Press Release No. 96/30

Press Release: IMF Approves Three-Year Loan for Niger under ESAF

June 12, 1996

The International Monetary Fund (IMF) today approved a new three-year loan for Niger under the enhanced structural adjustment facility (ESAF)¹ equivalent to SDR 57.96 million (about $83 million) in support of the Government's 1996-98 macroeconomic and structural adjustment program. The first annual loan in an amount equivalent to SDR 19.32 million (about $28 million) will be disbursed in two equal semiannual installments, the first of which will be available shortly.

Background

Since the end of the uranium boom in the early 1980s, Niger has been faced with growing macroeconomic imbalances resulting from a deterioration of its terms of trade and a loss of competitiveness as a result of currency overvaluation, recurrent droughts, and inefficient economic management. In early 1994, the Government, working in concert with other CFA franc zone members, realigned the exchange rate. However, because of growing social and political unrest, which resulted in the breakup of the coalition Government and new elections, the opportunity presented by the exchange rate action to reverse the economic downturn was not seized.

The Government that took office in February 1995 moved quickly to address the country's deep-seated problem. On the basis of encouraging progress, particularly in the fiscal area, a program to be supported by an ESAF loan was negotiated in late 1995 but was put on hold when Niger's key donors withdrew their financial support following a military coup in January 1996. A new civilian Government was appointed and proceeded with a plan for a return to democracy in the second half of 1996. Several steps were taken in this direction, including a referendum on a new constitution, the legalization of political parties, the lifting of the state of emergency, and the scheduling of presidential and parliamentary elections. Based on these initiatives, Niger's major donors have recently reconsidered their decision to freeze budgetary assistance and have indicated that they would be prepared to resume financial support in conjunction with an ESAF-supported program.

The 1996-97 Program

The basic macroeconomic objectives for the 1996-97 program are to achieve annual real GDP growth of over 4 percent; to reduce the annual inflation rate to 3 percent in 1997; and to contain the external current account deficit, excluding official transfers, at the equivalent of 11.4 percent of GDP in both 1996 and 1997. Fiscal policy will be the critical instrument in achieving macroeconomic stabilization. To this end, the public finances aim at eliminating the primary deficit and reducing the overall budget deficit (excluding grants) to 8 percent of GDP in 1996, while raising budgetary revenue by 1 percentage point to 8.2 percent of GDP. Fiscal policy in 1997 will aim at containing the overall deficit to less than 9 percent of GDP, while raising budgetary revenue to over 10 percent of GDP.

On the revenue side, a number of important policy measures were introduced in early 1996. These included the merging of the general income tax with the tax on wages and income, the introduction of a single general business license tax to bring the informal sector into the tax system, and the introduction of a property tax on owner-occupied housing. On the expenditure side, the program continues to focus on ensuring that the wage bill does not crowd out other essential outlays, including maintenance and social services.

Structural Reforms

Structural policies under the program aim at broadening the scope for the growth of the private sector. Accordingly, they focus on privatization and parastatal reform, the deregulation of the energy sector, the liberalization of the labor market, the strengthening of the judicial system, and civil service reform.

To encourage the development of the private sector, the Government will reform the legal framework governing business activities and the labor market. A key objective will be to eliminate the job placement monopoly of the Government Employment Office, as well as its influence on the decisions of public and private enterprises with respect to hiring and firing for economic and technical reasons. A civil service census has already been carried out, to be followed by reform. The Government's equity participation in three public enterprises is to be reduced to below 50 percent in 1996, and the monopoly status of the petroleum company will be terminated; over the medium-term a total of eleven public enterprises are to be privatized, four liquidated, and seven others restructured.

Social Issues

The authorities recognize that human capital development is a key to realizing the country's growth potential. Thus, the primary school enrollment rate, which in 1994 averaged 29 percent, is targeted to increase to 35 percent by 1999. To this end, some 2,600 teachers are to be recruited over the next five years, and the budgetary allocation for primary education will rise in real terms. The budget will also increase real expenditure in preventive health care and sanitation by over 5 percent, and will include provisions for social safety net outlays and poverty alleviation.

The Challenge Ahead

Although the January events jolted the economy and delayed consideration of the ESAF-supported program, the new Government has moved quickly to declare its commitment to structural reform and to accelerate the timetable for the return to democracy. However, given the evolving political situation and until the return to democratic rule is completed, there is an urgent need to reinforce consensus in support of Niger's adjustment effort to ensure continuity in policy implementation.

Niger joined the IMF on April 24, 1963. Its quota² is SDR 48.3 million (about $70 million), and its outstanding use of IMF credit currently totals SDR 32 million (about $46 million).