Press Release No. 98/36

Press Release: IMF Approves Third Annual ESAF Loan for Niger

August 31, 1998

The International Monetary Fund (IMF) has approved the third annual loan for Niger under the Enhanced Structural Adjustment Facility (ESAF),¹ equivalent to SDR 19.32 million (about US$26 million) in support of the government’s program for 1998-99. The loan is available in two equal semiannual installments, the first of which is available immediately.

Background

Despite a difficult domestic and external environment, Niger has been implementing its adjustment program supported by the three-year ESAF arrangement that was approved on June 12, 1996 (see Press Release No. 96/30). The country’s economic performance has been generally encouraging. Nearly all the performance criteria and the quantitative and structural benchmarks under the 1997-98 program were observed. Real GDP grew by 3.4 percent in 1997, up from 3.3 percent in 1996. However, last year’s performance was weaker than expected due to inadequate rainfall in many areas of the country. Losses in the agricultural sector were partially compensated by stronger growth in other sectors. Inflation, which rose in the first half of the year, moderated in the second half because of food imports. For the year as a whole, average inflation was around 3 percent, compared to 3.6 percent in 1996. Fiscal performance during the 12-month period through March 31, 1998 was broadly in line with expectations. However, the overall deficit, at 7.5 percent of GDP, exceeded the program target by 1 percent. Total government revenue was below projections due to delays in the implementation of administrative measures designed to improve tax collection.

Medium-Term Strategy and the Program for 1998-2001

The government’s adjustment strategy is designed to establish conditions necessary for sustainable economic growth and a significant reduction in poverty. The key elements are the further strengthening of public finances, the development of human resources, and the restoration of basic physical infrastructure. The principal macroeconomic objectives for 1998-2001 are to achieve real GDP growth of 4-5 percent a year, maintain inflation in the 2-4 percent range, and reduce the overall fiscal deficit to 5.2 percent of GDP in 2000 from 7.5 percent in 1997. To this end, the authorities plan to raise the ratio of total government revenue to GDP through further improvements in tax administration and by controlling expenditure, particularly with regard to the public sector wage bill and certain low-priority outlays; and efforts will be intensified to strengthen the banking system.

Within this medium-term strategy, Niger’s program for 1998-99, supported by the third annual ESAF arrangement, projects real GDP growth of 4.5 percent, maintaining year-end inflation at about 3 percent, and an external current account deficit at 9.4 percent of GDP in 1998. The improvement in the external current account deficit for 1998 is the result of a recovery in exports, which is expected to be offset partially by the growth in imports. On the fiscal front, the government is determined to achieve its objectives through enhanced revenue mobilization and a very cautious expenditure policy. Specific revenue measures already adopted include the establishment of a team to conduct random value-added tax audits and a special directorate to oversee all activities involving large taxpayers.

The authorities are also committed to implementing structural reforms in a diverse range of areas, including: restructuring and privatization of state enterprises, streamlining of the public administration, and improving the management of rural development and natural resources. A major element of the government’s plan to reform state enterprises is the privatization of nine enterprises and the restructuring of eight others. Several initiatives will be taken this year in the area of civil service reform, including the preparation of an integrated file for managing civil service staff and payroll, and the reassignment of personnel to strengthen human resources in priority sectors such as revenue, health, and education. In keeping with the agreed timetable for establishing a customs union among the West African Economic and Monetary Union (WAEMU) countries, Niger’s maximum import duty was reduced to 30 percent on July 1, 1998 and will be further reduced to 25 percent on January 1, 1999 and to 20 percent on January 1, 2000.

Social Issues

Niger’s social indicators are among the lowest of developing countries. It has a high level of adult illiteracy, low school enrollment rates, high infant mortality, and severe deficiencies in basic health and hygiene. Hence, the fundamental objective of the government is to improve the standard of living by reducing the gap between the demand and supply of basic education and health services. Under this strategy, priority will be given to improving the quality of services, facilitating their access, reducing poverty, and promoting family planning and women’s programs. In the area of education, the government’s policy is geared to increasing enrollment rates in primary schools to 38 percent in 2002 from 30 percent in 1997.

The Challenge Ahead

Since 1995, Niger has made commendable efforts to reduce macroeconomic imbalances and improve long-term prospects for growth and financial sustainability. Although progress was made under the government’s economic program for 1997-98, revenue as a ratio of GDP remains low, some macroeconomic imbalances remain large, and economic growth continues to be critically dependent on weather conditions and the availability of external assistance. The fragility of Niger’s economy requires that the authorities must maintain efforts to reduce the fiscal imbalance and remove structural impediments to sustainable growth.

Niger joined the IMF on April 24, 1963. Its quota² is SDR 48.3 million (about US$64 million). As of end-June 1998, Niger’s outstanding use of IMF resources totaled SDR 49 million (around US$64 million).