Abstract
2019 Article IV Consultation, Fourth Review Under the Extended Credit Facility, and Requests for Waiver of Nonobservance of a Performance Criterion, Modification of Performance Criteria, and Extension and Rephasing of the Extended Credit Facility Arrangement-Press Release; Staff Report and Statement by the Executive Director for Niger
Introduction
On behalf of our Nigerien authorities, we would like to thank staff, management and the Executive Board for their continued support to Niger’s efforts in implementing its ECF-supported program to sustain macroeconomic stability and foster strong, broad-based and inclusive growth. The authorities highly value the constructive policy dialogue held with staff in Niamey last May in the context of the 2019 Article IV consultation and the fourth review under the ECF arrangement. They broadly concur with staff’s assessment and policy recommendations, which are in line with their economic and social development plan (PDES) over 2017–2021.
During the period under review, macroeconomic performance continued to be good, and program implementation remained overall satisfactory. It is worth noting that this program performance has been achieved amid a tense security situation in the country and the region, negative terms of trade and daunting development challenges, including climate change.
The tense security situation facing Niger and the region has adversely impacted the economic activity and fiscal performance. This challenging environment has also compelled the authorities to increase security spending while remaining fully committed to achieving the objectives of their ECF-supported program. In this regard, they have recently taken the needed measures to address domestic arrears including a substantial paydown to facilitate the completion of this fourth review.
Recent Economic Developments, Program Performance and Outlook
Recent Economic Developments
In 2018, the growth of Niger’s economy reached 6.5 percent, up from 4.9 percent in 2017, driven mainly the agriculture, gold extraction, construction and services sectors.
Average inflation estimated at 2.7 percent has fallen below the 3 percent convergence criterion of the WAEMU. Credit to private sector grew by 6.9 percent.
Fiscal consolidation is progressing, and the overall deficit was reduced more than expected from 5.7 percent of GDP in 2017 to 4.1 percent in 2018, thanks to the controls on current expenditures, and the transition from loans to grants for externally-financed investments. Domestic resource mobilization was strengthened by the introduction of performance plans for tax and customs administrations, the elimination of some tax exemptions and taxation of the informal sector. However, revenue performance was affected by the low contribution of natural resources and the elimination of a telecommunication tax.
In the external sector, the current account deficit widened from 15.7 percent of GDP in 2017 to 18.2 percent of GDP, due mainly to the weak natural resource exports and the increases in imports of intermediary and capital goods. While it was largely financed by donors’ assistance and foreign direct investments, the overall balance of payments deficit stood at 2.3 percent of GDP. Niger being a member of WAEMU uses the CFA franc pegged to the Euro and it serves the economy well.
The authorities welcome the findings of the new public debt sustainability analysis conducted for this review, highlighting that Niger’s risks for debt distress continues to be rated as moderate.
Program Performance
The implementation of Niger’s ECF-supported program is broadly on track. All quantitative performance criteria and indicative targets for end-December 2018 and end- March 2019 were met except for the clearance of domestic payments arrears owing to tight conditions in regional financial markets and pressing security spending needs. The authorities resumed the clearance process in June 2019 following an emission of bonds to the tune of CFA 30 billion as conditions have improved in the regional financial market. Moreover, they are committed to make further efforts under the supplementary budget for about CFA 56 billion to clear the domestic arrears clearance and implement required policy measures to avoid their reoccurrence. In this regard, they appreciate staff’s advice and will better monitor payment arrears, notably by creating a debt management unit at the Treasury to ensure the integration of cash and debt management.
Regarding the structural benchmarks, good progress was made despite some delays due to limited capacities Niger is facing. Nevertheless, the authorities have advanced in their efforts to formalize the performance plans between the tax and customs administrations, as well as in streamlining discretionary exemptions.
Outlook
Niger’s economic prospects for the medium term remain favorable. Growth is expected to reach at least 7 percent over the next five years and will be driven among others by the renovation of major infrastructure, construction of the crude oil pipeline with Benin which should boost exports and fiscal revenue and by the important public works undertaken under the hosting of the African Union Summit in July 2019.
Policies for the Remainder of 2019 and the Medium Term
The policy priorities will remain centered on maintaining macroeconomic stability, increasing fiscal revenue while improving the quality of public expenditure and debt management, promoting the development of a vibrant private sector, strengthening governance and fostering girls’ education
Fiscal policy
The authorities are committed to the budget measures agreed under the program with a view to reducing the fiscal deficit to 3.0 percent in 2020. In this regard, they will pursue their fiscal consolidation efforts. Over the medium-term, the fiscal deficit will be progressively reduced to 2 percent of GDP through the continued implementation of measures to boost domestic revenue mobilization and increase the efficiency of public spending. Oil exports are also expected to contribute significantly to increasing fiscal revenue, and this will help address priority spending. Public debt should also decrease gradually from 53.8 percent of GDP in 2018 to 43.3 percent of GDP by 2024.
With regard to boosting revenue, the authorities remained determined to implement strong tax policy and administration measures. These measures will include the partial reinstatement of the tax on international calls, the implementation of the VAT on banking services and the broadening of the tax base to cover the informal sector notably through a lump sum taxation and reduce the tax burden on the formal private sector. The authorities will also continue to prioritize the streamlining of tax exemptions, the collection of tax arrears, the molecular marking of petroleum products to tackle fraud, and the implementation of the performance plans of the tax and customs administrations. The Ministry of Finance has formally communicated these performance plans to the Fund, thereby meeting this prior action for the review. Efforts to boost revenue will also entail the implementation of transaction valuation of imports, the collection of tax arrears and streamlining of tax exemptions. On this last point, a committee has been set to work on means to reduce exemptions by looking into the various codes, and legislation will be submitted to the National Assembly which will be included in the 2020 budget.
The authorities are cognizant of the need to use scarce public resources in an effective, efficient and transparent manner. In this regard, they will continue their efforts to achieve better outcomes and services from public spending, notably by pursuing the implementation of program budgeting introduced in 2018. They also acknowledge the need to improve the quality of public investment expenditures. To enhance the efficiency of public investment, the inter-ministerial selection committee implementing the public investment plan will only consider projects that have been duly appraised. Needed measures will also be taken to monitor the fiscal risks associated with Public Private Partnerships (PPPs) and ensure the highest returns for Niger
Public financial management reforms will be pursued to improve public procurement by increasing the share of competitive bidding to reach the WAEMU norm in this area. The procurement audits, including those of public administrative agencies recipient of important subsidies and transfers from the central government will be accelerated.
Further efforts are envisaged to improve public sector efficiency notably through the reform of the civil service, the operations and governance of public enterprises, and human resource management.
While continuing to streamline expenditures, the authorities will continue to address poverty and social issues, by strengthening safety nets through cash transfer programs and school lunch. In this regard, a tracking system of social spending has been established with a view to increasing efficiency and scaling up such programs.
Debt Management
The authorities are determined to further improve debt and cash management. To this end, the institutional coordination for debt management will be reinforced by enhancing the effectiveness of the Inter-Ministerial Committee on Public Debt and Budgetary Support. Good progress has also been made in implementing the Single Treasury Account (TSA) and the process of transferring all eligible accounts from commercial banks should be completed by end-September 2019. In this context, the banking functions of the Treasury will be strengthened.
Financial Sector
The promotion of the development and inclusion of the financial sector also remains a high priority to support the private sector. In this vein, steps will be taken to promote new financing mechanisms such as leasing and warrantage, the financing mechanism developed by the regional central bank BCEAO, and co-financing through the “Maison de l’Entreprise”. The strategy for rehabilitating the microfinance sector and address legacy issues will also be steadfastly implemented following the roundtable that the authorities envisage to organize to this effect.
Structural Reforms
Structural reforms will be steadfastly pursued to improve the business environment to ensure private sector development and foster job creation. The national development plan (PDES) for the period 2017–21 clearly focuses on the private sector as one the main drivers for accelerating economic growth in the medium to long term. Notwithstanding the progress made in recent years to improve Niger’s position in the World Bank’s “Doing Business”, the authorities will further sustain their efforts including to promote a strong local private sector. To this end, they will revitalize the consultation platforms with the private sector and donors to propose a critical mass of concrete, measurable and time-bound reforms.
On governance and the fight against corruption, the authorities renew their commitment to pursue their efforts to strengthen the institutional and legal framework. In this regard, they will take steps to review the funding of essential institutions such as the audit court, and ensure their effectiveness, as well as publish their work. They are working with the Fund on ways to improve the process of asset declarations of civil servants according to best international practices to make it more inclusive and improve compliance. Going forward, the authorities plan to submit the revision of the legal framework to the National Assembly or adopt them by decree by end-September 2019. Other measures to improve governance will be pursued, including rejoining the EITI initiative by the end of 2019, and implementing the recommendations of the recent National Risk Assessment Report under the 2012 FATF standard on AML/CFT.
The authorities will continue to address the country’s demographic challenges in compliance with the PDES objectives. They will act on the basis of their National Gender Policy and the Decree on Education of Girls to advance public awareness on gender and demographic issues. In this regard, the continued support of the international community will be critical to successfully implement various projects in this area.
Conclusion
Our Nigerien authorities are firmly determined to achieve the objectives of the ECF-supported program. In view of their good performance under the program and continued efforts to preserve macroeconomic stability, and address development challenges in a difficult security context, we would appreciate Directors’ support for the completion of the fourth review and the extension and rephasing of the ECF arrangement. We also seek Directors’ approval of the authorities’ requests for waiver of nonobservance of a performance criterion and modification of performance criteria.