Niger: Sixth Review Under the Extended Credit Facility and Request for Waiver for Nonobservance of Performance Criterion—Press Release; Staff Report; and Statement by the Executive Director for Niger
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International Monetary Fund. African Dept.
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Publication Date:
03 Nov 2020
eISBN:
9781513560205
Language:
English
Keywords:
ISCR; CR; authority; spending quality; ECF arrangement; disbursement of SDR; SDR; Non-government investment; budget grant; reform program; authorities' implementation; excl. budget grant; Government debt management; Credit; Budget planning and preparation; Global
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Sixth Review Under the Extended Credit Facility and Request for Waiver for Nonobservance of Performance Criterion-Press Release; Staff Report; and Statement by the Executive Director for Niger

Abstract

Sixth Review Under the Extended Credit Facility and Request for Waiver for Nonobservance of Performance Criterion-Press Release; Staff Report; and Statement by the Executive Director for Niger

Economic Developments, Program Performance, and Outlook

1. After over eight years of economic stability in a challenging environment, President Issoufou’s administration will hand over power when its final mandate ends in April 2021. Economic growth strengthened to some 6 percent annually and large-scale projects by donors and private investors were attracted, notably the oil export pipeline now under construction. These achievements unfolded against a challenging backdrop, marked by a deteriorating security situation across the Sahel, climate change, low prices for uranium exports, and one of the world’s lowest human development index (HDI) readings. The COVID-19 pandemic has been contained, with some 1,200 infections and under 100 deaths. In late summer 2020, Niger suffered extreme flooding.

G5-Sahel Countries: Security Developments, 2011–20

Citation: IMF Staff Country Reports 2020, 292; 10.5089/9781513560205.002.A001

A. Recent Developments and Program Performance

2. The COVID-19 pandemic disrupted a reasonably strong economy. GDP expanded by 5.9 percent in 2019, propelled by investment around the hosting of the African Union summit and large-scale projects by donors and foreign investors, and despite Nigeria closing its border to trade from late August 2019. Consumer prices declined by 2.5 percent. The current account deficit deteriorated slightly to 13 percent of GDP, but the overall external balance turned positive for the first time in many years thanks to exceptionally high donor support and FDI. These trends extended into early 2020.

3. Lockdown measures during March–July 2020 weighed heavily on economic activity. On March 27, all external borders were closed, and several other social distancing measures were implemented. Restrictions were gradually lifted from mid-May. By August, only the closure of land borders and the obligation to wear masks in public remained. Indicators suggest a recovery from June, although readings remain below those 12 months earlier. On account of food prices, inflation rose to 5.7 percent this August, pulling the annual average into positive territory.

4. The government decided to make a sizable investment into the pipeline for crude-oil exports. The project led by the China National Petroleum Company will connect the oil fields in eastern Niger via a 2,000 km long pipeline to Benin’s coast. Construction began last fall. The State of Niger has the contractual right to co-invest up to 45 percent in the US$2.1 billion project. In response to staff’s concerns about the costs, the government has now locked in a 15 percent stake (2.4 percent of GDP payable over 24 months). With pipes arriving at staging areas, a start date for oil exports in mid-2022 remains within reach.

5. In early 2020, Niger revised official GDP estimates sharply upward by 33 percent. The Statistical Office took the opportunity of the migration to SNA 2008 for a broader update of the national accounts. International experts, including from the Fund, provided technical input to the revisions but the accuracy of the estimates remains the sole responsibility of the authorities (Text Table).

6. Public finances deteriorated in 2019. The budget deficit widened to 3.6 percent of GDP from 3 percent of GDP in 2018, against a programmed 2.8 percent of GDP. Higher budget grant support was not enough to offset (i) the unexpectedly strong rise in spending, much of it on investment and security, amid difficulties to slow down spending growth late in the year, (ii) delays in reform implementation, such as the marking of petroleum products to combat smuggling, and (iii) the revenue loss from Nigeria closing its border to trade, which accounts for 30 percent of Niger’s exports. Revenue performance remained sluggish in the first quarter of 2020.

7. The authorities prepared an aspirational comprehensive COVID-19 response plan, but the focused supplementary budgets are realistic. In addition to health measures, they moved quickly to provide critical agricultural inputs and food aid to the most vulnerable, reduce utility bills, and defer tax payments. Banks were incentivized to extend credit under a CFAF 150 billion (2 percent of GDP) scheme backstopped by government guarantees, although take-up has been modest to date. Niger’s comprehensive response plan would have cost CFAF 1,440 billion (18.5 percent of GDP), including covering revenue shortfalls, and spending to address long-standing development challenges. Budgeted amounts are more modest though. The June 2020 supplementary budget authorized new spending of 1.6 percent of GDP, sharply revised down revenue projections by 2.6 percent of GDP, and cut back non-priority spending by 1.3 percent of GDP. A second planned supplementary budget will add another 0.6 percent of GDP in outlays, mainly for road and water projects, as well as food security.

Fiscal Costs of the Response to the COVID-19 Pandemic

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Sources: Nigerien authorities; and IMF staff calculations.

8. The government continues to strengthen the governance framework, but progress is falling short of earlier ambitions. In January 2020, parliament adopted a law that widens the asset declaration requirements to top civil servants. But the law falls short of good practices and remains to be promulgated pending a review of whether it can cover parliamentarians. Moreover, the existing asset declaration requirements for government members remain solely governed by the Constitution’s general provisions. The authorities committed to post on an official website the names of government officials subjected to declaration requirements along with their declarations within 6 months to ensure high visibility and increase moral pressure for compliance, since the constitution does not stipulate sanctions. Upon instructions by the President, a special audit of military procurement has recently been completed. It uncovered alleged irregularities, which could have led to a fiscal loss of one percent of GDP during 2014–18. The case has been referred to the judiciary. The government committed to conduct an administrative review once legal proceedings have been completed, and take measures as needed to strengthen procurement procedures and compliance.

9. Program performance against end-December 2019 targets was mixed:

  • Three out of four PCs were met. External payment arrears continued to be avoided, remaining domestic payment arrears were cleared, and the contracting of new external public debt remained below the programmed ceiling. But domestic budget financing exceeded the program ceiling by 0.4 percent of GDP, reflecting the spending overruns and revenue shortfalls.

  • Two out of five ITs were observed. Anti-poverty spending and exceptional expenditure respected program targets. But fiscal revenue collections and the basic fiscal balances fell short, by 0.2 and 0.9 percent of GDP respectively.

  • One of two SBs was met. A decree establishing a dedicated debt management unit in the Treasury has been issued. A list of public officials subject to asset declaration requirements and the total value of the assets they declared was included in the annual report of the Audit Court, but declarations have not yet been posted on an official website as had been committed to under the benchmark.

  • All but one recurrent SBs were met. Those related to debt management, treasury plans, and the procedures for budget releases were observed. A tally of newly granted discretionary tax exemptions has yet to been furnished.

10. More generally, while reforms progressed notably during the three years covered by the ECF arrangement, results fell short of the program’s ambitious targets amid adverse circumstances and Niger’s low development level (Box). Macroeconomic stability was preserved, and public finances remained under control, but revenue mobilization underperformed, and deficit reduction reflected mainly rising grants. The clearance of domestic payment arrears, the establishment of a Treasury Single Account, and better debt management were important achievements. The roll-out of the structural reform agenda remains work in progress.

Performance Under the 3-year ECF Arrangement

The Executive Board approved the current ECF arrangement on January 17, 2017 and subsequently approved its extension from late April to end-October 2020 on account of the COVID-19 crisis. The program supported Niger’s medium-term Economic Development Plan for 2016–19, which aimed to accelerate growth to 7 percent, improve incomes, and create jobs, while strengthening the foundations for sustainable development.

The arrangement was approved in the context of anemic growth and high fiscal deficits, rising public debt, and a large current account deficit. The program sought to open fiscal space by mobilizing domestic revenues and improving spending efficiency and so reduce the deficit to 3 percent of GDP as per the WAEMU convergence criterion. Revenues were projected to rise almost 4 percent of GDP over 2016–20, reducing the deficit by 3.6 percent of GDP from 6.5 to 2.9 percent of GDP (or from 4.8 to 2.1 percent of GDP under the national accounts revised in 2019). Meeting these objectives was to be supported by a structural reform agenda that focused on strengthening revenue and natural resource revenue administration, public financial management, and debt management.

The authorities’ implementation of the macroeconomic program has been broadly successful despite challenging circumstances. Implementation has been confounded by a difficult security environment, weak commodity export prices, environmental degradation, very high population growth and, more recently, the shock from the COVID-19 pandemic. Despite these difficulties, as measured by implementation of performance criteria, the authorities’ program implementation to date has been broadly satisfactory with only three waivers requested for the non-observance of performance criteria—twice relating to domestic payment arrears (June and December 2018) and once to domestic budget financing (December 2019).

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However, overall macroeconomic performance has been more mixed. Economic growth over 2017–19 remained at 6 percent, somewhat below the program target of 7 percent, and deficit reduction made headway, though largely on account of higher grants as domestic revenue mobilization remained an uphill battle. It was hampered by adverse shocks, including a difficult security situation, low commodity prices for uranium exports, and the closure of the Nigerian border to trade. But it also reflects delays in the implementation of reform measures and weak governance and speaks to the difficulty of achieving progress on the ground in a low-capacity environment.

Niger: Programmed and actual fiscal deficit Percent of GDP

Citation: IMF Staff Country Reports 2020, 292; 10.5089/9781513560205.002.A001

The structural reform program has also seen mixed results. Tax and customs administrations benefitted notably from the revamping of the large taxpayer unit, the introduction of transaction valuation of imports for tax purposes, new software systems, and better interconnectivity, but results in terms of revenue mobilization disappointed. More progress was made in other areas, in particular debt management, the establishment of a Treasury Single Account, budget preparation and implementation, bankification of tax and customs payments, the adoption of a new law governing PPPs, and some improvements in the governance framework.

B. Outlook and Risks

11. The pandemic is weighing strongly on economic activity this year. A delay in the implementation of the large foreign projects, pandemic-related restrictions, and the weak global economy crimp growth. The authorities and staff project it at 1.2 percent, which corresponds to -2.6 percent in per-capita terms. With Niger’s limited involvement in international value chains, its large informal agricultural sector, and a marginal tourism sector, a worse outcome was avoided. Inflation should see a transitory rise to 2.8 percent on food supply disruptions. The current account deficit is projected to remain largely unchanged at 13 percent of GDP, with exports and imports both down due to, respectively, Nigeria’s border closure and weak external demand, and delays in import-intensive projects.

12. Authorities and staff both see growth normalizing in 2021 and surging thereafter. At a projected 6.9 percent for 2021, it slightly exceeds the pre-pandemic trend, making up some of the ground lost in 2020. Niger should benefit from the resumption of foreign projects, the assumed reopening of the border with Nigeria, which is under intense discussion, and the likely absence of renewed lockdowns. Despite reviving exports, the current account is set to deteriorate due to imports for the large projects and some decline in grants. The start of oil exports during 2022 jolts growth to 12.8 percent and it should remain in the double digits in 2023 as production volumes ramp up. The current account sees a sharp improvement. Inflation should gravitate back to its historical long-run average of some 2 percent.

13. Fiscal policy this year and next is geared toward moderating the economic impact of the pandemic and facilitating a recovery. Deficits will reach record levels of 5.8 and 4.4 percent of GDP in 2020 and 2021, respectively. The government’s medium-term fiscal framework foresees a deficit reduction to below 3 percent of GDP in 2022, excluding the final installment of 1 percent of GDP for the state’s participation in the oil pipeline project. The fiscal position will also benefit from additional oil revenues with the ramping up of production once the export pipeline becomes operational during 2022. Staff cautioned that the size of the revenue boost is highly sensitive to international prices and rather modest at the current WEO forecast of around US$50 per barrel and initial export volumes.

14. Risks to the outlook are tilted to the downside. Authorities and staff agreed that uncertainty around the baseline is unusually high. The authorities saw upside to growth forecasts. Because of limited linkages to the global economy, the downdraft from the pandemic was broadly limited to transitory effects from domestic containment measures and delays in the implementation of foreign projects. Staff saw these particularities of the Nigerien economy already captured in the baseline and stressed the negative global risk balance, possible delays in the pipeline construction and the reopening of the Nigerian border to trade, the tense Sahel security situation, and a tendency of more frequent natural disasters, such as the recent floods. In the face of large uncertainties, the authorities and staff will continue their close engagement and discuss appropriate policy measures in case downside risks materialize.

Niger: Fiscal Revenues from Crude Oil Exports and International Oil Prices

Citation: IMF Staff Country Reports 2020, 292; 10.5089/9781513560205.002.A001

Source: IMF staff calculations.

Policy Discussions

The policy dialogue focused on fiscal issues, particularly how to better guard against budget overruns in the future, the appropriate fiscal stance for this year and next, and the foundation for stronger revenue mobilization going forward. The authorities and staff revisited the debt sustainability analysis (DSA) in light of the updated macroeconomic framework. The discussion also covered measures to strengthen governance and the anti-corruption agenda and financial sector issues.

15. Expenditure control will be strengthened by more realistic budgeting, thereby reducing the burden on less-reliable budget execution management to meet targets. Niger’s public finances used to be plagued by frequent spending overruns. The introduction of the Inter-Ministerial Budget Regulation Committee in 2016 made great progress in addressing this problem, but as developments in 2019 showed, the new mechanism has its limitations. When revenue projections are scaled back too late in the year and unexpected critical spending needs emerge at the last moment, it is no longer possible to hold back the release of credits to line ministries without causing major disruptions. There simply is no substitute for realist and cautious budgeting. The budgets for 2020 and 2021 proposed by the authorities take this to heart. Revenues for 2020 are conservatively projected to decline in nominal terms by slightly more for the full year than they did in the first semester. The 2021 budget is built around the conservative assumption of budget grants being lower than in 2020 and 2019, while the increase of revenue reflects a return to the pre-pandemic situation in terms of ratios to GDP, tailwinds from the assumed reopening of the Nigerian border, and a modest yield from measures in the 2020 budget, which gain traction with a delay because of the pandemic-related disruptions.

16. The fiscal deficit is set to widen by 2.2 percent of GDP in 2020. Revenues have held up reasonably well this year and benefitted from the sale a telecom license (0.3 percent of GDP). With spending rising to fight the fallout from the pandemic and support economic activity, as per the second supplementary budget, the authorities and staff anticipate a rise in the fiscal deficit from 3.6 percent of GDP last year to 5.8 percent of GDP this year, including a down-payment of 0.5 percent of GDP for the pipeline participation. Grants will likely not be much higher than last year, as World Bank budget grants come off their 2019 record level (2.3 percent of GDP) while the EU and the African Development Bank are stepping up their support. But thanks to additional financing from the IMF under the RCF and the CCRT (0.9 percent of GDP), an external loan from Deutsche Bank contracted in January to lengthen maturities (1.9 percent of GDP), the DSSI debt service relief, and liquid regional financial markets, sufficient resources are assured to finance the deficit. Overall, the 2020 budget strikes an acceptable balance between the need to support the economy and public health and protecting public finances. The authorities committed to only go beyond the envelope for domestically financed spending (excluding the pipeline participation payment) set in the second supplementary budget (CFAF 1,275 billion or 16.2 percent of GDP) to the extent that budget grants exceed predictions (CFAF 198 billion or 2.5 percent of GDP).

17. The fiscal stance in 2021 marks the beginning of a return to normality while avoiding a sudden withdrawal of fiscal support. The authorities committed as a prior action for this review to submit to Parliament a draft budget that keeps domestically financed expenditure, excluding the second installment for the pipeline investment, broadly flat in nominal terms at their 2020 level (CFAF 1,270 billion or 14.8 percent of GDP). The spending ratio declines to the level of 2019. After the high levels of investment in 2019 and 2020, capital expenditure declines while spending on goods of services recovers from its compressed level of 2019, and subsidies and transfers rise strongly on account of support for schools and hospitals. To finance the budget, Niger will need to raise financing of 2.2 percent of GDP in domestic and regional markets, not taking into account a possible successor arrangement with the Fund. This exceeds the long-term average of 1.1 percent of GDP but is not unprecedented with 2.4 and 3.3 percent of GDP recorded in 2014 and 2015, respectively.

18. In the wake of the pandemic, Niger’s DSA deteriorates, but it would be premature to change the debt distress rating from “moderate” to “high” (see attached DSA). Indicators had been close to the thresholds for high risk before the economic shock from the COVID-19 pandemic. The additional public borrowing in the crisis, including the contracting of a first external commercial loan (US$250 million or 1.9 percent of GDP), and, more importantly, the weakening of exports, now push indicators that relate external debt and external debt service to export earnings into high-risk territory during 2020–21 and 2020, respectively, with only the expected onset of crude oil exports during 2022 providing fundamental relief. The timely completion of the pipeline project and the assumed reopening of the border with Nigeria are subject to downside risks. However, the authorities informed staff of an impending sharp upward revision of gold exports from late-2019 onward. Due diligence by staff based on information provided by the authorities and independently sourced confirms the high likelihood of revisions on an order of magnitude that would reduce breaches of thresholds to a single and minor one.1 Under the circumstances, staff is of the view that a reclassification of Niger’s debt distress rating would be premature and subject to a likely reversal in a few months’ time. In the months ahead, the authorities and staff will work closely together to finalize the revision of exports and fully integrate them into the macroeconomic framework, possibly supported by technical assistance from the Fund’s Statistics Department. Otherwise the DSA remains predicated on the government implementing its reform program, notably fiscal consolidation once the economy has recovered from the shock of the pandemic, revenue mobilization, better quality of public spending, guarding against risks from PPPs and SOEs, and economic and export diversification. In the meantime, Niger should be prudent in contracting external debt, prioritizing concessional loans and seeking out grants.

19. The authorities see better domestic revenue mobilization as a key priority to strengthen public finances and make room for development and social spending. Pointing to the many reforms introduced over the last few years, some underlying progress has been made, but outcomes have been hampered by adverse shocks, such as the drop in commodity prices, the deteriorating security situation, and the closure of the Nigerian border. Moreover, the structure of the Nigerien economy with a large informal sector and little manufacturing did not make for a sufficient revenue base and the fiscal pressure on those fully in the tax net was already high. But they agreed to conduct an in-depth study that would be enlightening. In the meantime, two measures will be taken as prior actions for the review, which lay the foundation for better future performance without stepping-up fiscal pressures in the current recovery phase from the COVID-19 pandemic. First, a contract will be signed and registered with a reputable provider for the marking of petroleum products to combat widespread smuggling. Second, a decree will be issued to establish and set out the mission of a hub within the Ministry of Finance for surveillance and analysis of tax exemptions, with a view to pulling together fragmented information and formulating recommendations for policy action. In executing its mission, it will draw up a coherent, complete, and consolidated running tally of all newly granted discretionary exemptions. It could elaborate on (i) procedures and policies to prevent the abuse of exemptions, (ii) recommendations to strengthen the process of awarding exemptions, and (iii) advice on reducing tax expenditures by setting an annual ceiling or limiting exemptions to certain types of taxes.

20. Staff encouraged the authorities to finalize long-standing reform projects to improve the quality of public spending. This includes work with the World Bank on a new strategy, procedures, and a manual for project selection, which could be promulgated by decree still this year; the piloting of double authorization (annual and for a three-year period) of spending in six line ministries in the 2021 budget; and work with development partners on the efficiency of social protection programs. In the meantime, the authorities are guided by the social spending tracking system developed in the context of the fifth program review. Staff stressed that good management of PPPs forms an integral part of spending quality and is also essential for the soundness of public finances in the case of large projects. The authorities reaffirmed their commitment to subject PPPs to processing for foreign clients (i.e. merchandizing) to own-account refining, trading, and shipment to abroad (i.e. exporting). The BCEAO is now in the process of reflecting this new situation in the balance-of-payments, which will entail an upward revision of exports in 2019 and higher export projections from 2020 onward. The higher export numbers are already reflected in the trade statistics based on customs data.

21. The economic fallout from the pandemic affects the financial sector, but the impact appears manageable. A recent survey by the BCEAO indicates that banks are becoming less pessimistic about the effects of the crisis. The transport, hotel, and restaurant sectors will be most affected. While banks’ profits will be sharply lower this year than in 2019, they are expected to remain positive. Banks are being cautious with extending new credits to the private sector, especially in problem sectors, but thanks to the BCEAO’s region-wide payment deferral system and accompanying refinancing, the loan stock should not decline. Commendable efforts to set-up credit promotion funds to improve access to credit and financial inclusion continue, but the proliferation of schemes that are slow to get off the ground and often remain non-operational or only partially operational for extended periods of time is a cause for concern.

22. Efforts to improve governance and fight corruption will continue. The authorities committed to (i) post the asset declarations of government members on an official website over the next six months as was envisaged under the end-December 2019 SB; (ii) have the Audit Court conduct and publish online an audit of pandemic-related spending by September 2021; (iii) publish pandemic-related procurement contracts online, together with the names of companies awarded and their beneficial owners and ex-post validation of delivery; and (iv) once the judicial process regarding the alleged defense procurement irregularities will have been completed, conduct an administrative review and implement reforms as needed. The authorities should more generally step-up their World-Bank-supported efforts to strengthen the framework for public procurement and its application. Regarding COVID-19-related spending, the authorities noted that it all passes through the budget and is as such subject to the same safeguards as all other public spending. Nonetheless, they agreed to follow the example of other countries and take the additional steps to reassure donors.

Program Modalities

23. The authorities expressed their commitment to redress shortfalls in program implementation. More conservative budgeting in the 2020 and 2021 budgets will reduce the burden on budget execution regulation to meet fiscal targets and thus strengthen spending control. The spending envelope of the 2021 draft budget is subject to a prior action. The authorities are also committed to improve domestic revenue mobilization, supported by two prior actions. On this basis, the authorities are requesting a waiver for the non-observance of the PC on domestic budget financing at end-December 2019.

24. Niger’s capacity to repay the IMF remains adequate, but subject to risk, which program measures seek to mitigate. Considering the strength and implementation of the program so far, Niger should have sufficient capacity to repay the IMF, including when repayments peak at 2.4 percent of tax revenues and 2.4 percent of exports in 2020 (Table 8). Key risks are security developments, climatic shocks, slowing of external support, and implementation capacity. The program is fully financed for the remainder of the arrangement.

Table 1.

Revisions of GDP Estimates for the New Base Year 2015

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Table 2.

Niger: Selected Economic and Financial Indicators, 2017–25

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Sources: Nigerien authorities; and IMF staff estimates and projections.

Revenue excluding grants minus expenditure excluding foreign-financed capital expenditure.

Revenue including grants minus expenditure; WAEMU anchor.

Includes CCRT debt relief.

In percent of GDP as revised in the context of the migration to SNA2008.

Table 3.

Niger: Financial Operations of the Central Government, 2017–25

(In billions of CFA francs)

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Sources: Nigerien authorities; and IMF staff estimates and projections.

The special accounts include the financing on the National Retirement Fund, Priority Investments Fund, and Fund for Continuous Professional Development.

On comittment basis. WAEMU anchor.

Includes CCRT debt relief.

Revenues minus expenditure net of externally-financed capital expenditure.

Table 4.

Niger: Financial Operations of the Central Government, 2017–25

(In percent of GDP)

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Sources: Nigerien authorities; and IMF staff estimates and projections.

The special accounts include the financing on the National Retirement Fund, Priority Investments Fund, and Fund for Continuous Professional Development.

On comittment basis. WAEMU anchor.

Includes CCRT debt relief.

Revenues minus expenditure net of externally-financed capital expenditure.

In percent of GDP as revised in the context of the migration to SNA2008.

Table 5.

Niger: Monetary Survey, 2017–25

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Sources: BCEAO; and IMF staff estimates and projections.

In percent of GDP as revised in the context of the migration to SNA2008.

Table 6.

Niger: Balance of Payments, 2017–25

(In billions of CFA francs, unless otherwise indicated)

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Sources: Nigerien authorities; and IMF staff estimates and projections.

The grant for debt service falling due in the 12 months from April 14, 2021 is subject to availability of resources under the CCRT.

Table 7.

Niger: Balance of Payments, 2017–25

(In percent of GDP)

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Sources: Nigerien authorities; and IMF staff estimates and projections.

In percent of GDP as revised in the context of the migration to SNA2008.

The grant for debt service falling due in the 12 months from April 14, 2021 is subject to availability of resources under the CCRT.

Table 8.

Niger: Indicators of Financial Soundness, Dec. 2012–June 2019

(In percent)

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Source: BCEAO.

Compilation according to Basel II/III. Not comparable to earlier years.

Credit to the 5 biggest borrowers to regulatory capital.

25. The last safeguards assessment of the BCEAO was completed in 2018. It found that the central bank had maintained a strong control environment, audit arrangements were in broad conformity with international standards, and the financial statements were prepared in accordance with International Financial Reporting Standards (IFRS). The BCEAO enhanced the oversight role of its audit committee and is making progress to strengthen its risk management function in line with the recommendations of the assessment. The central bank’s financial statements continue to be published on a timely basis.

Staff Appraisal

26. Program performance was mixed against end-December 2019 targets. The clearance of the remaining domestic payment arears was a good achievement, the government remained prudent with the contacting of external debt, and the establishment of a dedicated public debt management unit is welcome. But sizable fiscal spending overruns and continued challenges with mobilizing domestic revenues are concerning. More progress could also have been made with strengthening frameworks for good governance.

27. The COVID-19 pandemic takes a heavy economic toll this year, but recent indicators point to a rebound taking hold. Containment measures and slower execution of foreign-financed projects push per-capita income growth into negative territory this year, but a rebound is expected for 2021 based on the assumption of further progress on slowing the spread of the virus, and the limited linkages of Niger’s economy to global developments.

28. Widening fiscal deficits in the wake of the pandemic are appropriate but are reaching sustainability limits and must not become entrenched. The accommodation of revenue shortfalls and additional pandemic-related and development outlays soften the economic blow but push fiscal deficits to the limit. Considering Niger’s chronically weak revenue base, staff welcomes the authorities’ commitment not to go beyond the spending envelopes set in the second supplementary 2020 budget and the prudent 2021 draft budget. The risk of high spending levels becoming entrenched should not be underestimated.

29. The need to mobilize domestic revenues and improve spending quality remains imperative. Staff welcomes the authorities’ commitment to improve the efficiency of public spending, with the swift implementation of long-standing reforms more important than ever. The authorities’ reaffirmation to only engage in PPPs with a proven clear positive net benefit is important. A deeper analysis of Niger’s limited progress with mobilizing domestic revenues is needed, but in the meantime low-hanging fruits should be picked.

30. A much stronger private sector needs to be developed to sustainably support higher living standards. This requires a sustained and focused approach to reforms by the government and development partners. Efforts to improve access to credit would benefit from the consolidation of the growing number of not fully operational credit promotion schemes. Pressing ahead with the implementation of the anti-corruption agenda is also critical.

31. The corrective actions taken and committed in the context of this review are an important step forward. The budgets for 2020 and 2021 are based on realistic assumptions and therefore less prone to overruns than over-optimistic past budgets that ended up relying excessively on budget under-execution to meet targets. Concrete steps to combat the smuggling of petroleum products and better analytical tools to inform policy decision on tax exemptions should strengthen revenues going forward.

32. Staff supports the authorities’ request for a waiver for the non-observance of the end-December 2019 performance criterion on domestic budget financing, the completion of the sixth program review, and the disbursement of the seventh tranche of SDR 14.1 million. The attached Letter of Intent sets out appropriate policies to achieve program objectives. Staff looks forward to continuing its close engagement with the authorities and recommends that Niger’s next Article IV consultation be held on the standard 12-month cycle.

Figure 1.
Figure 1.

Niger: Recent Economic Developments and Outlook

Citation: IMF Staff Country Reports 2020, 292; 10.5089/9781513560205.002.A001

Sources: Nigerien authorities; and IMF staff calculations.
Figure 2.
Figure 2.

Niger: Fiscal Developments 2010–19

Citation: IMF Staff Country Reports 2020, 292; 10.5089/9781513560205.002.A001

Sources: Nigerien authorities; and IMF staff calculations.
Figure 3.
Figure 3.

Niger: GDP Composition and Output Volatility

Citation: IMF Staff Country Reports 2020, 292; 10.5089/9781513560205.002.A001

Sources: Nigerien authorities; and IMF staff calculations.
Figure 4.
Figure 4.

Niger: Tax Performance, 2016–20

(Cumulative values, December 2014 = 100, nominal GDP discounted)

Citation: IMF Staff Country Reports 2020, 292; 10.5089/9781513560205.002.A001

Sources: Nigerien authorities; and IMF staff calculations.
Table 9.

Niger: Indicators of Capacity to Repay the Fund, 2019–31

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Source: IMF staff estimates and projections.

Total external debt service includes IMF repurchases and repayments.

Appendix I. Letter of Intent

Niamey, October 9, 2020

Madam Kristalina Georgieva

Managing Director

International Monetary Fund

Washington DC, 20431

Madam Managing Director,

1. Niger is on the cusp of a historical transition. Under the leadership of His Excellency Mr. Issoufou Mahamadou, President of the Republic, the economy in the last four years underwent noteworthy changes with large-scale private investments, including to make Niger a regional conference hub. However, continued macroeconomic stability and fiscal efficiency are needed to safeguard favorable prospects in the face of persistent shocks, with the COVID-19 pandemic and devastating floods adding new challenges. Today, the nation is preparing to make its first democratic transition of power, with elections scheduled at the end of this year. More than 7.4 million voters have been registered in the biometric registry. These accomplishments, supported by a corresponding investment drive, are noteworthy despite persistent challenges: significant deterioration of security around borders, volatile commodity prices, and climate change.

2. The government is grateful to the IMF for the timely Rapid Credit Facility (RCF) support and CCRT debt relief earlier in the year. This liquidity support (0.9 percent of GDP) helped finance the COVID-19 response plan, enabling the government to ramp up health spending, provide agricultural inputs, and deliver social assistance to the vulnerable.

3. Accordingly, the economy has shown resilience in the face of the COVID-19 pandemic, and a gradual recovery is projected. Growth this year is expected to decline to 1.2 percent and recover to 6.9 percent in 2021. The government’s emphasis on social spending in its response plan, and immediate actions on food distribution to the vulnerable, indicate commitment to fight poverty. Export of crude oil starting in 2022 and continued private investments will sustain economic momentum in the medium term, with growth averaging 9 percent.

4. Niger made progress under the Extended Credit Facility (ECF) arrangement that was approved in January 2017. The government is determined to overcome the shortcomings of 2019 through strong and timely corrective action as outlined below.

5. In order to continue to safeguard macroeconomic stability and the recovery, and given the corrective actions, the government requests a waiver for the non-observance of the performance criterion (PC) on domestic budget financing, the completion of the 6th review of the ECF arrangement, and the disbursement of the associated final tranche in the amount of SDR 14.1 million.

Recent Economic Developments and Performance Under the Program

6. GDP expanded by 5.9 percent in 2019, propelled by investments around the hosting of the AU summit and large-scale projects by donors and foreign investors. Consumer prices declined by 2.5 percent. The current account deficit remained at some 12 percent of GDP, but the overall external balance turned markedly positive because of high donor support and foreign direct investment (FDI).

7. This year, the economy is set to slow sharply. Containment measures against the spread of COVID-19 virus took a heavy toll. Disrupted private sector activity and externally funded infrastructure projects, lower trade, and a decline in the hotel and services sector contributed to the slowdown. Restrictions were gradually lifted from mid-May. The economy has started to recover well on the basis of certain indicators.

8. Public finances were under pressure in 2019, mainly due to security and investment needs. The budget deficit widened to 3.6 percent of GDP from 3 percent of GDP in 2018, exceeding the program target of 2.8 percent of GDP. Higher budget support was not enough to offset the rise in spending, and weakness in revenue exacerbated pressures. Higher execution of investments on the Kandadji Dam, spending for the AU Summit, post-conflict recovery expenditure, and biometric voter registration were important undertakings. The Nigerian border closure and unprecedented terror attacks contributed to challenges in revenue collection and spending pressures.

9. Recent program performance suffered from temporary lapses. Domestic financing exceeded the PC by 0.4 percent of GDP in 2019, with revenue and the basic fiscal balances also falling short of indicative targets (ITs), by 0.2 and 0.9 percent of GDP, respectively. The other three PCs were observed: external payment arrears continued to be avoided, domestic payment arrears were cleared, and the contracting of new external public debt remained below the program ceiling. Anti-poverty spending and exceptional expenditure respected their ITs. Regarding structural benchmarks (SBs), a decree establishing a dedicated debt management unit at the Treasury has been issued. A list of public officials subject to asset declaration requirements and the total value of the assets they declared was included in the annual report of the Audit Court and published on its official website. However, the individual declarations themselves have not yet been posted on an official website. Four recurrent SBs were observed. Two SBs related to debt management were also observed. However, a tally of newly granted discretionary tax exemptions is yet to be furnished. Performance against PCs, ITs, and SBs for 2019 and 2020 are summarized in Tables 1, 2, and 3 of this Letter of Intent (LoI).

Table 1.

Niger: Quantitative Performance Criteria and Indicative Targets (March-December 2019)

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Sources: Nigerien authorities; and IMF staff estimates and projections. Note: The terms in this table are defined in the TMU.

Program indicators under A are performance criteria at end-June and end-December, and indicative targets for end-March and for end-September.

The ceiling on domestic financing of the budget will be adjusted if the amount of disbursements of external budgetary assistance as defined in footnote 5 falls short of program forecasts, the quarterly ceiling will be raised pro tanto, up to a maximum of CFAF 30 billion.

From end-June 2019, the ceiling on domestic financing of the budget will be increased/reduced by the reduction/increase in the stock of outstanding domestic payment obligations since end-2018, excluding the supplementary period adjustment. Domestic payment obligations comprise arrears and float and stood at CFAF 95.8 billion at end-2018. This adjuster will be reduced by the amount of any external budget support in excess of the program amount as quantified in the memorandum item of this table and will be capped at CFAF 50 billion.

From October 1, 2019 onward, the ceiling on net domestic financing will be lowered by the amount of borrowing under the PBG operation.

External budgetary assistance (excluding net financing from the IMF).

The ceiling increases to CFAF 25 billion effective on the date of completion of the fourth review (June 26, 2019) and remains continuously at this level until September 30, 2019. On October 1, 2019 the continuous PC stock is reduced to CFAF 5 billion until the end of the arrangement. The new ceiling was observed through end-July 2019.

From October 1, 2019 onward, the ceiling on the PV of newly-contracted external PPG debt will be raised by the amount of borrowing under the PBG operation up to an amount of CFAF140 billion.

Exceptional expenditures refer to payments made by the treasury without prior authorization, excluding debt service payments and expenditures linked to exemptions.

Table 2.

Niger: Recurrent Structural Benchmarks for the Program,

December 2019 – December 2020

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Table 3.

Niger: Proposed Prior Actions and Structural Benchmarks,

December 2019 – October 2020

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10. Overall, the government made notable progress with implementing its reform program since the inception of the ECF despite persistent and severe challenges. Macroeconomic stability with robust growth averaging 6 percent and the reform drive helped attract large-scale foreign projects and contributed to poverty reduction. On the fiscal front, Public Financial Management Reform progressed, notably the establishment of a Treasury Single Account. Domestic payment arrears, including those to public utilities, were cleared, and action was taken on governance by bringing high-level officials under the asset declaration regime. A newly established dedicated debt management unit in the Treasury is producing detailed, quality analysis of debt developments. The government also increased fiscal transparency, including through the online publication of a simplified “citizens’ budget.” Despite efforts on several fronts, progress was more difficult on revenue mobilization on account of a large informal sector, volatile commodity prices, and the continued border closure with Nigeria. These included, inter alia, a start with consolidating and streamlining exemptions; putting in place performance plans in tax and customs administrations; processing tax payments through the banking system; and rolling out transaction valuation of imports for tax purposes.

COVID-19 Status and Response Plan

11. The COVID-19 pandemic in Niger is well contained. Thanks to early and swift action by the government through border closures, social distancing measures, and a night curfew, the situation is well under control: new cases are averaging around 1 per day, with 69 deaths and fewer than 1,200 cases in total. However, these early and forceful containment measures took a toll on the economy on top of spillovers from abroad.

12. Government devised a comprehensive response plan to tackle the health, social, and economic aspects of the COVID-19 pandemic. To blunt the health impact, testing capacity was increased while setting up isolation centers. Social measures included distributing food aid to the vulnerable and assuming water and electricity bills for low-income households. Agricultural inputs and tax deferrals were availed to affected businesses. Banks were also incentivized to extend credit to eligible businesses under a CFAF 150 billion (2 percent of GDP) scheme, backed by government guarantee funds deposited in banks.

13. Supplementary budgets for 2020 adopted in June and September authorized additional spending to respond to the COVID-19 pandemic. They mark down revenues and authorize new spending partially financed by additional donor support. All COVID-19 related spending is channeled through the budget, and as such subject to the usual safeguards. In an effort to contain the widening of the fiscal deficit, the government is committed not to authorize spending beyond the CFAF 1,316 billion envelope for the overall domestically financed expenditure (including the investment in the crude oil export pipeline) this year unless budget grants exceed the anticipated amount of CFAF 198 billion. This will keep the deficit at 5.8 percent of GDP in 2020.

14. As part of its commitment to transparency and good governance, Niger will take additional steps to ensure that COVID-19 funds are spent efficiently on their intended purpose. In this context, the Court of Audit will conduct an independent audit of the use of the committed funds. This audit will be published online by the Court of Audit in its general public report by September 2021. Furthermore, the government will publish the procurement documents and contracts of large projects related to the pandemic, together with the names of companies awarded and their beneficial owners.

Medium-term Outlook and Policies

15. Economic growth should normalize in 2021 and accelerate thereafter. Growth in 2021 should recover back toward trend at 6.9 percent: the resumption of foreign-financed projects, the reopening of the border with Nigeria, and the likely absence of renewed lockdowns will underpin this recovery. With crude oil exports starting in 2022, growth will reach 12.8 percent and remain in double digits in 2023 as production volumes increase. Despite reviving exports, the current account is set to deteriorate as import-intensive projects resume and foreign grants start to normalize.

16. Crude oil exports via a pipeline through Benin will boost growth prospects and revenues. The CNPC-led project will connect the oil fields in eastern Niger through a pipeline to Benin’s coast. Niger opted for a 15 percent stake in the project (2.4 percent of GDP over two years) to be part of this critical national infrastructure and to share in its profits.

17. The 2021 budget will balance debt sustainability considerations and the need to support the economic recovery. The deficit should start to retreat to 4.4 percent of GDP (including the pipeline) based on a modest nominal reduction of domestically financed expenditure from the high 2020 level, avoiding tax cuts, and a recovery of revenues. The latter will happen with the Nigeria border re-opening, and as the economic effects from the COVID-19 pandemic begin to fade.

18. In the medium term, fiscal deficit will converge to 3 percent of GDP, in line with the WAEMU convergence criterion. An important driver will be additional revenues from the export of crude oil, which are albeit highly sensitive to international prices. The government will consult with IMF staff on developing an appropriate smoothing mechanism to manage this potential volatility. Public investment is expected to stay above 10 percent of GDP (with overall domestic spending at 15.4 percent of GDP) in the medium-term to support high growth, while revenue to GDP ratio will reach over 14 percent of GDP.

Economic Policies and Future Reforms

19. To strengthen public expenditure control, the government will put more emphasis on precisely calibrating the initial budget, thereby easing the burden on regulation through the budget execution process. The spending envelope established in the 2020 supplementary budget will be kept for the year unless additional budget grants are mobilized as outlined above. As a prior action for the review, the government submitted to the parliament a 2021 budget with an envelope for domestically financed expenditure of no more than CFAF 1,270 billion (TOFE definition, including special accounts and OPs, excluding investment in the crude-oil export pipeline). The envelope could be adjusted in subsequent supplementary budgets to the extent that budget grants deviate from the anticipated amount of CFAF 151 billion (Table 3). The government will refrain from tax cuts and plans the following policy measures: (i) adjustment of certain custom duty rates of taxpayers without VAT machines; (ii) limiting the professional tax exemption for mining companies to the first 5 years of production; (iii) giving tax exemptions to importers and exporters of agricultural products; and (iv) adjustment of tax rates on re-exportation. The net impact of these measures is expected to bring additional revenue of 0.06 percent of GDP.

20. The government recognizes that revenue mobilization needs strengthening. Despite numerous reform efforts, tangible process fell short, which warrants careful analysis. To this end, the government will conduct an in-depth study with the help of IMF staff to identify the root causes and distill policy lessons. As a corrective action in the near-term and a prior action for this review, the Minister of Finance issued a decree, assigning responsibility for the surveillance and analysis of tax and customs exemptions to a designated pole, along with terms of reference (Table 3). Those include responsibility for the systematic recording, monitoring, and analysis of discretionary tax exemptions, as well as the preparation of tax expenditure reports. As part of its mission, the unit will compile a coherent and consolidated list by beneficiary of all discretionary exemptions granted since the beginning of 2019, grouped by beneficiary and consolidating the information of the tax and customs administrations, and any other relevant structure. The list will include information on the beneficiary, the legal basis for the exemption, the project or activity promoted, and an estimate of the likely associated revenue loss. As further corrective action, the government signed and registered, as a prior action, a contract with a reputable provider to molecularly mark petroleum products according to product type and destination and completed all legal requirements for the contract to become effective. In the medium-term, a comprehensive approach to reduce informality will include both incentives and deterrents. The former will be consolidated under a framework to provide training, certification, credit, and matching with external firms, for formal enterprises registered in the tax base. Finally, progressive digitalization of tax declarations and payments, already initiated with select large firms, will be broadened to other firms.

21. Government will pursue the promising initiatives underway to improve the quality of public spending. This includes work with the World Bank on a new strategy, procedures, and manual for better project selection, which will be promulgated by decree before year-end; efforts to implement double authorization (AE/CP) of spending in six line ministries piloted in the 2021 budget; and work with development partners on the efficiency of social protection programs. In the meantime, the government will update the social spending tracking system established in the context of the 5th program review.

22. Niger recognizes both the opportunity and risks inherent in PPP projects. Government is closely following the procedures in the PPP law, inter alia conducting cost-benefit analyses and full risk assessments before project approval. Going forward, the government will publish new PPPs attached to the budget. The government renews its commitment to engage only in PPPs where a clear positive net benefit has been established. A cost-benefit analysis of the construction of the pipeline for the distribution of refined petroleum products has been completed and shared with IMF and World Bank staff.

23. Private sector development remains a critical objective. It will be important to reset the business environment reform momentum as well as the strong private investment dynamic that was in place prior to the pandemic. However, equally important will be to ensure the local formal private sector benefits from these investments concretely, and flourishes. Stronger public infrastructure and services; access to education, especially for girls, and training for relevant skills, including digital literacy; applying a more equitable tax burden; and measures to strengthen governance, are venues Niger will pursue to dynamize and make the private sector more efficient.

24. Affordable credit to the local formal private sector will generate opportunity and level the playing field for more diversification. To advance this, the government will operationalize the establishment of the financial inclusion fund and consolidate various existing initiatives and smaller funds under one umbrella. This will serve as the centerpiece for rebuilding the microfinance industry, offering a combination of equity, loans and grants to both existing as well as greenfield microfinance institutions. This framework will also disseminate know-how, foster transparency, and support the development of digital financial services.

25. A strong framework for governance and public transparency are necessary conditions for private sector development. Niger has made important strides in this regard. In January 2020, the parliament adopted a law that widens the asset declaration requirements to top civil servants. But the government recognizes that the law has room to improve and remains to be promulgated pending a review. Moreover, the existing asset declaration requirements for government members remain solely governed by the Constitution’s general provisions. The government will publish on an official website the declarations of all members of government within 6 months to ensure high visibility for the general public. Following a thorough administrative investigation ordered by the President of the Republic, procurement irregularities were found at the Ministry of Defense. The report of the investigation has been transmitted to the judiciary and the case is running its course. Once the judicial process is complete, the government will undertake all necessary measures to review and strengthen procurement procedures.

26. Niger will continue its long-standing and strong engagement with the IMF as it pursues these reforms. In order to implement these priorities and support its credibility in the international community, Niger will maintain its cooperative relationship with the IMF after the current program expires in October 2020. To this end, the continued dialogue will lay the foundations for future innovative collaboration. In consultation with IMF staff, the government will assess the optimal form of support that will meet Niger’s needs and priorities.

27. In keeping with our longstanding commitment to transparency, we agree to the publication of the staff report and this LOI on the IMF’s website.

Sincerely yours

/s/

Mamadou Diop

Minister of Finance

Table 4.

Niger: Proposed Disbursements Scheduled Under the ECF Arrangement

2017–20

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With respect to previously completed reviews, the date indicated refers to the date of the Executive Board meeting.

Source: International Monetary Fund.
1

Artisanal gold production has been booming in the Burkina Faso-Mali-Niger triangle in the last few years. More recently, the structure of Niger’s gold industry has been changing with refining activity graduating from the rigorous cost-benefit analyses and proceed only when they show a clear positive net benefit for the public partner. Government action in response to the just completed cost-benefit analysis for a PPP on a domestic pipeline to distribute refined petroleum products within the country and to its borders, will be an early litmus test of this commitment.

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Cover IMF Staff Country Reports
Niger: Sixth Review Under the Extended Credit Facility and Request for Waiver for Nonobservance of Performance Criterion-Press Release; Staff Report; and Statement by the Executive Director for Niger
Author:
International Monetary Fund. African Dept.
Volume/Issue:
Volume 2020: Issue 292
Publisher:
International Monetary Fund
ISBN:
9781513560205
ISSN:
1934-7685
Pages:
65
DOI:
https://doi.org/10.5089/9781513560205.002

G5-Sahel Countries: Security Developments, 2011–20

Niger: Programmed and actual fiscal deficit Percent of GDP

Niger: Fiscal Revenues from Crude Oil Exports and International Oil Prices
Figure 1.

Niger: Recent Economic Developments and Outlook
Figure 2.

Niger: Fiscal Developments 2010–19
Figure 3.

Niger: GDP Composition and Output Volatility
Figure 4.

Niger: Tax Performance, 2016–20

(Cumulative values, December 2014 = 100, nominal GDP discounted)