IMF Survey: Debt Relief Yields Results in Niger
January 25, 2008
- Lower debt service means more money for health and education
- Niger's social indicators are starting to improve
- Growth has accelerated, but could be faster
Debt relief from multilateral and bilateral creditors is showing results in Africa.
In the landlocked Western African country of Niger, lower debt service, together with continued significant budgetary aid and higher domestic revenue mobilization, is having an impact on spending in education, health, and the rural sector, where budgetary allocations increased by 4 percent of GDP between 2002 and 2007.
The debt stock was reduced through the Heavily Indebted Poor Countries Initiative and the Multilateral Debt Relief Initiative from 76 percent of GDP at end-2002 to 14 percent at end-2006, or by the equivalent of $1.3 billion, with all multilateral and bilateral creditors participating in the cancellation. Debt cancellation yielded a drop in debt service of about 2 percent of GDP between 2003 and 2006.
The strong budgetary support, averaging 3.5 percent of GDP over the past four years, and higher domestic revenue, because of a widening of the tax base (domestic budgetary revenue rose from 7.2 percent of GDP in 1998-99 to 12.6 percent in 2007), have also contributed to increase the fiscal space. In addition to higher priority spending, this has been used in part to reduce the large stock of domestic arrears accumulated through 1999.
Social indicators improve
The higher spending associated with debt relief has resulted in progress in improving key social indicators, which are among the weakest in Africa. The country is finally moving up in the rankings of the UN Human Development Index.
• The infant mortality rate dropped from 156 deaths per 1,000 births in 1997 to 81 per 1,000 in 2006. Under-5 mortality is still among the highest in Africa.
• The primary school completion rate improved from 16 percent in 1997 to 28 percent in 2005. Overall primary school enrollment is among Africa's lowest.
• Access to potable water increased from 40 percent in 1996 to 69 percent in 2005.
With the restoration of political and social stability in Niger in 1999 and the authorities' strong commitment to reform, growth performance has improved. Average annual real GDP growth, which was lower than population growth in the 1990s, accelerated in 2000-06. It attained 4 percent, or about 1 percent in per capita terms. After a downturn in 2004 because of a severe drought, GDP growth resumed and, in 2005-07, is expected to average close to 5½ percent.
The restoration of stability and commitment to reform in Niger have spurred external aid and domestic and external private investment. The overall investment ratio increased from a very low 9 percent of GDP, on average, in 1998-99 to 22 percent in 2005-06. Both private and public investments contributed to the increase, including investments in mining, infrastructure, construction, and telecommunications.
Annual GDP growth could increase to 5½ percent in the period to 2015, according to IMF staff projections. The improvement would result largely from expanded mining and exploration activity. Uranium companies operating in Niger plan to more than double their production by 2013. Also, since 2006, 110 new exploration permits have been issued to mining companies, the majority for uranium but some for other minerals and petroleum.
The key to faster growth, however, will be an increase in agricultural productivity, livestock and agricultural diversification, and the development of agribusinesses. This also requires improvement in infrastructure, and sustained involvement of the private sector. Niger's rural development strategy for 2007-15—which has been integrated in its newly issued Growth Acceleration and Poverty Reduction Strategy, 2008-12—emphasizes the ample potential for development in these sectors.
Facing up to difficulties
But Niger faces significant risks because it is susceptible to drought. It can tackle the challenges it faces in a number of ways:
• Effective irrigation would increase the production of cereal and vegetables, for both the domestic and foreign markets. Currently, about 85,000 hectares of land are irrigated. Another 270,000 hectares could be brought under irrigation.
• Niger can increase its use of fertilizer and modern agricultural implements.
• Improved conservation and marketing could boost exports of agricultural products in demand in neighboring countries and beyond. Similarly, better processing could strengthen exports stemming from Niger's livestock resources.
Finally, a return to a stable security situation in the northern mining region, where a number of insurgent attacks have taken place in 2007, is essential for continued investment and growth in the mining sector.
Reaching the Millennium Development Goals (MDGs) by 2015 will be extremely challenging for Niger. To halve poverty by 2015, as required by the MDGs, the new Poverty Reduction Strategy for 2008-12 estimates that real GDP growth must average 7 percent. Even if aid is substantially scaled up, from about 10 percent of GDP in 2007 to about 15 percent of GDP, Niger may have difficulty achieving this high growth rate.
However, a significant improvement in social indicators is within reach, owing to the higher revenue arising from the uranium boom, the widening of the tax base, and donors support to the reform program, provided efforts are redoubled to to improve the delivery of adequate services throughout the country.