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Public Information Notice (PIN) No.04/71
July 19, 2004
International Monetary Fund
700 19th Street, NW
Washington, D.C. 20431 USA

IMF Concludes 2004 Article IV Consultation with Niger

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

On June 28, 2004, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Niger.1

Background

Since the mid-1990s, Niger has been implementing reforms supported by the Fund through successive Enhanced Structural Adjustment Facility (ESAF) and Poverty Reduction and Growth Facility (PRGF) arrangements.2 The last PRGF arrangement with Niger was approved in December 2000 in support of a program covering the period 2000-03. At the time of the fifth review in November 2003, the arrangement was extended to June 2004. In early April 2004, the Executive Boards of the Fund and World Bank concluded that Niger had fulfilled the conditions for reaching the completion point under the enhanced Heavily Indebted Poor Countries Initiative (HIPC), including topping up, and that the government's Poverty Reduction Strategy Paper (PRSP) provided an appropriate analysis of poverty in Niger and of the authorities' strategy to alleviate it. On May 12, 2004, Paris Club creditors agreed to cancel Niger's total external debt with these creditors, in line with the debt relief expected under the enhanced HIPC, topping up relief, and additional bilateral debt cancellation. Non-Paris Club creditors are expected to provide debt relief on comparable terms. Total debt relief is estimated at US$663.1 million in net present value (NPV) terms, of which the Fund will provide US$42.0 million.

Niger's macroeconomic performance has been satisfactory in 2002 and 2003, notwithstanding the adverse impact of the crisis in Côte d'Ivoire and large fluctuations in agricultural output owing to uneven rainfalls. Real GDP growth is estimated to have increased to 5.3 percent in 2003, from 3.0 percent in 2002, owing to a bumper crop made possible by favorable weather conditions and increased activity in the construction and trade sectors. The very good foodcrop recorded during the year contributed to a decline in the consumer price index of 1.6 percent in 2003, compared with an increase of 2.7 percent in 2002. Economic activity has remained buoyant in early 2004, with the agricultural and construction sectors benefiting from continued favorable weather conditions and the implementation of HIPC-funded investment projects in the social sectors and rural areas.

The external current account deficit, after official transfers, narrowed slightly to 6.2 percent of GDP in 2003, as an increase in the trade deficit was offset by lower interest payments and higher official transfers for budgetary assistance. Since end-2001, the real effective exchange rate has appreciated by 5 percent, reflecting the strengthening of the euro (to which the CFA franc is pegged) against the U.S. dollar. Fiscal performance was broadly satisfactory in 2002 and 2003, although revenue collection weakened in 2003, owing mainly to the impact of the crisis in Côte d'Ivoire. The overall fiscal deficit, before grants, is estimated to have fallen by 0.2 percentage point of GDP, to 7.5 percent of GDP in 2003.

Monetary policy, which is conducted at the regional level by the Central Bank for West African States (BCEAO), has remained prudent. The BCEAO reduced the discount rate by 150 basis points to 5.0 percent between July and October 2003 in response to the fall in inflation, the decline in interest rates in the euro area, and its high level of international reserves. The health of Niger's banking system is broadly satisfactory, with the majority of the local banks effectively complying with most of the Regional Banking Commission's prudential regulations.

There has been progress in implementing structural reforms since 2002. Improvements in public expenditure management have made possible modernization of the chain of expenditure, both in terms of management procedures and the information system, and have facilitated enhanced monitoring of the HIPC-funded budget spending that contributes to poverty reduction. At the same time, the authorities have strengthened medium-term budget programs. Significant advances have also been made in implementing the government's poverty reduction strategy, which has resulted in increased school enrollment rates and improved medical coverage in the rural areas. There have been some delays, however, in the area of privatization.

The authorities agreed with the thrust of the staff's assessment of performance under past Fund-supported programs. Notwithstanding the progress made in restoring macroeconomic stability and laying the foundations for sustainable growth, Niger faces many challenges and remains vulnerable to exogenous shocks, especially poor weather conditions, and terms of trade fluctuations. The authorities have expressed interest in a successor PRGF arrangement to help them implement their pending reform agenda and mobilize external assistance.

Executive Board Assessment

Directors commended the authorities for the significant strengthening of policy implementation under Niger's PRGF-supported program, which resulted in encouraging progress toward macroeconomic stability, higher economic growth, and poverty reduction. GDP growth is expected to remain robust in 2004, supported by continuing favorable weather conditions and strong domestic demand underpinned by investment in the social sectors.

Directors considered Niger's medium-term economic prospects to be generally favorable, provided the authorities continue to take strong action to address the considerable economic and social challenges that Niger still faces. These include: the need to boost economic growth rates and improve social indicators; a reduction in the economy's heavy dependence on foreign aid and vulnerability to exogenous shocks; and a continued lowering of the still-high debt burden. Accordingly, Directors highlighted the importance of continued progress toward fiscal consolidation, along with appropriately prioritized reforms to lower production costs, diversify the production and export base of the economy, and improve competitiveness and the business climate.

Directors stressed that long-term fiscal sustainability will be crucial to preserve economic growth and poverty reduction. They commended the authorities' continued sound fiscal management, and encouraged them to maintain fiscal prudence, particularly in the run-up to the presidential elections. Noting Niger's low tax effort by regional standards, Directors underscored the importance of deeper and broader tax reform, including efforts to widen the tax base and bring at least part of the informal sector into the tax system. This will be critical to increasing the resources available for investment and poverty reduction while reducing the dependence on foreign aid. Directors also urged strict control over expenditure, including wage restraint, as well as continued emphasis on priority spending and the provision of an adequate safety net for the more vulnerable groups. It will also be important that the authorities adhere strictly to the schedule for clearing arrears over the next five years. Directors looked forward to the audit of HIPC spending, which will help ensure that HIPC assistance is used effectively.

Directors noted that Niger's external debt will remain high despite HIPC topping up, and that Niger will continue to rely on external financing for some time. They therefore supported the authorities' prudent debt-management strategy of seeking only grants and—exceptionally—highly concessional loan financing. Close collaboration with the donor community will remain key in this regard.

Directors welcomed the continued absence of inflationary pressures, and the prudent easing of monetary policy by the Central Bank for West African States since 2003. They encouraged the authorities to move ahead with the settlement of outstanding statutory advances to the central bank.

Directors welcomed the authorities' commitment to their structural reform agenda. Noting the delays experienced in this area in 2003, they encouraged the authorities to expedite the privatization of the electricity and petroleum importing companies (NIGELEC and SONIDEP) to help lower energy costs and boost private investment. Directors acknowledged the importance of ensuring that the economic and social costs of the privatization process are adequately addressed. They welcomed the improvement in the overall health of Niger's financial institutions, which are generally complying with prudential norms. Going forward, efforts to improve the competitiveness of the banking sector will enhance financial intermediation, while the development of microfinance institutions will help improve access to credit country-wide. Directors encouraged the authorities to press ahead with the privatization of the state-owned Credit du Niger and the restructuring of the National Post and Saving Institution (ONPE). They also encouraged the authorities to implement promptly the recommendations of the recently completed Public Expenditure Management and Financial Accountability Review (PEMFAR) conducted by the World Bank.

Directors welcomed the broadly satisfactory implementation of the PRSP, particularly the progress in expanding health coverage and improving Niger's low primary school enrollment rates, although a further strengthening of efforts in these areas will remain critical. They underscored the importance of carrying out the household survey, and supported the authorities' focus on agricultural and rural development as a vital channel for poverty reduction.

Directors welcomed the ex post assessment of Niger's performance under Fund-supported programs. Going forward, they supported the priority emerging from the assessment on the need to increase investment and savings, including by strengthening public savings through increased revenue mobilization. They also underscored the importance of minimizing direct involvement of the public sector in the economy, establishing adequate conditions for private sector development, and improving infrastructure to ensure a better management of water. Directors emphasized the need to strengthen institutional capacity, particularly in the areas of tax and customs administration, debt management, and statistics. Technical assistance will continue to play a key role to support Niger's reform efforts in these areas.

Directors encouraged the authorities to improve the timeliness, quality, and coverage of Niger's economic data. Particular efforts are needed to strengthen the national accounts and balance of payments statistics and, at the regional level, to address weaknesses in the monetary data.


Niger: Selected Economic and Financial Indicators, 2001-07


 

2001

2002

2003

2004

2005

2006

2007

 

 

 

 

 

Projections

 


National income and prices

             

GDP at constant prices

7.1

3.0

5.3

4.1

4.1

4.1

4.2

GDP deflator

4.0

3.0

-0.4

1.1

2.0

2.0

2.0

Consumer price index

             

Annual average

4.0

2.7

-1.6

0.4

2.0

2.0

2.0

End of period

3.2

0.6

-1.5

1.8

2.0

2.0

2.0

External sector

             

Exports, f.o.b. (units. CFA francs)

-0.7

-2.5

4.4

4.8

16.9

3.9

4.9

Imports, f.o.b (units. CFA francs)

3.4

6.4

6.6

12.9

5.5

-0.3

2.7

Export volume

-7.0

-4.0

4.0

3.9

15.6

2.5

3.4

Import volume

9.1

4.4

5.1

12.2

4.5

1.4

2.9

Terms of trade (deterioration -)

10.0

-0.4

-2.0

-0.5

0.1

0.1

0.0

Nominal effective exchange rate (depreciation -)

0.4

1.4

2.5

...

...

...

...

Real effective exchange rate (depreciation -)

2.2

2.1

-0.8

...

...

...

...

Gross official reserves (in months of imports)

2.8

2.8

2.0

2.1

2.2

2.4

2.6

Government finances

             

Total revenue

20.6

21.1

-2.6

9.6

12.8

11.0

10.9

Total expenditure and net lending 1/

14.6

13.2

-0.8

12.6

2.4

7.9

3.1

Of which: Current expenditure

9.5

2.8

-0.8

3.0

2.9

3.9

5.1

Of which: Capital expenditure

20.9

31.0

-0.9

25.9

1.8

12.6

0.9

Money and credit

             

Domestic credit 2/

2.3

10.9

8.3

3.5

4.4

3.8

0.0

Credit to the government (net) 2/

4.9

3.7

3.0

-1.1

0.8

0.4

-3.3

Credit to the economy 2/

-2.5

7.1

5.3

4.6

3.7

3.4

3.3

Net domestic assets 2/

-0.5

5.9

2.0

21.9

-1.0

-0.6

-4.0

Money and quasi money

32.8

-0.4

-13.4

34.7

13.2

12.5

7.7

Interest rate (money market. In percent: end of period)

5.0

5.0

...

...

...

...

...

Government finances

(In percent of GDP. Unless other wise indicated)

Total revenue 3/

9.3

10.6

9.9

10.3

10.9

11.4

11.9

Total expenditure and net lending

17.2

18.4

17.4

18.6

17.9

18.2

17.7

Of which: Current expenditure

11.0

10.7

10.1

9.9

9.6

9.4

9.3

Of which: Capital expenditure

6.2

7.7

7.3

8.7

8.3

8.8

8.4

Primary budget balance 3/

-6.1

-6.3

-6.4

-7.7

-6.4

-6.2

-5.2

Basic balance (excluding grants) 4/

-3.4

-1.8

-2.0

-1.4

-0.2

0.4

1.2

Overall balance (commitment basis, excluding grants)

-7.9

-7.7

-7.5

-8.3

-7.0

-6.8

-5.7

Overall balance (commitment basis, including grants)

-3.2

-2.8

-2.7

-4.5

-3.6

-2.7

-1.6

Gross investment

12.1

14.2

14.2

16.1

15.9

16.6

16.3

Gross national savings

4.4

7.6

8.0

8.2

9.5

10.7

11.2

External current account balance

             

Excluding grants for budgetary assistance

-6.6

-7.8

-7.8

-7.9

-6.4

-5.9

-5.1

Including grants for budgetary assistance

-4.8

-6.5

-6.2

-7.9

-6.4

-5.9

-5.1

External public debt (end of period)

86.9

76.4

62.7

62.7

62.9

62.0

60.2

Debt-service ratio (before debt relief) in percent of :

             

Exports of goods and services

27.5

30.4

23.6

12.4

8.9

9.5

9.8

Government revenue

50.0

43.7

39.2

21.0

15.1

15.1

14.7

 

(In billion of CFA francs)

GDP at current market prices

1426.0

1512.8

1587.5

1670.8

1774.1

1884.5

2003.6

Government payments arrears (reduction -)

-17.0

-33.4

-12.2

-18.5

-18.4

-15.0

-10.0

Domestic

-17.0

-33.4

-12.2

-18.5

-18.4

-15.0

-10.0

External

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Overall balance of payments 5/

-24.3

-43.0

-39.5

-58.4

-32.4

-18.5

-7.8

 

 

 

 

 

 

 

 


Sources: Nigerien authorities; and IMF Staff estimates and projections.

1/ Commitment basis as per payment orders issues.

2/ In percent of beginning-of-period money stock.

3/ Total revenue, excluding grants, minus expenditure, excluding interest payments.

4/ Total revenue, excluding grants, minus total expenditure, excluding foreign financed investment project.

5/ Before debt relief. For projections, including the financing gap.

 

 

 

 

 

 

 

 


1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities.
2 On November 22, 1999, the IMF's concessional facility for low-income countries, the Enhanced Structural Adjustment Facility, was renamed the Poverty Reduction and Growth Facility, and its purposes were redefined. It is intended that PRGF-supported programs will in time be based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners, and articulated in a poverty reduction strategy paper. This is intended to ensure that each PRGF-supported program is consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. PRGF loans carry an interest rate of 0.5 percent a year, and are repayable over ten years with a 5½ year grace period.




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