Public Information Notice No. 07/01

Public Information Notice: IMF Executive Board Concludes 2006 Article IV Consultation with Niger

January 5, 2007

On December 20, 2006, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Niger.¹

Background

Since 2000, the Nigerien authorities have maintained a strong commitment to prudent policies and reforms. The policy and reform agenda was underpinned by a poverty reduction strategy (PRS) adopted in 2002 that identifies four pillars: enhancing macroeconomic stability; increasing public investment, especially in irrigation infrastructure; deepening human capital formation; and buttressing economic governance. A large number of reforms have been introduced since 2000 to improve public expenditure management, strengthen domestic revenue, and enhance the economy's supply reforms.

However, over the past five years real GDP growth has not been sufficient to improve per capita income, and social indicators remain weak. In this regard, Niger remains one of the poorest countries in the World and is far from achieving the Millennium Development Goals (MDGs). Economic growth has been constrained by weak productivity. In particular, inadequate irrigation infrastructure and limited use of modern inputs have undermined agricultural performance. Also, economic diversification has been hampered by infrastructure bottlenecks.

In 2004-05, Niger's economy was hit by a severe drought that had significant socioeconomic costs. In late 2004, the drought significantly reduced agricultural production, triggered a food crisis, and raised inflation during the first half of 2005. The external current account deficit remained stable because of a significant increase in humanitarian assistance. However, the situation improved in late 2005, with a bumper harvest pushing real GDP growth for the year as a whole to about 7 percent, and easing inflationary pressures.

In 2006 macroeconomic performance was broadly satisfactory. Real GDP growth is expected to slow to 3½ percent. Growth in the agriculture sector moderated, with cereal production remaining close to the record level of late 2005; performance in the mining and services has been strong. Average inflation declined to 1¼ percent in the 12 months to September 2006 and is expected to decrease further to almost zero by end-2006 because of falling food prices. In 2006, the external current account deficit (including grants) remained close to 2005 level as lower food imports offset the high cost of fuel imports. Niger's external debt burden was further reduced by debt relief under the Multilateral Debt Relief Initiative (MDRI) totaling SDR 638 million (US$956.7 million) from the Fund, IDA and the African Development Fund. This reduced the NPV of debt-to-export ratio from 136 percent in 2005 to 46 percent in 2006.

The implementation of macroeconomic policies thus far in 2006 has been satisfactory. In the first half of 2006, the basic fiscal deficit was significantly lower than programmed because of higher revenue and lower spending. Improvements in tax and customs administration (achieved mainly by tightening control of import valuation and transit operations, and reinforcing the auditing of large- and medium-sized enterprises) boosted revenue collection. Good harvest and strong external assistance facilitated a significant buildup of the strategic grain reserves. For the year as whole, the fiscal deficit and domestic financing are expected to be lower than originally envisaged. The Central Bank of West African States pursued a prudent monetary policy.

The authorities continued to implement reforms to strengthen revenue, enhance public expenditure management (PEM), and increase the supply response of the economy. They prepared and started implementing an action plan with a focus on strengthening tax and customs administration. On PEM, they have advanced the computerization of the operations of the treasury and budget departments, completed a comprehensive assessment of Niger's public financial management systems, and adopted medium-term expenditure plans for key sectors. Other key reforms included the adoption of new mining code, steps to streamline business regulations, and the removal of duties on imports (manufacturing, animal products and vegetables) from all members of the Economic Community of West African States.

Executive Board Assessment

Executive Directors commended the Nigerien authorities for their track record of implementing prudent macroeconomic policies and structural reforms under two successive PRGF-supported programs, notwithstanding the economy's vulnerability to economic shocks. These reforms have resulted in an increase in revenue collection, improvements in expenditure management, and a more flexible market-based economy. Prospects for 2007 are relatively favorable, with stronger growth and continued low inflation. Significant challenges remain, however, to boost economic growth rates to the levels needed to achieve the MDGs. This will require increased investment in human capital and in infrastructure, with a focus on agriculture, irrigation, and transport in rural areas; and a streamlined regulatory framework to promote private sector development. Improving social services delivery and strengthening governance will also be critical.

Directors welcomed the authorities' plan to adopt soon a revised Poverty Reduction Strategy for 2007-2009, outlining policies and reforms to promote economic growth and reduce poverty. The forthcoming PRSP and the accompanying medium-term expenditure framework are likely to entail significantly higher financing needs than currently envisaged. In this regard, Directors encouraged the authorities to work closely with development partners to mobilize the needed financial assistance, mostly in the form of grants. Debt management should be strengthened, in view of the risks to debt sustainability, even though they remain moderate.

Directors commended the prudent fiscal stance in 2006, which is expected to lead to a smaller deficit than originally envisaged, due in part to ongoing reforms in tax mobilization and expenditure management. Directors welcomed the shift in expenditure toward priority programs envisaged in the 2007 budget, and underscored the importance of effective and timely execution of these programs. Higher priority spending will need to be supported by donor assistance, as well as by increased domestic revenue based on further reforms in the tax and customs administrations, including simpler tax procedures and tighter exemptions. Full implementation of the flexible pricing system for petroleum products will help redirect resources toward development needs. Directors looked forward to the prompt implementation of an action plan to eliminate domestic arrears.

Directors emphasized the need to strengthen public expenditure management. They welcomed the preparation of medium-term expenditure frameworks for key sectors, the computerization of the budget and treasury operations, and the establishment of a unified list of priority programs. Further efforts will be needed to streamline budgetary procedures, strengthen treasury accounting, and reinforce ex-ante and ex-post controls.

Directors urged the authorities to accelerate reforms aimed at enhancing agricultural productivity, diversifying the economic base, and improving the business environment. Efforts should continue to reduce the regulatory burden on investment, complete the restructuring of the electricity company, and reform the land tenure and judiciary systems. Financial sector reforms should aim at enhancing competitiveness, deepening financial intermediation, and facilitating private investment. In this context, Directors recommended acceleration of the restructuring of weak microfinance institutions and reinforcement of the office responsible for their supervision in order to improve access to credit. They looked forward to the recapitalization of the restructured financial branch of the postal network and the privatization of the housing bank.

Directors welcomed the authorities' commitment to pursue a prudent external debt strategy following the debt relief under the MDRI, and to use resources freed up by the Initiative in the most effective manner to reach the MDGs. They urged the authorities to continue to pursue good faith negotiations with remaining non-Paris Club creditors in order to reach agreements on debt relief on terms comparable with those already obtained.

¹ Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities.