Niger and the IMF
News Brief: IMF Completes Review Under Niger's PRGF and Approves US$11 Million Disbursement
Free Email Notification
of Intent, Memorandum of
Tables 1 and 2 (379 kb PDF file)
Mr. Horst Köhler
Dear Mr. Köhler:
1. On behalf of the government of Niger and in the context of the first review of the program supported by an arrangement under the Poverty Reduction and Growth Facility (PRGF) approved by the Executive Board of the International Monetary Fund on December 14, 2000, I am pleased to send you the memorandum of economic and financial policies for 2001. The memorandum describes progress achieved in implementing the program at end-March 2001, updated targets for the remainder of 2001, and the policies to be carried out to achieve these targets.
|2. Program implementation in the fourth quarter of 2000 was satisfactory in spite of a more difficult environment caused by a drought and a deterioration in the security situation, in border areas especially. These circumstances also prevailed in early 2001 and forced the government into adopting corrective measures. The revised program for 2001, therefore, takes account of these measures, together with the use of the sale proceeds of two mobile telephony licenses at end-2000 and the impact of the Initiative for Heavily Indebted Poor Countries (HIPC Initiative), for which the decision point was reached on December 14, 2000.
3. Quantitative benchmarks and financial indicators of the program at end-2000 were observed, with the exception of benchmarks related to domestic payments arrears reduction and the wage bill. Program implementation at end-March 2001 met with a number of difficulties described in the attached memorandum. In spite of these difficulties, the most important end-March 2001 quantitative performance criterion, net bank credit to the government, and the end-March 2001 quantitative benchmarks on the wage bill and budgetary revenue were observed. However, the end-March 2001 quantitative benchmark on the basic deficit, as well as the continuous quantitative performance criterion on the nonaccumulation of external payments arrears and the end-March 2001 performance criteria on the reduction of domestic payments arrears and the ceiling on nonconcessional external borrowing were not observed. Accordingly, in light of the corrective actions described in the attached memorandum, the government requests waivers for the nonobservance of the performance criteria at end-March 2001. Finally, a new automatic, flexible, and transparent pricing system for petroleum products could not be introduced by end-June (a structural performance criterion for the third disbursement under the PRGF arrangement) and the target has been moved to August 1, 2001 in view of the work necessary for the completion of this important reform.
4. In spite of the above difficulties, the government is confident that the 2001 budget will be executed in line with the program. The government also considers that the reforms and measures described in the attached memorandum are such as to permit achievement of the 2001 program objectives; it is prepared to take any additional measures required for this purpose. During the period of the arrangement, the government of Niger, on its own initiative or at the Managing Director's request, will consult with the International Monetary Fund on the adoption of any measure deemed necessary.
5. As described in the memorandum, the resources freed as a result of interim financing obtained under the enhanced HIPC Initiative have already been allocated to priority poverty reduction programs contained in the interim poverty reduction strategy paper (I-PRSP). With the active participation of civil society, the government has begun working on the preparation of the full PRSP, which should be completed by the end of the year.
6. The government solicits the continued support of the International Monetary Fund to help it meet its program objectives, including through the completion of the first review under the PRGF arrangement. Also, the Fund, together with the government of Niger, is expected to complete a second review of the PRGF-supported program at the latest by December 31, 2001, so as to monitor progress made in its implementation. As was the case in the past, the government consents to the Fund's publication of this letter, the memorandum of economic and financial policies for 2001, the technical memorandum of understanding, and the staff report.
Ali Badjo Gamatié
Minister of Finance,
Ministry of Finance
Memorandum of Economic and Financial Policies for 2001
Niamey, July 19, 2001
1. Niger's economic and financial program for the period October 2000 to September 2003 was described in the memorandum of economic and financial policies (MEFP) for 2000-03 of November 21, 2000. This program is part of the medium-term poverty reduction strategy of the authorities described in the interim poverty reduction strategy paper (interim PRSP) prepared in 2000. International Monetary Fund (IMF) support of this program, under the Poverty Reduction and Growth Facility (PRGF), was approved on December 14, 2000 in the amount of SDR 59.2 million.
2. Niger has also benefited from additional assistance in the context of the enhanced Initiative for Heavily Indebted Poor Countries (HIPC Initiative) since December 14, 2000, the date of the decision point for the country under this Initiative. This assistance, of about 0.6 percent of GDP in 2001, or nearly US$11.5 million, will be wholly allocated to the implementation of the poverty reduction program.
3. Discussions for the first review of Niger's three-year program supported by the PRGF arrangement were held in Niamey on May 14-28, 2001. Their purpose was to analyze the implementation of the program over the period 2000-01 and to take into account the HIPC Initiative relief. This economic and financial program for 2000-01 provided for a real GDP growth rate of about 3 percent in 2000 and 3.7 percent in 2001; an average annual inflation rate of less than 3 percent; and a current account deficit (excluding official transfers) of about 10 percent of GDP. The program also aimed to raise the investment rate from 10 percent of GDP in 1999 to about 12 percent in 2001.
II. Recent Developments
A. Development Through End-2000
4. Overall, the program objectives for the fourth quarter of 2000 were achieved. However, the unfavorable weather conditions in the second half of the year strongly affected agricultural production and caused a sharp downward revision of economic growth, which was barely positive instead of the anticipated 3 percent. The large cereals shortfall by year's end also contributed to a 4.7 percent increase, year-on-year, in the general consumer price index. The slowdown in economic activity had a negative impact on the volume of imports; the current account deficit (excluding official transfers) was thus only 9.3 percent of GDP, as opposed to the planned 10.3 percent, and the net external assets of the Central Bank of West African States (BCEAO) increased by an amount equivalent to 1.6 percent of GDP in 2000.
5. The quantitative benchmarks and the financial performance indicators for end-December 2000 were met, except for the benchmarks regarding the reduction of domestic payments arrears and the wage bill (see attached Table 1). The nonobservance of the domestic payments arrears reduction target was due to delays in the disbursement of external budgetary assistance for 2000 and the determination of the authorities to maintain a sufficiently large treasury float in order to meet the financing uncertainties of the first half of 2001. As for the wage bill, the slight overshooting does not compromise the program targets because it was the result of a slight delay in the introduction, in the last quarter of 2000, of new civil service regulations regarding age and length-of-service limits.
6. The strict implementation of a fiscal regulation and cash management system contributed to prevent fiscal slippages and safeguard the government's priorities regarding the regular payments of wages, the strengthening of the social sectors, and the resumption of international cooperation. The fiscal results were accordingly better than anticipated. The basic fiscal deficit (on a commitment basis and excluding grants), defined as the difference between revenue and expenditure, excluding foreign-financed investments, was limited to 3 percent of GDP. This outcome should be compared with the program target of 3.2 percent of GDP and the deficit of 5.6 percent of GDP in 1999. Revenue, in particular, was higher than expected, despite the implementation of the common external tariff of the West African Economic and Monetary Union (WAEMU). The government's decision to put the privatization proceeds from the sale of mobile telephony licenses in a central bank account until their final allocation and the postponement of the domestic payments arrears settlement operations helped improve the treasury's cash position significantly. As a result, net bank credit to the government fell by more than CFAF 28 billion (2 percent of GDP) between December 1999 and end-December 2000, compared with the targeted contraction of CFAF 4 billion.
7. Apart from the increase in net external assets and the lower credit to government mentioned above, the most significant monetary development in 2000 was the sharp growth in credit to the economy. This growth was essentially due to the petroleum sector's massive recourse to bank credit. Rising international prices of petroleum products led to increases in the working capital requirements of the sector operators. Moreover, an important subsidy of petroleum products was supported by the public import company (SONIDEP) in the period preceding the upward adjustments of domestic petroleum products prices in May and September 2000. The money supply growth was, nonetheless, limited to 8.9 percent in 2000, after a 5.5 percent drop in 1999.
8. The progress in structural reforms indicated in the November 2000 MEFP continued broadly on schedule. Two mobile telephony licenses were sold in December 2000, and work on the privatization of the electricity company (NIGELEC) and the water company (SNE) progressed. However, the privatization of the telecommunications company (SONITEL) met with some difficulties as a result of a lack of active interest by international investors.
B. Developments in the First Quarter of 2001
9. Approval of the IMF arrangement and the attainment of the decision point under the HIPC Initiative in December 2000 have reinforced Niger's efforts to renew relations with the international donor community and to restore economic and social stability. Niger was thus able to obtain Paris Club debt relief and to prepare the introduction of its own poverty reduction program financed by the HIPC Initiative. In the first quarter of 2001, the government kept the main thrust of its medium-term program in the context of an emerging food crisis, caused by poor harvests in 2000, and of a deterioration of domestic security, especially in the border areas.
10. Regarding the end-March 2001 targets (see Table 1), the performance criterion for net bank credit to the government and the benchmarks for tax revenue and the wage bill were met. The quantitative benchmark for the basic deficit was not met because the authorities decided to accelerate spending under the 2001 budget, compared with program objectives, in light of external resources provided early in the year. The reduction of domestic arrears, another performance criterion, was less than programmed because of the large amount of work required to verify the claims whose payments were targeted at the beginning of the year. Furthermore, external payments arrears on post-cutoff-date debt service have been accumulated in an amount of US$1.2 million with two Paris Club member creditors. These arrears result in a nonobservance of the continuous performance criterion. These arrears have been cleared in accordance with the prior action for the review by the IMF Executive Board. The performance criterion on external borrowing was also not met because of the reactivation of old loan agreements and the signing of supplementary loans with the West African Development Bank (BOAD). The renegotiation of these loans with the BOAD, as well as an active search for financing in the form of grants to soften the conditions of these loans, have been undertaken with a view to raising the level of concessionality from 35 percent to the 50 percent required under the program. Finally, the structural benchmark on establishing opening balances for the treasury accounts as of January 1, 2000 has not yet been met for technical reasons.
11. Although significantly different from the targets, fiscal developments for the first quarter of 2001 are not out of step with the annual program objectives. The government has decided, as mentioned above, to speed up the pace of committing budgetary credits and to release one-fourth of them per quarter. This decision does not imply a reversal of the fiscal regulation policy introduced in 2000, but rather reflects an improvement in tax revenue performance and the disbursement in 2001 of external financing planned for 2000. In this connection, the reduction of domestic arrears, although not to the programmed level, nonetheless made it possible to pay, inter alia, one month's payroll arrears and to reimburse most claims below CFAF 5 million.
12. In line with these government decisions, the basic fiscal deficit at end-March 2001 was CFAF 18 billion, compared with a targeted CFAF 5 billion. Revenue exceeded its target by about CFAF 5 billion, thanks to the reinforcement of the domestic value-added tax (VAT) control policy and despite a slight shortfall in petroleum tax revenues. On the expenditure side, the overshooting of the targets at end-March 2001 was intended to ensure a better functioning of public services and relieve the administration's difficulties arising from the budgetary restrictions necessitated in 2000 by the very difficult cash-flow situation. Despite the growth of the fiscal deficit, the net position of the government with the banking system improved by CFAF 4 billion, reflecting a partial repayment of the BCEAO advance.
13. The structural reform program continued during the first quarter in cooperation with the World Bank. The SNE was sold in March 2001, and work on privatizing SONITEL, NIGELEC, and SONIDEP continued. Progress was achieved with regard to the modernization of budgetary and treasury procedures. However, progress on the preparation of opening balances of Treasury accounts and the design of an harmonized budget and accounting nomenclature was insufficient to observe the corresponding structural benchmarks at end-March and end-June 2001. These delays reflect underestimations of the tasks to be accomplished and weak administrative capacity (see Table 2). The necessary work for the design of a new petroleum product pricing system that is flexible, transparent, and automatic has also required more time than initially envisaged. The implementation of this reform has accordingly been postponed from end-June 2001 to August 1, 2001.
III. Policies and Measures to be Implemented in 2001
14. The government remains committed to its adjustment program objectives and will bring to bear all policies needed for their attainment. The revised program for 2001 has, accordingly, led to the adoption of a number of measures pertaining to public finance, mainly in the context of a supplementary budget law for 2001 approved by the National Assembly in early July, as well as to the completion of the reform of the system for setting petroleum product prices. As provided in the initial program, the review of the 2001 fiscal program takes into account the interim assistance from the HIPC Initiative, as well as the use of privatization proceeds collected in 2000. The government has also found it necessary to take additional steps to confront the consequences of the drought and the domestic security problems that have developed recently. In addition, the reform of the petroleum taxation system and its fiscal impact have been revised in line with recent international price developments.
15. Over the remainder of the year, the government will endeavor to ensure that the loans recently concluded with BOAD conform with the program requirements, reach final agreements on external debt relief arrangements, and revive contacts with creditors whose participation in the HIPC Initiative is not yet assured. The government will also focus on strengthening the structural reform program and preparing a comprehensive poverty reduction strategy paper (PRSP).
16. The macroeconomic framework for 2001 has been revised mainly to take into account the economic and financial performance in 2000, and the authorities' commitment to implement the policies required to achieve the program objectives. Reflecting a pickup of agricultural production after the poor harvest in 2000, growth in 2001 is currently estimated at over 4 percent, instead of the initial projection of 3.7 percent. Inflation, as measured by the harmonized consumer price index for Niamey, is expected to be around 3.6 percent, on a year-on-year basis. With respect to the external sector, the current account deficit (excluding official transfers) is expected to widen further, reaching 11.5 percent of GDP in 2001--as opposed to the initial target of 10.9 percent of GDP, and compared with the deficit of 9.3 percent recorded in 2000. This deterioration reflects a larger increase in the volume of imports related to the implementation of the poverty reduction program funded by the HIPC Initiative; less favorable trends in petroleum product prices; and food needs estimated at 60,000 tons of cereals. Taking account of the additional financing resources that have been identified, the overall balance of payments deficit in 2001 is expected to amount to CFAF 123 billion, that is, close to the amount adopted under the program (excluding the HIPC Initiative). The financing gap of CFAF 94 billion (excluding resources from the IMF) is still in line with program projections and is expected to be filled without difficulty on the basis of expressed commitments by Niger's development partners, including the World Bank, the European Union, the African Development Bank and key bilateral donors.
A. Fiscal Policy
17. With respect to fiscal policy and government finance, the supplementary budget law for 2001 is primarily focused on introducing a new mechanism for taxing petroleum products, budgeting the resources freed as a result of interim assistance granted under the HIPC Initiative, and allocating the resources corresponding to the sale (at end-2000) of two mobile telephony licenses. Further allocations are planned to meet new obligations of the state, particularly with regard to emergency food aid and domestic security.
18. The revised budget thus makes provision for increasing the basic deficit by the equivalent of 0.3 percent of GDP relative to the initial program. Given the increase in foreign-financed investment spending, and in particular those expenditures linked to the poverty reduction program financed by the HIPC Initiative (0.6 percent of GDP), the overall deficit, on a commitment basis and excluding grants, will increase by nearly 1 percentage point of GDP to reach 8.9 percent of GDP in 2001. After taking account of the identified external financing resources (including from the HIPC Initiative) and the planned acceleration of the original program to clear domestic payments arrears in 2001 in order to overcome the slippages observed in 2000, the domestic financing requirement would increase by 1 percent of GDP, of which 0.7 percent of GDP would come from the utilization of the privatization proceeds. In spite of this additional domestic financing requirement, the government's net position with the banking system at end-2001 will be better than the one initially forecast in the program, largely because of the good results that were obtained at the end of 2000. The government's reduced reliance on the banking system will be indicative of a better-than-anticipated cash flow situation, which should help prevent the emergence of liquidity pressures in the budget execution context.
19. On the revenue side, the latest estimates suggest that the initial projections--forecasting a budgetary revenue level equivalent to 9 percent of GDP, that is, an increase of one half-point of GDP over the preceding year--will be achieved in 2001. The intensification of domestic VAT audits and the transfer of responsibilities for the collection of all direct taxes to the General Tax Directorate, have improved the yield for the taxes concerned; over the year, this is expected to compensate for the less favorable performance of petroleum product taxation.
20. The reform of petroleum product taxation has been conceived in the context of the implementation of the new system for setting petroleum product prices, as described in section III.C below, and of the draft regional directive of the WAEMU on this subject. The new taxation is designed to contribute to the achievement of the initial program revenue objectives despite less favorable international developments. As a result, the system of administrative values (valeurs mercuriales) and excise taxes on petroleum products (TIPP) has been changed. The TIPP becomes a specific tax, and administrative values will be set in a transparent and automatic manner, in the context of the monthly pricing formula, by using reference international prices and exchange rates to determine c.i.f. border prices. Given the difficulties facing the customs administration, the elimination of administrative values has not been possible; however, the new calculation system represents an approximation of the transaction value that is being considered for implementation by end-2002. Similarly, the VAT is still collected only at the import stage, and its extension to the whole distribution sector will be implemented after the necessary preparation of the services and the petroleum sector. An analysis of the problems of inventory valuation resulting from the implementation of the new pricing and taxation system and their financial impact is being conducted, and its recommendations will be examined before year's end.
21. On the expenditure side, the revised budget law includes an increase, equivalent to 1 percent of GDP, which will be reflected in a total expenditure level of 17.9 percent of GDP in 2001. Current expenditure should increase by about 0.4 percent of GDP on account of additional allocations for domestic security and food aid, as well as the poverty reduction program. As for investment expenditure, its increase by about 0.7 percent of GDP is due to the use of 80 percent of HIPC Initiative resources on the construction of primary school classrooms, community health centers, rural water wells, and mini-dams. Moreover, allocations of 0.1 percent of GDP have been included for the government contributions to the new regional financial institution, the African Development and Trade Bank (BADC), and the holding and management companies created in the context of the privatization of the SNE.
22. Budgeting of operations related to the HIPC Initiative. The amount of identified interim assistance to accrue to Niger in 2001 is estimated at CFAF 8.8 billion. The resources freed by this interim assistance, duly transferred to a special account opened with the central bank, will finance a special poverty reduction program that is in conformity with the interim PRSP guidelines and was launched at the beginning of the year at the initiative of the President of the Republic. This program targets the creation of 1,000 health centers, 1,000 primary education classrooms, and 1,000 village wells, in addition to the construction of mini-dams and the implementation of specific measures in favor of women. Moreover, this poverty reduction program will help to make progress in meeting the conditions for the completion point under the HIPC Initiative. The pace of execution of the special program will be adjusted to reflect the mobilization of resources in 2001 under the interim assistance of the HIPC Initiative. The 2001 supplementary budget law also includes additional expenditures for the preparation of the PRSP.
23. Given the necessity of safeguarding the transparency of operations related to the HIPC Initiative, steps have been taken to ensure the detailed monitoring of these expenditures throughout the budget execution process. The relevant budget allocations have been recorded as specific entries in individualized line items, and responsibility for their utilization has been entrusted to the Ministry of Finance. Expenditure execution is jointly managed with the appropriate technical ministries, and coordination with sector policies will be assured. Monitoring of operations will be strengthened by means of audits and semiannual implementation reports.
24. Allocation of privatization resources. The sale of two mobile telephony licenses in 2000 generated for the government CFAF 8.5 billion, which was deposited with the BCEAO. These privatization proceeds will be utilized in a manner consistent with the government's commitments in this area, as described in the MEFP of November 21, 2000. For this purpose, the revised budget law includes the following allocations: CFAF 2.4 billion in support of the National Savings Bank (CNE) in the context of a program to restructure the National Post and Savings Office (ONPE) undertaken in consultation with the World Bank; CFAF 1.4 billion for new government financial holdings described in paragraph 21; and CFAF 4.8 billion for the settlement of external payments arrears in the context of rescheduling agreements consistent with the terms of the Paris Club arrangement, if appropriate.
25. Reduction of domestic payments arrears. The government intends to step up the program for reducing domestic arrears, in order to overcome the slippage observed since the beginning of the program. The settlement of domestic arrears is one of the priorities of the three-year program and a key element in the revitalization of the private sector, the rehabilitation of the financial sector, and the restructuring of the public sector. The first phase of the arrears reduction process was confined to the settlement of small claims and to the payment of two months of salary arrears. All in all, the net reduction in domestic arrears through June 2001 fell short of overall program objectives, but a major effort will be made by end-December 2001 to meet the targets of the program for 2000 and 2001. Accordingly, the government has begun preparing an arrears reduction strategy and has undertaken reforms to facilitate a better monitoring of domestic payments arrears, particularly by computerizing the expenditure process and modernizing treasury operations. Furthermore, cross debts between the government and the public enterprises will undergo monthly reconciliation and will receive particularly close attention. The revised program for 2001 envisages a settlement of CFAF 34 billion, broken down as follows: CFAF 8 billion on wages; CFAF 2 billion on outstanding items payable in respect of claims of less than CFAF 5 million; CFAF 2.5 billion on the repayment of advances to commercial banks; CFAF 2.4 billion for the CNE; CFAF 2 billion for SONIDEP; and CFAF 17.1 billion for domestic private suppliers of the government.
B. Monetary Policy and Financial System
26. The BCEAO will continue to conduct at the level of the West African Monetary Union a prudent monetary policy in line with the objectives of economic growth, price stability, and balance of payments surpluses set by the Council of Ministers of the union. To this end, the BCEAO will, as needed, use the indirect instruments of monetary policy under its control, mainly its intervention rates and reserve requirements.
27. In this context, money growth in Niger would be limited to 8.4 percent in 2001, compared with 8.9 percent in 2000. As a result of the fiscal policy envisaged for 2001, net credit to government will increase noticeably to CFAF 56.9 billion at year's-end, but will remain below the initially targeted level. With the planned elimination of BCEAO monetary financing of budget deficits by January 2002, the authorities are studying the possibility of having recourse to the WAEMU regional financial market to finance the treasury's domestic requirements. A decline of CFAF 8 billion, or 11.7 percent, is projected in bank credit to the economy, as the reform of the petroleum sector should reduce its indebtedness vis-à-vis the banking sector.
28. A joint government/World Bank study has revealed the fragility of Niger's financial system. In response to this study, the government is developing a reform program that will cover six major areas of reform and receive World Bank support. The first area will target an improvement of the banking environment by strengthening the legal and judicial framework and clearing domestic payments arrears to the banking system. The second reform area will aim at strengthening the management capacity of the commercial banking system. The decisions of the banking commission will be strictly implemented and monitored to prevent a further weakening of the banking sector. The third reform area will entail reorganizing the four insurance companies and enhancing their human resources capacity, while the fourth area will focus on the promotion of microfinance institutions and decentralized financial intermediation. The fifth area will relate to a reform of the social security system. Finally, the sixth area of reform will aim at developing the banking sector through the introduction of new financial products. In parallel to the preparation of this reform program, the government has requested from the supervisory authorities a licensing agreement for the new Housing and Local Development Bank (BHDL) resulting from the merger of two state banks in difficulty (Crédit du Niger and Caisse de Prêts aux Collectivités Territoritales).
C. Pricing of Petroleum Products
29. In fulfillment of its commitments, the government has elaborated a transparent, automatic, and flexible mechanism for pricing petroleum products. It will enact the regulatory measures necessary for the implementation of this new system on August 1, 2001.
30. Within this framework, the principle of a single national price will be maintained and cross subsidies between products eliminated. Retail sales prices will be established in line with the evolution of international prices of petroleum products (using Platt's Mediterranean oil prices as a reference) and the U.S. dollar exchange rate. Monthly revisions to retail prices will be made when the formula used for the calculation indicates the need for an adjustment greater than CFAF 5; if the adjustment is smaller, the amount of the adjustment will be systematically applied to the excise tax (TIPP) until the next adjustment of the retail price. Under the new system, petroleum products will no longer be eligible for subsidies, with the exception of kerosene (for social and environmental reasons). Consequently, the domestic fuel oil subsidy will be eliminated by end-2001. The kerosene and fuel oil subsidy for the second semester of 2001 has been budgetized as a specific line item amounting to CFAF 560 million.
D. Structural Reforms and Poverty Reduction
31. In addition to strengthening the financial sector and reforming petroleum product pricing system, the 2001 structural reform program will remain focused on improving the management of public expenditure and privatizing large public enterprises.
32. With respect to the expenditure process, the measures to be taken are part of the overall reform of public finances. The aim of this reform is to reduce poverty through the efficient use of public resources, thereby ensuring equal access to high-quality public services in a context of sustainable economic growth and financial stability. To this end, the program for 2001 will target an improvement of the expenditure process, so as to execute the budget more effectively, and the preparation of an integrated budgetary and accounting nomenclature to allow for budget monitoring and assessment. Moreover, efforts will be made to plan and prepare budgets that better reflect PRSP priorities and macroeconomic objectives; to submit budgetary accounts to the National Assembly and the Audit Office by the constitutional deadlines; and to provide high-quality public services nationwide.
33. In cooperation with the World Bank, the government will step up its efforts to sustain the momentum of the privatization program in 2001 and set up a multisectorial regulatory agency. Consequently, a system of interconnections and a regulatory framework will be established by end-September 2001 to support liberalization of the mobile telephony sector. All steps necessary for the privatization of SONITEL, including certification of the 1999 and 2000 financial accounts by an international audit firm and the identification of crossdebts with the government, will be taken to bring it to the point of sale by that time. Moreover, the National Assembly is expected to adopt the legislative and regulatory framework for the electricity sector before launching a call for bids by end-December 2001 to operate NIGELEC under a concession arrangement. Following the introduction of the new petroleum product pricing system and the clearance of the petroleum sector's past deficits, efforts to privatize SONIDEP through equity participation will continue in 2001 with the establishment of a regulatory framework to govern the activities of this enterprise, which holds a monopoly on petroleum product imports.
34. The government plans to elaborate the full PRSP before the end of 2001. In line with this objective, several actions have been taken. They include (i) the launching of the process through a national workshop in Niamey in February 2001; (ii) the adoption of the texts creating the institutional framework for the elaboration of the PRSP--a process that involves a steering committee, a cooperation and dialogue committee, a joint government and donors' committee, a permanent secretariat under the authority of the Prime Minister, and thematic groups; and (iii) the nomination and official installation of the members of the permanent secretariat and the thematic groups. All the structures thus created are operational, benefiting from the active participation of all representative organizations of the society. Regional workshops and one national workshop are planned to review the documents that will result at end-July 2001 from the work of the thematic groups and the permanent secretariat.
E. External Sector and Debt Policy
35. The Nigerien authorities remain committed to implementing a very prudent policy regarding external indebtedness. In this context, they have initiated the renegotiation of the BOAD loans which were signed to avoid depriving essential poverty reduction projects of the resources necessary for their rapid implementation. In parallel, they are trying to obtain from external donors the resources necessary to subsidize the interest rates of these loans. A request to this effect has already been introduced for the consideration of the WAEMU Commission and the BOAD. An additional request to subsidize the interest rates has been made to the African Guarantee and Economic Cooperation Fund (FAGACE) and the African Solidarity Fund, two institutions specializing in these matters. Finally, the government has decided not to draw on these credits until sufficient external resources are secured to improve the terms of the loans as required.
36. As for the external debt, the government's main priorities include (i) signing bilateral rescheduling agreements with Paris Club members as a follow-up to the multilateral agreement of January 25, 2001 calling for the granting of Cologne terms; (ii) establishing contacts and negotiating with non-Paris Club bilateral creditors to obtain debt relief under the HIPC Initiative or on conditions at least comparable to those of the last Paris Club agreement; (iii) concluding final agreements for clearing the external arrears accumulated with certain multilateral creditors; and (iv) seek HIPC Initiative relief from multilateral donors which have not yet contributed.
37. Niger has received firm assurances of participation in interim HIPC Initiative assistance from both bilateral (Paris Club) and multilateral (IMF, World Bank, and African Development Bank) creditors. Owing to the financial imperatives associated with the adoption of the poverty reduction strategy, the government will strive to obtain immediate support from as many donors and lenders as possible, as well as their continuing financial support on terms consistent with program requirements for Niger's economic and social development program.
IV. Program Monitoring
38. Implementation of the 2001 program will continue to be monitored in light of the quantitative performance criteria and quantitative benchmarks that are specified in Table 1 and defined in the attached Technical Memorandum of Understanding. They include (i) a ceiling on net bank credit to the government; (ii) the nonaccumulation of domestic and external payment arrears; (iii) nonreliance on short-term external borrowing (with the exception of regular import credits and loans in the context of debt relief operations); and (iv) a cap on nonconcessional external debt contracted or guaranteed by the government with a maturity of one year or more. The above targets relating to end-September 2001 will constitute performance criteria while the targets for end-December 2001 will be benchmarks. Moreover, quarterly financial indicators are established for tax revenue, the wage bill, and the basic budget surplus. Moreover, as a prior action, the government has cleared the external payments arrears accumulated in 2001 vis-à-vis Paris Club creditors on post-cutoff-date debt service.
39. The program will also include a number of structural benchmarks, shown in Table 2. These include (i) the establishment of opening balances for the 2001 accounts on the treasury books; (ii) the preparation of a new budget and public accounting nomenclature that would improve the recording of government operations and ensure greater consistency between the budget law and public accounting; (iii) the computerization of the budgetary expenditure processes of the government at the central level; and (iv) the preparation of a budget review law (Loi de règlement) for 2000 and transmittal of the 2000 budgetary accounts to the Audit Court.
40. The authorities will continue to adhere to the statistical reporting requirements that are established in the attached technical memorandum of understanding.
Technical Memorandum of Understanding
Niamey, July 19, 2001
1. This technical memorandum of understanding provides the definitions of the quantitative performance criteria and quantitative benchmarks for the remainder of Niger's first annual program supported under the Poverty Reduction and Growth Facility (PRGF). The targets for these quantitative performance criteria and benchmarks are set out in Table 1 attached to the government's memorandum of economic and financial policies (MEFP) dated July 19, 2001. This technical memorandum also sets out the data-reporting requirements for monitoring the program.
I. Definition of terms
2. For the purpose of this technical memorandum, the following definitions of "debt," "government," "payment arrears," and "government obligations" will be used:
(a) As specified in point 9 of the Guidelines on Performance Criteria with Respect to Foreign Debt adopted by the Executive Board of the IMF on August 24, 2000, debt will be understood to mean a current, i.e., not contingent, liability, created under a contractual arrangement through the provision of value in the form of assets (including currency) or services, and which requires the obligor to make one or more payments in the form of assets (including currency) or services, at some future point(s) in time; these payments will discharge the principal and/or interest liabilities incurred under the contract. Debts can take a number of forms, the primary ones being as follows: (i) loans, i.e., advances of money to obligor by the lender made on the basis of an undertaking that the obligor will repay the funds in the future (including deposits, bonds, debentures, commercial loans and buyers' credits) and temporary exchanges of assets that are equivalent to fully collateralized loans under which the obligor is required to repay the funds, and usually pay interest, by repurchasing the collateral from the buyer in the future (such as repurchase agreements and official swap arrangements); (ii) suppliers' credits, i.e., contracts where the supplier permits the obligor to defer payments until some time after the date on which the goods are delivered or services are provided; and (iii) leases, i.e., arrangements under which property is provided which the lessee has the right to use for one or more specified period(s) of time that are usually shorter than the total expected service life of the property, while the lessor retains the title to the property. For the purpose of the guideline, the debt is the present value (at the inception of the lease) of all lease payments expected to be made during the period of the agreement excluding those payments that cover the operation, repair or maintenance of the property. Under the definition of debt set out above, arrears, penalties, and judicially awarded damages arising from the failure to make payment under a contractual obligation that constitutes debt are debt. Failure to make payment on an obligation that is not considered debt under this definition (e.g., payment on delivery) will not give rise to debt.
(b) Government refers to the central government of the Republic of Niger; it does not include any political subdivision, the central bank, or any government-owned entity with separate legal personality.
(c) Payment arrears are payments due (following the expiration of a 60 days grace period) but unpaid.
(d) Government obligation is any financial obligation of the government verified as such by the government (including any government debt).
II. Quantitative Performance Criteria
A. Net Bank Credit to Government
Definition of the Performance Criterion
3. The net bank credit to government is defined as the balance of the government's claims and debts vis-à-vis national banking institutions. Government claims include the cash holdings of the Nigerien Treasury, deposits with the central bank, deposits with commercial banks, and secured obligations. Government debt to the banking system includes funding from the central bank (essentially IMF assistance and refinancing of secured obligations), government securities held by the central bank, funding from commercial banks (including government securities held by commercial banks), and deposits with the postal checking system.
4. Government securities held outside the Nigerien banking system are not included in the net bank credit to government.
5. The net bank credit to government is calculated by the Central Bank of West African States (BCEAO), whose figures are those deemed valid within the context of the program. The scope of the net bank credit to government as defined by the BCEAO includes all central government administrations. At end-June 2000, the net government position thus defined was CFAF 69.8 billion.
6. The ceiling on net bank credit to government will be subject to adjustment if disbursements of external budgetary assistance, including traditional debt relief--but excluding the interim assistance to be provided under the Initiative for Heavily Indebted Poor Countries (HIPC Initiative)--net of debt-service obligations and payments of external arrears, exceed or fall short of program forecasts. In the event of excess disbursements at the end of each quarter (end-June 2001, end-September 2001, and end-December 2001), the ceiling will be adjusted downward pro tanto by the amount of the excess disbursements, unless they are used to absorb domestic payments arrears. In contrast, if at the end of each quarter disbursements are less than the programmed amounts, the ceiling will be raised pro tanto by the amount of the shortfalls up to the limit (on a noncumulative basis) of CFAF 15.0 billion at end-June, end-September, and end-December 2001. If HIPC Initiative assistance is granted to Niger, the debt-service savings will be transferred to a central bank account and used to finance new poverty reduction programs that have been approved in the budget law and are in line with the interim poverty reduction strategy paper (I-PRSP).
7. Detailed data on net bank credit to government will be provided monthly within six weeks following the end of each month.
B. Reduction of Domestic Payments Arrears on Government Obligations
Definition of the performance criterion
8. Domestic payments arrears on government obligations are reduced through the payment of these obligations as defined under 2c and 2d above. The government undertakes not to accumulate any new domestic payments arrears on government obligations, except for arrears on obligations other than government debt, in which case, the government undertakes not to accumulate beyond six months. The Centre d'Amortissement de la Dette Intérieure de l'Etat (government domestic debt amortization center) (CADDIE) keeps and updates the inventory of domestic payments arrears on government obligations and maintains records of their repayments.
9. Data on the outstanding balance, accumulation and repayment of domestic payments arrears on government obligations will be provided monthly within six weeks following the end of each month.
C. Nonaccumulation of External Payments Arrears
Definition of the performance criterion
10. Government debt is outstanding debt owned or guaranteed by the government. Under the program, the government undertakes not to accumulate external payments arrears on government debt, with the exception of external payments arrears arising from government debt in the process of being renegotiated with creditors, including Paris Club creditors. In addition, the government agrees to attempt in good faith and without delay to sign agreements that would confirm the preliminary understandings reached on the settlement of its external payments arrears before the Fund Board consideration, on December 14, 2000 of the authorities' requests for a new 3-year arrangement under the Poverty Reduction and Growth Facility.
11. Data on the outstanding balance, the accumulation, and the repayment of external payments arrears will be provided monthly within four weeks following the end of each month.
Nonconcessional Loans Contracted or Guaranteed
Definition of the performance criterion
12. The government will not contract or guarantee external debt with original maturity of one year or more with a grant element of less than 50 percent. Nonconcessional external debt is defined as all debt with a concessionality level of less than 50 percent. To calculate the level of concessionality for loans with a maturity of at least 15 years, the discount rate to be used is the 10-year average "Commercial Interest Reference Rate" (CIRR) calculated by the IMF, based on the rates published by the OECD; for loans of less than 15 years, the 6-month average CIRR is to be used.
13. This performance criterion applies not only to debt as defined in Point 9 of the Guidelines on Performance Criteria with Respect to Foreign Dept adopted on August 24, 2000, but also to commitments contracted or guaranteed for which value has not been received. However, this performance criterion does not apply to financing provided by the Fund.
14. Details on any external government debt will be provided monthly within four weeks following the end of each month. The same requirement applies to guarantees extended by the central government.
E. Short-Term External Debt of the Central Government
Definition of the performance criterion
15. The government will not contract or guarantee external debt with original maturity of less than one year. This performance criterion applies not only to debt as defined in Point 9 of the Guidelines on Performance Criteria with Respect to Foreign Debt adopted on August 24, 2000, but also to commitments contracted or guaranteed for which value has not been received. Excluded form this performance criterion are short-term import-related trade credits. As at June 30, 2001 the government of Niger had no short-term external debt obligations.
16. Details on any external government debt will be provided monthly within four weeks following the end of each month. The same requirement applies to guarantees extended by the central government.
III. Quantitative Benchmarks
17. The program also includes quantitative benchmarks on budgetary revenue (tax and nontax), on the civil service wage bill, except for teaching volunteers in basic education (paid by the World Bank from an education project), and the basic budget balance.
18. The basic budget balance is defined as the difference between total budgetary revenue, excluding grants, and the portion of total capital expenditures financed by external creditors or donors.
19. This information will be provided to the IMF monthly within six weeks following the end of each month.
IV. Additional Information for Program-Monitoring Purposes
A. Public Finances
20. The government will report to IMF staff:
B. Monetary Sector
21. The government will provide the following information within eight weeks following the end of each month:
C. Balance of Payments
22. The government will provide the following information:
D. Real Sector
23. The government will provide the following information:
E. Structural Reforms and Other Data
24. The government will provide the following information: