Press Release: IMF Executive Board Completes Sixth and Final Review Under the PRGF Arrangement with Niger and Approves New US$37.5 Million Successor PRGF Arrangement
May 29, 2008Press Release No. 08/127
May 29, 2008
The Executive Board of the International Monetary Fund (IMF) has completed the sixth and final review of Niger's economic performance under a three-year Poverty Reduction and Growth Facility (PRGF) arrangement approved on January 31, 2005 for SDR 6.58 million (about US$10.7 million) (see Press Release No. 05/20). The arrangement was augmented to SDR 26.32 million (about US$41.9 million) on November 14, 2005 (see Press Release No. 05/251), and extended to May 31, 2008.
In completing the sixth and final review of Niger's PRGF-supported program, the Executive Board granted waivers for the non observance of the end-December 2007 quantitative performance criterion on the reduction in domestic payments arrears on government obligations and the continuous structural performance criterion on the application of the pricing system for petroleum products.
The Executive Board also approved a successor SDR 23.03 million (about US$37.5 millions) PRGF arrangement to support Niger's efforts to move towards meeting the Millennium Development Goals (MDGs) while preserving economic stability. An initial disbursement of SDR 3.29 million (about US$5.4 million) will become available on June 2, 2008.
At the conclusion of the discussion on Niger's economic performance, Mr. Murilo Portugal, Deputy Managing Director and Acting Chair, stated:
"The Nigerien authorities are to be commended on the overall satisfactory performance under the PRGF-supported program. Economic growth in 2007 has been sustained for the third year in a row, and prospects for growth in 2008 are encouraging. The authorities have appropriately supplemented the fiscal space provided by debt relief with revenue mobilization, and allocated significantly more resources to the social sectors and infrastructure. Important progress was achieved in budgetary preparation, execution, and controls. The recent acceleration of inflation, mainly due to higher import prices for staple goods and hydrocarbons, will require timely responses in the period ahead.
"The budgetary performance in 2007 was good, with higher than expected tax revenue, and expenditure in line with targets. The supplementary budget for 2008, which allocates large exceptional revenues received in late 2007 and higher mining revenues, appropriately focuses on priority development expenditures. It is important that recent tax measures aimed at dampening the price increase of imported food staples be targeted to benefit the most vulnerable groups.
"The new three-year program supported by a new arrangement under the PRGF aims at promoting growth within a stable macroeconomic framework. It appropriately focuses on improving the alignment of the budget with the priorities of the new PRSP, enhancing budgetary execution, boosting tax revenue, and further strengthening budgetary transparency and controls. Further improvements in budgetary management will enhance the effectiveness of government priority programs, and help mobilize additional donor resources to allow Niger to advance toward the Millennium Development Goals.
"To preserve debt sustainability, the authorities are committed to continue to implement a prudent debt management policy, with emphasis on grants and borrowing on highly concessional terms for highly productive projects.
"The program includes measures to enhance further the business environment and the investment climate, which are essential in order to achieve higher economic growth. Actions under way to strengthen the microfinance sector and reinforce existing financial institutions should facilitate access to credit and deepen financial intermediation," Mr. Portugal said.
Recent Economic Developments
Niger made significant economic progress in recent years. Average growth reached 5.3 percent from 2005 to 2007, reflecting solid performance in agriculture, construction, transports and telecommunications. The investment ratio averaged 22 percent, and was characterized by robust performance in both private and public investment. Inflation declined in 2006. Nevertheless, rising oil and cereal prices in the second half of 2007 brought the inflation rate at end-2007 to 4.7 percent on a 12-month basis.
Fiscal revenue grew to 15.5 percent of GDP in 2007 from 10.8 percent in 2005. This increase, along with additional fiscal space resulting from external debt relief under the Heavily Indebted Poor Countries (HIPC) initiative and the Multilateral Debt Relief Initiative (MDRI) in 2006, allowed for an increase in public spending to 22.3 percent in 2007 from 20.4 percent in 2005. The overall fiscal deficit was reduced to 6.9 percent of GDP in 2007 from 9.6 percent in 2005.
The reform program has contributed to a substantial fiscal management improvement. At the same time, significant progress was made in expenditure management, with a focus to identifying and tracking public expenditure on poverty reduction.
The government program's main objective is to consolidate economic growth and reduce poverty while maintaining the fiscal equilibrium required for macroeconomic stability. The macroeconomic framework for 2008-11 program is based on an average annual growth of about 5 percent, mainly supported by investments in agriculture in the context of the implementation of the rural sector strategy. Additionally, uranium production should more than double by 20012.
With regard to the inflation, the objective is to limit the average annual rate to 2 percent for the duration of the program., which would be in compliance with West African Monetary Union (AEMU) convergence criteria. The basic fiscal deficit for 2009-11 is expected to remain close to 2 percent of GDP.
Improving the business climate is a key factor for ensuring sustained growth over the medium term and for diversifying the economy.
The PRGF is the IMF's concessional facility for low-income countries. PRGF-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners and articulated in the country's Poverty Reduction Strategy Paper. This is intended to ensure that PRGF-supported programs are consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5½ -year grace period on principal payments.