum products, by security issues and the economic downturn in Nigeria, the main trading partner. As a result, real GDP improved markedly in 2016 compared to the previous year although the pace of growth was slower-than-anticipated pace. Inflation remains subdued and well below the regional target.

4. The fiscal stance in 2016 suffered from the revenue shortfalls induced by the difficulties in the mining, oil, and telecommunication sectors, lower trade flows with Nigeria, (exports and re-exports were down by 30.1 percent) as well as weakness in tax and customs administration. The authorities responded to the revenue shock by freezing planned non-priority-expenditures while safeguarding salaries, debt service payments, and security spending.

5. Our Nigerien authorities also implemented a number of structural reform measures. In the fiscal sector, they undertook important reforms to strengthen tax and customs administration. A major step was made in terms of revenue mobilization, with the interconnection of the main customs offices which collect more than 90 percent of customs revenue. In public financial management, budget procedures were enhanced; exceptional spending procedures have been reduced significantly and “an Inter-Ministerial Budgetary Committee was established in 2016 to provide a mechanism to align expenditure commitments with resource availability and thereby reduce the incurrence of arrears.” A similar committee was created to oversee debt management and has been producing reports regularly. In the financial sector, a strategy has been adopted with an emphasis on financial inclusion for targeting populations with limited access to financial services. Progress was also made in enhancing the business environment with the adoption of a new investment code and the operationalization of a one-stop-shop for starting a business.

6. Our authorities concur with staff on the overall positive outlook despite challenges and risks. Growth is projected to rise to 5.2 percent in 2017, and to average 5.4 percent during 2017-19. The expansion of irrigated agriculture under the national food security program (3N Initiative) should be the main driver of growth. Security issues and persistent weak commodity prices are downside risks while a rebound in uranium and oil prices or a recovery in the Nigerian economy would boost Niger’s fiscal space and growth. The authorities are committed to conduct policies aimed at strengthening economic fundamentals and to continue their efforts of minimizing the impact of adverse developments.

Article IV Policy Consultation

7. Going forward, the authorities are determined to pursue steadfastly the reforms already initiated in the context of their new 2016-2019 development plan. The 2016 Article IV policy discussions provided a valuable opportunity for the authorities to discuss with Fund staff some of the key growth-promoting features of this plan, notably those aimed at increasing income-earning opportunities for women, mitigating the adverse impact of natural disasters, and reaping the potential demographic dividend.

8. It is the authorities’ intention to continue to make progress in addressing gender inequality, notably by providing vocational education and finance to women with a view to making them become more economically active actors. The government will also scale up its investment in human capital with the aim at fully reaping the demographic dividend. In addition, the authorities’ efforts to strengthen their disaster risk management framework will greatly benefit from the useful recommendations formulated by staff in their well-written report and Selected Issues paper.

Policies and Reforms under the New ECF Arrangement

9. The new ECF-supported program (2017-20) seeks to maintain macroeconomic stability while creating fiscal space for infrastructure development, meeting the new elevated security risks, and for enhancing social spending. The program will build on progress achieved over the past period in many areas, including in budget management, debt management, customs and tax administrations and the business climate. For the period ahead, our authorities are committed to further making progress in enhancing macroeconomic management, bolstering structural reforms, accelerating diversification for enhancing economic resilience, improving social indicators and reducing poverty. To this end, reforms envisaged under the new program are anchored on the authorities’ overarching development goals as laid out in their Economic Development Document (EDD).

10. Under their new economic and financial program, our authorities will strengthen reforms underway and embark on new ones as well. The broad areas identified in this regard include the fiscal and financial sectors, debt management, natural resource management, business environment and economic diversification. For 2017 as well as the medium term, the authorities have planned reforms which are based on the EDD’s broad objectives of “enhancing the macroeconomic environment to achieve accelerated growth and meet the dual objectives of improving incomes and job creation, while strengthening the foundations for sustainable development.” The authorities are confident that sustained reform efforts will lead to accelerating growth so as to significantly reduce poverty and curb unemployment.

Fiscal policy and debt management

11. Fiscal policy will emphasize broadening the tax base to enhance revenue mobilization, in line with the overarching program objective of creating fiscal space for infrastructure and security and social spending. To this end, the authorities are committed to strengthening the efficiency of tax and customs administrations, and improving tax collection, with the view to reducing dependence on volatile natural resource revenue. An increase in indirect tax revenues together with measures to improve governance in revenue generating agencies is expected to help boost revenue. Measures to modernize the customs administration and enhance transparency and governance include the finalization of the electronic inter-connection of all the customs offices; the deployment of ASYCUDA World Software to all main offices and the introduction of tax identification numbers for all importers.

12. With Fund technical assistance, the tax base will also be broadened by including more enterprises into the large enterprises Directorate. In the same vein, tax exemptions will be streamlined through improved monitoring and control and aligned with best practices. Overlapping fiscal advantages in sector-specific codes will also be brought into the customs and tax codes. A similar effort will be made to limit exemptions in the sector of SOEs; a thorough evaluation and an audit are planned to help clarify financial linkages of the state and SOEs to limit fiscal risks and reduce exemptions.

13. On the expenditure side, outlays will reflect priorities in the EDD, notably public infrastructure, health and education. Current primary expenditures are expected to stabilize while better control measures would help to reduce the wage bill by 0.3 percent owing to control measures. Other measures to contain spending, include curtailing the water, electricity and telephone consumption and eliminating ghost workers. Arrears clearance will also be continued. These efforts will make room for investment spending which is expected to increase substantially. Indeed, domestically financed capital spending is projected at 6.5 percent of GDP, which is 1.2 percent of GDP higher compared to 2016.

14. The authorities remain committed to maintaining debt sustainability going forward. They will continue to strengthen the debt management framework and implement prudent debt management policies. In this connection, they are cognizant that their efforts to contain the fiscal deficit will be key. On the basis of the fiscal measures being implemented, the deficit of the basic balance is projected at 4.9 percent of GDP in 2017. However, the authorities are confident that, with the major reforms they are undertaking, over the medium term the deficit will converge to the 3 percent of GDP convergence criterion.

Moreover, the authorities will work on a new framework for PPPs with the view to addressing fiscal risks and safeguarding debt sustainability. In this endeavor, Fund technical assistance will be of paramount importance.

Financial sector policy

15. Though the overall financial system is still shallow, the banking system is well capitalized. The authorities are committed to implement both the National Financial Sector Development Strategy (NFSDS) and the National Strategy for Financial Inclusion. Under these strategies, “the government’s objective is to make available through 2021, CFAF 35 billion in credits to small businesses, in particular those run by women and young entrepreneurs.” Donor assistance will also be mobilized for this microfinance program at a forthcoming Round Table to be held in 2017. The government will also continue its divesture from the banking system. In this regard, discussions are underway with private entities interested in the government’s stakes that remain in banks.

Natural resource management

16. The authorities are committed to enhancing the management of natural resource endowments and bolster the contribution of the sector to the country’s overall development. In this regard, efforts are being pursued in three directions. First, the government has strengthened the ties of investors with local banks to ensure that contract signing bonuses are paid when mining permits are granted. Second, the government is diversifying the mineral export base away from uranium and oil and investors as well. It is also taking steps to attract new investors and is in the process of granting exploration permits not only for the traditional uranium and oil but also for other minerals such as coal, limestone, and gold. Third, with technical assistance from France, the authorities are enhancing capacities for evaluation, projection, and control of mining revenue. In the same vein, the government is now revamping institutions for regulation, negotiation and implementation of contracts.

Business environment and economic diversification

17. Steady efforts have contributed to improve the business environment as evidenced by Niger’s moving from the 176th place in 2014 to 150th in the World Bank 2017 Doing Business report. Achievements include the shortening of the time and procedures required to start a business, improved access to credit information with the establishment of a credit bureau, and the creation of a specialized commercial court which makes contracts enforcement easier. The authorities will continue their efforts to strengthen an enabling environment for business, with the aim of buttressing economic diversification. In this regard, their actions to further improve competitiveness, will encompass measures aimed at overcoming barriers identified in dealing with construction permits, getting credit, and paying taxes.

Conclusion

18. Notwithstanding the variety of severe shocks that hit Niger in recent years, the authorities’ policy implementation has played a key role in maintaining macroeconomic stability. In this context, the predecessor ECF arrangement has helped the country cope successfully with the decline in international mineral prices, security challenges and the negative spillovers of the economic downturn in the main trading partner. These adverse developments are far from fading away and add to the structural bottlenecks facing the Nigerien economy, notably the infrastructure gap, narrow export base, gender inequality and high poverty.

19. Against this backdrop, Fund continued engagement under the ECF will provide an appropriate anchor for the policies set forth in the government’s Economic Policy Paper for 2016-20. In this regard, the fiscal program aims to create the needed room for key infrastructure outlays and social spending. Moreover, implementation of the set of structural reforms envisaged in the program context will contribute to further improving macroeconomic stability and resilience and paving the way for economic diversification, sustained growth, and poverty reduction.

20. In this light, we would appreciate Directors’ support to the authorities’ request for a new arrangement under the Extended Credit Facility.