Abstract
The Nigerien authorities wish to convey their appreciation to the Managing Director for the fruitful discussion held with H.E. Mohamed Bazoum, President of the Republic of Niger, on December 15, 2022, in the margins of the Second USA-Africa Leaders Summit. This was an opportunity to exchange on the many shocks facing Niger and the broader region of Sahel, notably security and climate-related threats, and to note their agreement on the policy priorities to maintain the ECF-supported program on track while tackling those challenges.
I. Introduction
The Nigerien authorities wish to convey their appreciation to the Managing Director for the fruitful discussion held with H.E. Mohamed Bazoum, President of the Republic of Niger, on December 15, 2022, in the margins of the Second USA-Africa Leaders Summit. This was an opportunity to exchange on the many shocks facing Niger and the broader region of Sahel, notably security and climate-related threats, and to note their agreement on the policy priorities to maintain the ECF-supported program on track while tackling those challenges.
The authorities express their gratitude to Management and Executive Directors for their continued support to Niger to withstand multiple challenges. They thank staff for the fruitful discussions held during the 2022 Article IV and 2nd ECF review mission, and the comprehensive reports which reflects the discussions. Despite the security, climate, and food crises, the government remains committed to the program objectives and to advancing the National Development Plan PDES 2022-26.
While growth prospects are strong on the back of large investments and oil exploitation, the authorities acknowledge risks to the outlook notably from the potential deterioration of security conditions, climate shocks, continued global geopolitical tensions, volatile commodity prices, and further tightening of financial conditions. Against this backdrop, the authorities will spare no effort towards preserving macroeconomic stability, addressing fragility of the state and insecurity, ensuring human capital investment, fighting poverty, and promoting good governance. They remain firmly committed to maintaining the reform agenda on track and preserving at the country’s moderate risk of debt distress. They will continue to rely on IMF support for policy advice and capacity development in key macroeconomic policy and structural areas within the purview of Fund’s mandate and expertise.
II. Recent Economic Developments and Prospects
The security crisis and climate shocks in the Sahel region continue to put a heavy burden on the populations and economy in Niger. Given the adverse impact of these shocks, coupled with the effects of the war in Ukraine on food, petroleum, and fertilizer prices, the authorities were compelled to adopt supportive measures to protect households from high cost of living and enable public institutions to run smoothly. To accommodate those measures, public spending has been reprioritized and increased in 2022, resulting in an additional deficit of 0.2 percent of the GDP compared to projections at the time of the First ECF review. To finance the deficit, including responding to the dire humanitarian situation, a financing gap estimated at $ 289 million should be filled.
Niger’s economic activity have shown improvements in 2022, driven by major investment projects, a 10-percent increase in agriculture production, and solid growth in both secondary and tertiary sectors. The latter includes the recovery in transport, trade, hotel, and restaurants sectors. As a result, real GDP growth is projected at around 7 percent in 2022 and 2023 from 1.4 percent in 2021 and to increase to13.0 percent in 2024 in the context of oil exports before reverting to more sustainable rates. Regarding specifically the oil sector, production is expected to increase next year and accelerate significantly over the medium term. The 2,000-km oil export pipeline project from Agadem (Niger) to Sèmè-Kpodji (Benin) implemented by West African Oil Pipeline Company (WAPCO) is completed at 51 percent. It will produce 110,000 barrel/day at its commissioning at end-2023. Inflation is projected this year at 4.5 percent on annual average but should return to below the WAEMU convergence threshold of 3 percent thereafter.
Despite accommodative monetary policy stance, international reserves level was stable while inflation expectations were well anchored. Though banks enjoy comfortable capital adequacy and liquidity ratios compared to regional benchmarks, some financial vulnerabilities appeared and require attention.
Due to large food imports and investment projects, the current account deficit is anticipated to reach 14.4 percent and 13.4 percent of GDP in 2022 and 2023 respectively before falling to below 8 percent on average over the medium term.
On structural reforms, the authorities are making inroads in improving governance and advancing private sector development, including in the context of implementing Article IV recommendations. To improve the business environment and support the private sector development and job creation, the government has revamped the public-private dialogue framework within the 2022-26 PDES and is continuing its efforts to enhance electricity delivery and reduce costs. The simplification of tax code and the broadening of the tax base will contribute to improving business climate by achieving a fairer tax burden sharing. On the governance front, the anti-corruption body HALCIA has strengthened its frameworks and engagement with the public since 2020, resulting in several report publications and punitive actions. The authorities are committed to strengthen HALCIA’s independence and are stepping up their efforts towards fighting corruption and achieving a rapid asset declaration by all officials.
III. Implementation of the 2021-2024 ECF Arrangement
III.1. Program Performance
The authorities’ firm commitments and renewed efforts helped to achieve a broadly satisfactory program implementation. All performance criteria at end-June 2022 and end-September 2022 have been met except for two structural benchmarks (SBs) and one quantitative performance criterion (QPC): i) the publication of a feasibility study for any investment project of more than CFAF 5 billion (SB); ii) the adoption of oil revenue management strategy (SB); and iii) the ceiling on the present value of new public and publicly guaranteed (PPG) external debt (QPC) due to reclassification difficulties that led to higher-than-expected ratified project loans. Meanwhile, the indicative target for end-June and end-September on social spending and exceptional expenditures have been met with comfortable margins, and no exceptional spending occurred.
Considering that the non-observance of missed performance criterion does not alter the achievement of program objectives and that program implementation has been broadly satisfactory, the authorities are requesting a waiver for non-observance of performance criterion. They are also requesting the modification of the continuous performance criteria on the contracting of external public debt and publicly guaranteed debt and on net domestic financing to reflect the revised macroeconomic framework.
III.2. Structural Fiscal Reforms
The authorities are continuing to enhance the efficiency and modernization of fiscal administrations, including through digitalization. Considering that the ongoing fiscal reform will be extended to local collectivities, they have created a directorate dedicated to local entities at the treasury. Although all local collectivities have public accountants, there is a need to reinforce their capacity to the level of those of the directorate general of the treasury (DGTCP).
Digitalization of payment systems reform
Several procedures have been digitalized to improve the delays of accounts operations and the operationalization of the treasury single account. In this context, two important projects, focused on revenue collection and expenditure, should be mentioned. A regional project led through the electronic banking system GIM-UEMOA platform is well advanced and will enhance the use of the digital system through instruments to be completed in January 2023The deployment and distribution of prepaid cards will accelerate the payment of social expenditures, including scholarships, pensions, and civil servants’ treatment. The second project, “E-Tresor,” led by the Treasury (DGTCP), is built around three modules for payments, customs, and banking operations. It aims at improving revenue and expenditure management and strengthening the role of DGTCP as a public bank.
Other PFM Reforms
The double accounting system AE/CP reform for a multiyear budgeting, implemented in five pilot ministries1, will enhance the control of external financing. It will ultimately contribute to the operationalization of the organic law on finance laws and to increased efficiency in public spending. Building on the favorable execution of the 2022 budget in pilot ministries, the AE/CP will be expanded to more ministries. Moreover, the implementation of the pilot project for deconcentrating budget scheduling in the public health and education sectors is advancing well. To strengthen the success of this process the authorities are focusing on internal organization and capacity building. The DGTCP will pursue regular evaluations, including assessing the adequacy of staffing and ownership.
IV. Macroeconomic Policies and Reforms Going Forward
In addition to reinforcing resilience and addressing fragility, priority is given to further strengthening domestic revenue mobilization, promoting financial inclusion, enhancing efficiency in PFM, and reinforcing governance frameworks. Amid a challenging environment, the government will step up their efforts to preserve macroeconomic stability while pursuing the development objectives laid out in the 2022-26 PDES. In these endeavors, digitalization is expected to play a central role.
IV.1. Fiscal Policy
The fiscal policy planned in 2023 aims at preserving the sustainability of public finances through strengthened domestic revenue mobilization, spending prioritization, a better targeting of vulnerable groups, and a gradual reduction of fiscal deficit towards the WAEMU’s 3 percent of GDP convergence threshold by 2025. The enactment of existing plans for tax policy reform ranks high on the authorities’ agenda and will help create the needed fiscal space for development and social spending. Other revenue measures will also be considered, including: i) new taxes on tobacco, gold, and oil products; ii) adjustments in VAT, income, and investment taxes, and iii) consolidation of certified invoices, property tax, and land registration and advertising reforms.
Reforms to increase the efficiency of fiscal administrations will be enhanced by simplifying procedures, advancing digitalization, easing tax disputes, strengthening controls, and fighting customs fraud. Public spending efficiency will be bolstered through digitalization and the enhancement of payment systems.
IV.2. Financial Sector Policy and Reforms
The authorities recognize that with 14 banks and 6 bank-like financial institutions, the size of the financial system is not optimal considering the population. Therefore, the expansion of financial services and improvements in financial inclusion, particularly in rural areas, remain at the center of their priorities. The achievement of these objectives will be supported by the national financial education strategy, progress in digitalization, and implementation of the recommendations from the central bank’s diagnostic on financial inclusion. The authorities also acknowledge the need to address emerging financial vulnerabilities. This concerns mainly high credit concentration in the banking system and limited performance in the microfinance sector, reflecting difficulties in resource availability and governance, and translating in high non-performing loans (NPLs). Thus, they will pursue their consolidation plan and reinforce supervisory and regulatory frameworks to strengthen the microfinance sector.
IV.3. Oil Resource Management
Against the background of the increasing role of the oil sector in the economy and its contributions to public revenue, the government attaches high importance to the effective management of oil resources. This reflects the authorities’ commitment to transparency, accountability, intergenerational equity, and prudent fiscal policy insulated from oil volatility. They welcome IMF technical assistance and staff recommendations on the steps required for implementing the oil resource management strategy. In this context, the authorities acknowledge the four priority pillars resulting from the conclusions of the TA mission and the implications for budget execution, PFM, and economic diversification to avoid overreliance on oil. Given the need to deepen discussions and scale up expertise for establishing non-oil primary balance and a stabilization fund, the authorities request a second IMF technical assistance on oil revenue management strategy.
IV.4. Governance
Priorities in governance reforms aim at reducing incentives for corruption, strengthening the rule of law, improving governance frameworks, and promoting transparency in public finance. Positive steps have been made in the latter area as the information on the beneficial owners of legal entities awarded non-competitive public contracts is published on the website of the public procurement regulatory authority; the decree allowing the High Authority on protection of personal data to publish information on senior officials will be adopted soon; the new AML/CFT framework has been adopted to address shortcomings; and a committee for monitoring the implementation of the recommendations of the COVID-19 audit on spending was recently established. Steps towards digitalizing and increasing transparency in PFM are also paramount in the authorities’ strategy on governance. They are making progress in publishing budget laws and related documents, expanding the implementation of TSA to territorial collectivities, digitalizing administrative procedures, and interconnecting customs and tax IT systems.
IV.5. Climate Strategy and Other Structural Reforms
The increased impact of climate shocks poses an existential threat to Niger and exacerbates already elevated challenges from a growing population, fragility, poverty, inequalities, and volatile security conditions. Therefore, the authorities’ new strategy for adaptation to climate change aims at building resilience, notably in the agriculture sector, to preserve long-term growth. It will allow an efficient implementation of the Nationally Determined Contribution. With development partners support, the authorities will pursue efforts towards promoting a green economy as a key component of their climate change and desertification strategy.
The authorities are strongly committed to bringing to fruition their transformative program under the 2022-26 PDES and are cognizant that inclusive and sustainable growth requires resilient economy and human capital. They will strengthen financial inclusion, capacity building, education quality, gender equality, and food and territorial security. The authorities welcome the newly agreed CD strategy and highly appreciate staff analyses and advice in the Selected Issues paper, which provides valuable recommendations to enhance resilience against shocks and increase economic potential.
V. Concluding Remarks
Niger is facing daunting challenges stemming from exposure to insecurity in the Sahel region and to the effects of climate change. In addition, the country is constrained by limited capacity. Nonetheless, the authorities continue to show determination to overcome the many challenges and achieve their development objectives while preserving macroeconomic stability.
We would highly appreciate the Executive Board’ support for the authorities’ requests and the completion of the second review under the ECF, which is critical given the elevated financing needs and the Fund’s catalytical role to mobilize necessary additional support. In this regard, the authorities held a donor roundtable in December 5-6, 2022, in Paris with pledges that exceeded expectations, and they would be very appreciative of development partners and the private sector following through with their commitments.
Ministries of agriculture; livestock; equipment; hydraulics and public health.