Niger and the IMF
Press Release: IMF Completes Fifth Review Under Niger's PRGF Arrangement
November 26, 2003
Country's Policy Intentions Documents
Free Email Notification
of Intent, Memorandum of Economic and Financial Policies, and Technical
Memorandum of Understanding
1. On behalf of the government of Niger, I am pleased to send you the memorandum of economic and financial policies (MEFP) prepared in the context of the fifth review of the government of Niger's three-year program, which is supported by the IMF under the Poverty Reduction and Growth Facility (PRGF). The memorandum describes progress made in the implementation of the 2003 program at end-March 2003, the preliminary results achieved at end-June 2003, and the updated targets for the remainder of this year, as well as the policies to be carried out to achieve these targets.
2. Program implementation at end-March 2003 was satisfactory as a result of the measures introduced in the context of the fourth review of the PRGF arrangement and the government's firm resolve to follow through with the reforms (see my letter of intent of March 28, 2003). All performance criteria and indicative targets were met as of that date. Performance at end-June 2003 remained largely satisfactory, although the indicative targets relating to budgetary revenue and the net bank credit to government could not be met, owing mainly to the impact of the crisis in Côte d'Ivoire and to delays in external assistance disbursements. The revisions of the 2003 program take these external factors into account, while maintaining the main objectives of the initial program. The government of Niger has also continued to comply with the continuous performance criteria of the program since the completion of the fourth review. Finally, as prior actions to the Fund's Executive Board consideration of the fifth review of the program, the government completed the measures related to the three structural benchmarks that had not been previously observed at end-June 2003. These measures concerned the strengthening of the foreign debt unit with the installation of a new debt-management software (completed on September 8, 2003), the submission of a study on the remunerations of the petroleum product sector operators (done on August 15, 2003), and the closing of the 2001 budgetary accounts through the issuance, by the Chamber of Accounts and Budgetary Discipline, of a general declaration of compliance of the 2001 Budget Review Law (Loi de règlement) obtained on August 26, 2003.
3. In view of recent economic and financial developments, the good overall macroeconomic performance of 2002 is expected to continue in 2003. Economic activity has been sustained during the first half of 2003, and a good rainy season through September provides ample justification for maintaining the initial projection of 4 percent for the real growth rate of GDP in 2003. Similarly, inflation, on a 12-month, end-of-period basis, will remain largely below the envisaged 3 percent limit, owing to its deceleration from 0.6 percent in December 2002 to -2.4 percent in June 2003. Finally, the external current account deficit (excluding official transfers) should be limited to 8.8 percent of GDP, as against an initial estimate of 8.5 percent of GDP.
4. The economic and financial program for 2003 has, nevertheless, been revised to take into account a loss of CFAF 9.4 billion, or 0.6 percent of GDP, in budgeted resources, a loss associated with delays in external budgetary assistance disbursements (CFAF 6 billion) and a shortfall in transfers from the West African Economic and Monetary Union (WAEMU), as a consequence of the Côte d'Ivoire crisis (CFAF 3.4 billion). To address this situation, the budgetary program envisions a tightening of the budgetary policy and a continuation of strict spending restraint, while maintaining the impetus for implementation of the poverty reduction strategy. Moreover, the government will have recourse to the regional financial market and issue treasury bills, which will relieve the government's difficult cash position, pending major disbursements of external budgetary assistance in the fourth quarter of 2003. Monetary policy will remain prudent and banking supervision vigilant. Finally, the government intends to accelerate implementation of its structural reform program in 2003, particularly in terms of strengthening the financial system and the privatizing of the Nigerien petroleum product company (SONIDEP).
5. The government is counting on the IMF's continued support to meet its objectives under the program and seeks completion of the fifth review under the PRGF. The government also requests an extension of the current PRGF arrangement from December 21, 2003 to June 30, 2004 to enable Niger to receive the final disbursement envisioned under the PRGF arrangement. To this effect, the government intends to continue pursuing prudent macroeconomic policies in 2004 and has prepared a 2004 Budget Law that aims at consolidating progress in fiscal adjustment and is consistent with the objectives of the Poverty Reduction Strategy. It is understood that the Fund, together with the government of Niger, will conduct the sixth review of the program, to be based on performance under the program at end-December 2003 and completed by May 31, 2004. As in the past, the government consents to the Fund's publication of this letter of intent, the MEFP, the technical memorandum of understanding, and the staff report. The government believes that the policies set forth in the attached MEFP are adequate to achieve the objectives of its program, and it will take any further measures that may become appropriate for this purpose. Niger will consult with the Fund on the adoption of these measures in advance of revisions to the policies contained in the MEFP and in conformity with the rules of the Fund's policies on such consultation.
October 21, 2003
1. The discussions under the fifth review of Niger's economic and financial program took place in Niamey during July 4-18, 2003. International Monetary Fund (IMF) support for this three-year program under the Poverty Reduction and Growth Facility (PRGF) was approved on December 14, 2000 in an amount equivalent to SDR 59.2 million, of which SDR 45.7 million has been disbursed to date. The program has also taken into account foreign debt-service relief since Niger reached the decision point under the enhanced Initiative for Heavily Indebted Poor Countries (HIPC Initiative) in December 2000. The resources made available under the HIPC Initiative have been earmarked for implementation of the government's Poverty Reduction Strategy (PRS), which was submitted to the IMF Executive Board in the poverty reduction strategy paper (PRSP) in February 2002.
2. This memorandum of economic and financial policies (MEFP) was prepared in the context of the fifth review under the PRGF arrangement and completes the MEFP of March 28, 2003. It presents a review of the implementation of Niger's annual program for 2003, which was considered by the IMF Executive Board on April 21, 2003. The memorandum sets out the satisfactory results obtained in the implementation of the program as at March 31 and June 30, 2003, as well as the revised economic and financial policies and reforms the government will pursue through December 2003. Tables 1 and 2 cover the program performance criteria and indicative targets for 2003.
3. The memorandum also complements the first progress report on the implementation of the PRS from January 2002 to June 2003, which was finalized and validated by the government at end-July 2003. The progress report stresses the satisfactory implementation of the four pillars of the PRS: (i) a stable macroeconomic framework; (ii) the development of the productive sectors; (iii) improved access by the poor to quality social services; and (iv) the promotion of good governance, the strengthening of human and institutional capacity, and decentralization. It points out, in particular, the good macroeconomic performance of Niger in 2002; the success in the execution of President Tandja's Special Poverty Reduction Program projects, which are financed by the HIPC Initiative; and the finalization of major sectoral strategies, such as for rural development and health. The report also presents the positive results of the forum organized by the government with Niger's development partners on June 7-8, 2003 to develop a new partnership and ensure a better coordination of aid to Niger. Finally, the report indicates the priority actions to be undertaken by the government to make up for delays, mainly in the areas of institutional capacity building, analysis of sources of growth, review of government spending, updating of the poverty profile, and finalization of a tracking and evaluation system for the implementation of the PRSP.
II. Implementation of the Program in 2003
A. Economic and Financial Performance at End-March 2003
4. Following a good overall macroeconomic performance in 2002, thanks in part to favorable weather conditions, a good harvest, and satisfactory macroeconomic management, economic developments in early 2003 continued to be encouraging. According to a recent survey of the economy, the industrial sector, especially the energy subsector, registered robust activity in the first months of 2003, due to the extension of electricity and water connections to a number of rural localities under the President's Special Poverty Reduction Program. The construction and public works (BTP) sector and overall trade activities were also buoyant. Prudent policies by the Central Bank of West African States (BCEAO), the grain surplus at end-2002, and the government's sale of cereal products at moderate prices in the underproducing zones helped bring down inflation, on a 12-month, end-of-period basis, from 0.6 percent in December 2002 to zero percent in March 2003.
5. The pace of economic recovery of 2002 has been maintained through 2003, despite some domestic social tensions, several closures of the border with Nigeria, and the political crisis in Côte d'Ivoire. The impact of this crisis on economic activity in Niger did not, however, produce the significant negative impact that had been anticipated at end-2002. The migratory flows into Niger and the drop in economic activity were both limited and temporary, thanks to the rapid restoration of peace in Côte d'Ivoire, which led to a restoration of economic and business ties in the subregion, and the opening of new supply and export markets for Niger. However, Côte d'Ivoire's delay in making its 2003 contributions to the Commission of the West African Economic and Monetary Union (WAEMU) budget will not allow the commission to effect the full amount of planned transfers to Niger in 2003, namely, CFAF 7.4 billion or the equivalent of 0.5 percent of GDP, under the common external tariff compensation arrangements.
6. Against this overall positive economic environment in early 2003, the government has continued its satisfactory performance in implementing the PRGF-supported program (Tables 1 and 2). All performance criteria and indicative targets at end-March 2003 were met. With regards to public finances, the basic fiscal deficit was brought down to CFAF 1.9 billion, compared with a ceiling of CFAF 7.4 billion in the program. The improvement in the basic budget deficit is the result of strict control on spending (excluding foreign-financed projects), which was kept at CFAF 39.8 billion, compared with the programmed CFAF 44.3 billion. This strict control on spending demonstrates the government's resolve to keep the program on track and to avoid budgetary slippages in a context of delays in the envisaged disbursements of external aid. Bank financing at end-March 2003 was also kept within the program ceilings, despite a larger reduction in domestic payments arrears.
7. Budget execution in the first quarter was disrupted by the dispute as to whether the 2003 Budget Law and the amendment by decree of the Organic Law of end-2002 regulating public finances were in conformity with the Constitution. This amendment of the Organic Law aimed at taking into account the new budget nomenclature and charter of public accounts, while ratifying the merging of the capital budget with the recurrent budget. The fact that no budgetary appropriations could be released during the debate caused the government to resort to the special procedure of payments without prior commitments (called PSOPs) to effect spending. This procedure made the government operate essentially on the basis of cash transactions during the first quarter, thereby generating suspense accounts, that are temporary treasury accounts, which, in turn, required subsequent budgetary regularization.
8. Although the PSOPs were the only practical solution to keep the government running until a decision was handed down by the Constitutional Court, the government was aware that such payments did not fulfill its objectives of fiscal transparency and orthodox management of public finances. Following the Constitutional Court's decisions, the government had the National Assembly adopt the Organic Law on Public Finance on April 1, 2003 before appropriations were made under the 2003 Budget Law. It also restored normal budget execution procedures and properly posted the PSOPs that were effected in early 2003.
9. During the first quarter of 2003, broad money rose by 2.4 percent, with an increase in net domestic assets of 7.4 percent and a drop in the net foreign assets of the banking system of 5.0 percent as a percent of beginning-of-period broad money. The increase in domestic credit reflects essentially the evolution of the net government position within the banking system. Net credit to the government increased to CFAF 9.1 billion under the program ceiling, following the drawing of deposits set up at the BCEAO and the repurchase of CFAF 1.5 billion of government securities from a bank in Burkina Faso. The net foreign assets of the central bank fell by almost CFAF 14.8 billion, or about 10.9 percent of beginning-of-period broad money, while the net external position of the commercial banks rose by CFAF 8 billion as a result of the receipt of funds on behalf of foreign economic operators recently established in Niger. The decline in the foreign assets of the central bank was mainly due to the negative net external financing of the budget during the first half of the year and payments for imports at the request of commercial banks.
B. Economic and Financial Performance at End-June 2003
10. Economic activity was sustained during the first half of the year, and inflation, on a 12-month, end-of-period basis, fell further to -2.4 percent at end-June 2003. The good economic performance was realized against a backdrop of continuing sociopolitical tensions. The government continued the dialogue with social partners and partially reduced the social tensions by clearing one month of salary arrears to civil servants in May 2003.The budgetary constraint was further tightened by the delay in external aid disbursements. Nevertheless, the government reimbursed CFAF 8.5 million in external payments arrears to the European Investment Bank in June 2003, with the payment of the penalties and late interest settled at end-July 2003. The government has undertaken to honor all of its external financial commitments in an effort to ensure achievement of all the objectives of the program.
11. Based on preliminary information, six of the eight quantitative indicative targets for end-June 2003 were met. Only the indicative targets on budgetary revenue and the net government position within the banking system were not met. Also three structural benchmarks were not observed at end-June 2003; the measures related to these benchmarks were, however, completed by September 8, 2003, as the prior actions for the consideration of the fifth review under the arrangement by the IMF Executive Board.
12. Provisional budget execution figures at June 30, 2003 indicate that the government managed to limit the basic budget deficit to CFAF 14.3 billion, compared with a projected target of CFAF 15.7 billion. This result reflects the strict control and compression of expenditure to offset lower-than-expected revenue and delays in foreign aid disbursements. A CFAF 4.3 billion shortfall in fiscal revenue resulted from a shortfall in projected transfers from WAEMU, several strikes by tax administration staff, and lags in enacting certain tax measures, such as the fee charged for tobacco reexport licenses. These losses were more than offset by restrictions on expenditure, which held basic expenditure to CFAF 90.1 billion, compared with planned outlays of CFAF 95.9 billion. Execution of the foreign-financed investment program was also weaker than expected, resulting in an overall (payment-order basis) deficit of CFAF 50.1 billion, compared with a CFAF 59.5 billion program ceiling.
13. Despite the improvement in the basic deficit and additional savings resulting from the deferment of expenditure associated with the reform of public enterprises (CFAF 1 billion), the nonadjusted indicative ceiling on the government's net position vis-à-vis the banking sector was exceeded by CFAF 15.1 billion. This was the result of a CFAF 9.6 billion shortfall in (nonproject) net foreign financing, the CFAF 3.9 billion overshooting of the target for reducing domestic payment arrears; and an unscheduled reduction in nonbank domestic debt of CFAF 3 billion, principally due to movements on correspondent bank and third-party accounts. Even after taking into account the projected adjustment factor for shortfalls in net foreign financing (capped at CFAF 7.5 billion at end-June 2003), the indicative target for net bank credit to the government was still exceeded by CFAF 7.6 billion. This overshooting of the bank financing target adjusted for the shortfall in foreign assistance is not the result of any slippage in fiscal operations in relation to revenue and expenditure, but rather the product of a reduction in government debt to the nonbank sector. Nevertheless, the government remains wary of the increase in its overall indebtedness to banks. It has embarked on a study of nonbank domestic borrowing trends, with a view to exercising greater control over them, and it has decided to keep closer tabs on changes in domestic payments arrears, while maintaining tight control over expenditure in order to prevent possible fiscal slippages in the period ahead.
14. Provisional monetary figures at June 30, 2003 show a decline of approximately 5.9 percent in broad money since the beginning of the year. There was a drop in net foreign assets of the banking system, equivalent to 26 percent of end-2002 broad money, and a 20 percent increase in net domestic assets associated with the increase in the government's net position. The shortfall in net foreign financing of the budget and a high level of commercial transactions with the rest of the world explain the decline in net foreign assets. With respect to monetary policy, on July 7, 2003, the BCEAO revised its discount and repurchase rates downward, from 6.5 percent to 5.5 percent and from 6 percent to 5 percent, respectively. The reasons for this decision were the following: (i) the downward trend in central bank lead rates internationally; (ii) the economic situation within the WAEMU, whose economic growth rate in 2003 was reduced to 1.9 percent from an initial projection of 3 percent; and (iii) a low inflation rate.
C. Structural Reform in the First Half of 2003
15. Largely as a result of limited institutional capacity, there was no significant progress in the area of structural reforms during the first half of 2003. With respect to budgetary reform, efforts were focused on the effective application of the new budget nomenclature and the government charter of accounts. The ownership of these tools will be consolidated by continued training and by making the information technology available to the units concerned. However, the implementation of the new government procurement code through the preparation and adoption of the necessary regulations was delayed, mainly as a result of limited institutional capacity and difficulties in obtaining technical assistance in that area. At the same time, some progress was made in establishing the Multisectoral Regulatory Agency (ARM), with the initiation of the recrutment of the sectoral managers on July 14, 2003.
16. The privatization of the state-owned power company, NIGELEC, was hindered by an unfavorable international environment and the questioning of the adopted strategy by the two potential investors, who indicated, in particular, that they did not wish to fully finance the investment program associated with the privatization (US$100 million for restoring and expanding the network). The second launching of prequalification announcements in November 2002 permitted the two operators to register their demands, previously expressed in April 2002. The interministerial committee responsible for monitoring the privatization has begun talks with the World Bank on a new privatization scheme involving the two candidates. The draft decree on implementation of the electricity code was finalized by the Ministry of Mining and Energy.
17. Regarding SONIDEP, the government monopoly for petroleum product imports and distribution, the proposed privatization strategy transfers 51 percent of the capital, in batches, to the highest bidder in a field of professional, national, and international candidates. An advertisement for expressions of interest was published on July 21, 2003. The bidding package is currently being finalized and will be made available to interested operators on October 20, 2003.
18. The following achievements were registered in the financial sector reform:
III. Revised Program for 2003
A. Macroeconomic Framework
19. In view of the economic trends and good rainfall recorded to date, the 4 percent economic growth targeted for 2003 in the initial program has been retained and may even be exceeded. The 2003 rainy season started off very well, with early and sustained rainfall above the normal level since June. The rainfall index is moving from normal to above normal in most of the agricultural areas. At end-June 2003, 48 percent of the regions had already sown their crops, which usually occurs around end-July, and no pest outbreak was reported. The recovery of the rural sector will also benefit from a greater resort to irrigated crops, as envisaged in the PRS. This will permit, along with developments in the construction and public works sector, sustained growth in the rest of the economy, such as in commerce and transport. Inflation should remain well below the 3 percent ceiling of the initial program and be kept at 0.4 percent on a year-on-year basis. The GDP deflator has also been revised downward, limiting the growth in nominal GDP to 4.9 percent, compared with the 6.6 percent level envisaged in the initial program. Finally, the current account deficit of the balance of payments (excluding grants) has been revised slightly upwards to 8.8 percent of the revised GDP in 2003.
B. Fiscal Policy
20. The budget program has had to be revised to take into account the following factors: (i) a CFAF 6.0 billion shortfall, equivalent to 0.4 percent of GDP in projected budget support disbursements in 2003; (ii) significant delays in the disbursement of part of this external assistance, which will not materialize until the fourth quarter; and (iii) a likely shortfall of CFAF 3.4 billion in WAEMU compensatory transfers (reversements compensatoires). The external assistance shortfall partly reflects appreciation of the CFA franc vis-à-vis the SDR and the U.S. dollar, but it is mainly the result of the deferment of CFAF 8.9 billion in European Union (EU) assistance. Only the fixed tranche corresponding to the first year of the EU's new three-year assistance program for Niger will actually be disbursed in 2003. The variable portion is due to be disbursed in 2004.
21. The government of Niger has decided to address these shortfalls by tightening fiscal policy. They will keep the basic deficit down to CFAF 31.9 billion, or 2.0 percent of GDP, compared with CFAF 34.4 billion in the initial program. This outcome will be accomplished by freezing nonpriority expenditure (except for externally financed projects) in the amount of CFAF 4.8 billion and by saving approximately CFAF 1.1 billion in interest on the foreign debt on account of appreciation of the CFA franc. On the revenue side, the target has been lowered to CFAF 167.8 billion, reflecting the loss of WAEMU revenue. This new revenue target remains somewhat ambitious, given the lags that have already occurred and the delays in budget execution. Nevertheless, tax administration has been strengthened, and the government will ensure that all the tax measures contained in the 2003 Budget Law are implemented. In view of the outcome of the first half of 2003, the execution of the externally financed investment program was revised downward; nonetheless, an 11 percent increase in investment spending is expected for the year.
22. While a tighter fiscal stance will limit the domestic financing requirement, it will have to be complemented by financial operations to ensure that the state budget is financed in the period prior to the actual disbursement of external assistance in the last quarter of 2003. Taking into account the CFAF 2.5 billion improvement in the fiscal basic balance, and additional savings from debt-servicing operations of approximately CFAF 2.1 billion, the additional domestic financing needed to offset the external assistance shortfall has been limited to CFAF 1.4 billion, resulting in a total amount of domestic financing of CFAF 3.6 billion for 2003, compared with the CFAF 2.2 billion envisaged in the initial program. However, because of the late disbursement of external assistance in the last quarter of 2003, budget execution will require substantial domestic financing in the interim. Given that the government's deposits in the banking system are insufficient to cover this bridge financing requirement, and that the government does not intend to finance its program by accumulating domestic arrears, it has negotiated a postponement to January 2004 of the implementation of the agreement to refund part of the statutory advances due to the BCEAO (a reduction of CFAF 5.9 billion in the financing requirement). Furthermore, the government intends to tap the regional financial market and issue treasury bills, initially for CFAF 5 billion.
C. Monetary and Financial Sector Issues
23. Assuming that Niger's commercial banks underwrite all the treasury bills issued and that disbursements of external assistance replenish government deposits (thereby restoring their end-2002 level), the government's net position in the banking system would amount to CFAF 59.2 billion, compared with an initial projection of CFAF 55.9 billion. As a percentage of broad money at the beginning of the year, net domestic assets of the banking system would increase by 12.2 percent in 2003. Factoring in a buildup of net foreign assets at the end of the year as a result of external assistance disbursements, the money supply would increase by 13.7 percent in the year. While this growth of broad money is higher than the 8.7 percent initially anticipated, the actual level of broad money at end-2003 will be lower than that initially targeted because of revised end-2002 monetary data, which show a 0.4 percent fall in broad money in 2002, whereas the initial program is based on an increase in broad money of 9 percent in 2002. Thus, the projected expansion of broad money in 2003 is still compatible with the monetary policy targets of the BCEAO which are geared to consolidating the WAEMU's external reserves and keeping inflation at a level compatible with that of the anchor currency.
D. External Debt and the HIPC Initiative
24. The government will continue its prudent foreign borrowing policy. To that end, it has filed a request for an African Solidarity Fund subsidy (requête de bonification) to increase to 50 percent the grant element of the (not yet disbursed) US$10 million OPEC Fund loan for the reform of higher education.
25. Debt-service management will be further bolstered, between now and end-2003, by the introduction of new administrative arrangements in the treasury and supplementary training in the use of new software. The effectiveness of this tool will be enhanced by its integration into the public expenditure and accounting system.
26. With a view to reaching the completion point under the HIPC Initiative as soon as possible, the government has completed its work, with IMF and World Bank staff, on reconciliation of the foreign debt at end-1999 and end-2002. This work did not result in any change in the estimate of the total stock of external debt outstanding at end-1999. For end-2002, the stock of external debt is estimated at US$1.8 billion in nominal terms, equivalent to 76 percent of GDP. The net present value of this debt is US$1.2 billion, which, with relief under the HIPC Initiative, can be lowered to US$595 million, equal to 206 percent of exports, a level slightly higher than the decision point estimates. Work on the debt sustainability analysis is being completed.
27. In addition, nine of the thirteen conditions needed to reach the completion point were met, and progress is being made on the remaining four conditions: the carrying out of a study on the impact of health spending on the poor; the completion of a plan for supplying local health centers with medicines; an analysis of the barriers to school enrollment; and the lowering of the repetition rates in the second grade from 37 percent in 1999/2000 to 15 percent. The government has taken measures aimed at accelerating the observance of the remaining four conditions and justifying its request for waivers to reach the completion point. In particular, the terms of reference of a beneficiary incidence study of health spending have been finalized; the consolidation of recent studies on barriers to education is being undertaken; a review of the policy on medicine distribution has been initiated; and the repetition rate at the end of primary schooling will be progressively lowered, thanks to a better management of the education system and school enrollment before the last year of the primary school cycle.
28. Within the HIPC Initiative, the amount of debt relief already obtained from creditors was approximately 80 percent of the total debt relief, in net present value terms, at end-December 2002. During the first half of 2003, no new debt relief agreements were signed. The government continues to approach the Economic Community of West African States (ECOWAS) Fund and the Conseil de l'Entente to secure their participation and contribution to the HIPC Initiative. Also, it continues to pursue contacts with the bilateral creditors who are not members of the Paris Club, in some cases to finalize the HIPC Initiative agreements (Algeria and China) and in other cases to obtain their effective participation (Saudi Arabia, United Arab Emirates, Iraq, Libya, and Taiwan Province of China). Three Paris Club creditors (France, the United Kingdom, and the United States) have decided to grant debt relief beyond their required contribution under the HIPC Initiative, canceling the remaining debt service due after the application of the flow under Cologne terms.
E. Structural Reforms
29. The government will adopt the measures needed to attain the objectives of the structural reforms program for 2003, with the exception of privatization of the state-owned power company, NIGELEC, for which a new strategy is required. Thus, for the remainder of 2003, the program will focus on (i) continuation of budget-related administrative reforms; (ii) privatization of SONIDEP; and (iii) strengthening of the financial system, especially by privatizing CDN and restructuring the ONPE. Furthermore, the ARM should become operational by end-2003, with technical support from SNC Lavalin Consultants.
IV. Program Monitoring
30. Program implementation for 2003 will continue to be monitored using the quantitative performance criteria, quantitative indicative targets, and structural performance criteria and benchmarks specified in Tables 1 and 2 and defined in the attached technical memorandum of understanding (TMU). Given the expected recourse to the regional financial market, the performance criteria on the net bank credit to government have been replaced by a performance criterion on net domestic financing. The government of Niger will continue to comply with the statistical reporting requirements set out in the TMU.
Use the free Adobe Acrobat Reader to view Table 1 of the MEFP (PDF file 50 kb).
(Translated from French)
Technical Memorandum of Understanding
Niamey, October 21 , 2003
1. This technical memorandum of understanding provides the definitions of the quantitative performance criteria and indicative targets for the third year of Niger's program under the Poverty Reduction and Growth Facility (PRGF) arrangement. The quantitative performance criteria and indicative targets for March, June, September, and December 2003 are set out in Table 1 attached to the government's memorandum of economic and financial policies (MEFP) dated October, 20 2003. 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," "payments arrears," and "government obligations" will be used:
II. Quantitative Performance Criteria
A. Net Domestic Financing of the Government
Definition of the performance criterion
3. For December 2003, the quantitative performance criterion on net bank credit to the government will be replaced by a performance criterion on net domestic financing of the government, defined as the sum of (i) net bank credit to the government, as defined below; (ii) net nonbank domestic financing of the government, including the proceeds from the sale of government assets net of the cost of structural reforms to which these proceeds are earmarked, and (iii) for the purpose of the performance criterion, government treasury bills and bonds issued in CFA francs on the regional financial market of the WAEMU.
4. Net bank credit to the 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. Government securities held outside the Nigerien banking system are not included in the net bank credit to the government.
5. The scope of the net bank credit to the government as defined by the BCEAO includes all central government administrations. The targets are based on the variation of stock in net bank credit to the government from December 31, 2002 to the date considered for the performance criterion or indicative target.
6. The net bank credit to the government and the net amounts of government treasury bills and bonds issued in CFA francs on the regional financial market of the WAEMU are calculated by the BCEAO, and nonbank financing is calculated by the Nigerien Treasury, whose figures are those deemed valid within the context of the program.
7. The ceiling on net domestic financing of the government will be subject to adjustment if disbursements of external budgetary assistance (excluding IMF financing and the assistance to be provided under the Initiative for Heavily Indebted Poor Countries (HIPC Initiative), but including traditional debt relief), net of debt-service obligations (excluding IMF repayment obligations) and payments of external arrears, exceed or fall short of program forecasts. In the event of disbursements in excess of more than CFAF 3.0 billion, the ceiling will be adjusted downward pro tanto by the amount of the excess disbursements beyond the CFAF 3.0 billion, 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 7.5 billion at end-March and end-June 2003, CFAF 15 billion at end-September, and CFAF 7 billion at end-December 2003. The amount of external assistance provided is calculated from end-December 2002 onward.
8. 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 poverty reduction strategy paper (PRSP).
9. Detailed data on domestic financing to government will be provided monthly within six weeks following the end of each month.
B. Basic Budget Balance
10. The basic budget balance is defined as the difference between total revenue, excluding grants and revenue from the settlement of reciprocal debts between the government and enterprises, and total expenditure, excluding externally financed capital expenditures (including investment expenditures financed by resources freed up as a result of the HIPC Initiative assistance). The performance criterion and indicative targets are based on the cumulative basic budget balance since end-December 2002.
11. This information will be provided to the IMF monthly within six weeks following the end of each month.
12. If the amount of external assistance is larger than scheduled in the revised program, the performance criterion and indicative targets will be adjusted pro tanto up to CFAF 3.0 billion.
C. Reduction of Domestic Payments Arrears on Government Obligations
Definition of the performance criterion
13. Domestic payments arrears on government obligations are reduced through the payment of these obligations as defined under paragraphs 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 arrears beyond six months. The Centre d'Amortissement de la Dette Intérieure de l'Etat (CADIE - the government domestic debt-amortization center) keeps and updates the inventory of domestic payments arrears on government obligations and maintains records of their repayments.
14. 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.
D. Nonaccumulation of External Payments Arrears
Definition of the performance criterion
15. Government debt is outstanding debt owed or guaranteed by the government. Under the program, the government undertakes not to accumulate external payments arrears on government debt (including treasury bills and bonds issued in CFA francs on the WAEMU regional financial market), with the exception of external payments arrears arising from government debt being renegotiated with creditors, including Paris Club creditors.
16. In addition, the government undertakes 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 consideration by the Executive Board of the IMF, on December 14, 2000, of the government's request for a new three-year arrangement under the PRGF.
17. Data on the outstanding balance, accumulation, and repayment of external payments arrears will be provided monthly within four weeks following the end of each month.
E. External Nonconcessional Loans Contracted or Guaranteed
Definition of the performance criterion
18. 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 ten-year average commercial interest reference rate (CIRR), calculated by the IMF on the basis of the rates published by the OECD; for loans of less than 15 years, the six-month average CIRR is to be used.
19. 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, to debt rescheduling in the form of new loans, and to treasury notes and bonds issued in CFA francs on the WAEMU regional financial market.
20. 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.
F. Short-Term External Debt of the Central Government
Definition of the performance criterion
21. 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 from this performance criterion are short-term, import-related trade credits and short-term treasury notes issued in CFA francs on the regional financial market.
22. 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. Indicative Targets
23. Total revenue is an indicative target for the program. It includes tax, nontax, and special accounts revenue, but excludes revenue from the settlement of reciprocal debts between the government and enterprises.
24. The civil service wage bill is another indicative target of the program. Wage bill data are provided by the budgetary accounts and exclude the salaries paid for the reinstatement of former rebellion members, the medical and training indemnities, the contributions from the budget to the national retirement fund, and the wage refunds. The wage bill includes cash vouchers.
B. Reporting Requirement
25. 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
26. The government will report to IMF staff the following:
B. Monetary Sector
27. The government will provide the following information within eight weeks following the end of each month:
C. Balance of Payments
28. The government will provide the following information:
D. Real Sector
29. The government will provide the following information:
E. Structural Reforms and Other Data
30. The government will provide the following information:
F. Summary of Main Data Requirements