IMF - US$10 Million PRGF Arrangement for Niger

IMF Executive Board Approves US$10 Million PRGF Arrangement for Niger

The Executive Board of the International Monetary Fund (IMF) has approved a three-year arrangement under the Poverty Reduction Growth Facility (PRGF) for Niger in an amount equivalent to SDR 6.58 million (about US$10.0 million) to support the government's economic program into 2008. The first disbursement under the arrangement will amount to SDR 940,000 (about US$1.4 million).

Following the Executive Board's discussion of Niger, on January 31, 2005, Agustín Carstens, Deputy Managing Director and Acting Chair, stated:

"The Nigerien authorities continued to strengthen macroeconomic policy implementation in 2004, including through a reduction in fiscal imbalances, notwithstanding elections-related expenditure pressures and a significant slowdown in economic growth caused by a drought. They also continued to make progress in the implementation of their poverty reduction strategy (PRS). However, higher food and fuel prices raised end-period inflation to about 4 percent, from negative 1.5 percent the previous year, and there were also some delays in implementing public and financial sector reforms.

"While Niger has made welcome progress in strengthening macroeconomic stability and liberalizing its economy under the previous PRGF arrangement, major challenges remain. The main challenges going forward are: to attain stronger and broad-based economic growth in a low-inflation environment, with reduced vulnerability to external shocks; and to significantly reduce poverty so as to accelerate progress toward the Millennium Development Goals. This will require continuation of prudent macroeconomic policies, a vigorous implementation of structural reforms, and development and costing of coherent strategies and programs to boost activity in the growth-supporting sectors of the economy, especially agriculture.

"The authorities' medium-term program for 2005-07 seeks to strengthen macroeconomic stability by effecting gradual reduction in fiscal imbalances, including strengthened revenue mobilization. The authorities have taken an important step in this regard by introducing, under a revised 2005 budget, core fiscal measures that will expand the tax base. These will be complemented by additional measures to strengthen tax and customs administration. With technical assistance from the Fund, the authorities are also developing a broader strategy that will underpin the revenue effort in the medium to long term. Niger's new PRGF-supported program contains a prudent expenditure stance, including with regard to the wage bill, and an explicitly defined pro-poor focus.

"An important element of the structural reform agenda is to move forward with needed improvements in the public and financial sectors. In consultation with the World Bank, the authorities will take stock of their disengagement strategies regarding the electricity and petroleum importing companies, with a view to addressing existing difficulties and expediting reform in this key area. Efforts to enhance efficiency in the public sector also include implementation of an action plan to continue improving public resource management, based on the recommendations of a Public Expenditure Management and Financial Accountability Review that has been completed with technical assistance from the World Bank and the European Union. Finally, a recently established management unit to oversee reform of problematic financial institutions is expected to bring about the long-awaited privatization of the state-owned Credit du Niger (CDN) and restructuring of the National Post and Saving Institution (ONPE).

"Niger has made important achievements under the President's Special Program for Poverty Reduction, including expanding health and education coverage. Nevertheless, further efforts are necessary to strengthen the PRSP. The authorities are committed to addressing identified weaknesses in the design and implementation of the strategy, which will pave the way for the planned updating of the PRSP in 2006. The authorities recognize that successful completion of their new medium-term reform agenda is predicated on continued strengthening of Niger's weak institutional capacity, in collaboration with development partners," Mr. Carstens said.

The PRGF is the IMF's concessional facility for low-income countries. PRGF loans carry an annual interest rate of 0.5 percent, and are payable over 10 years with a 5½-year grace period on principal payments.

ANNEX

Background

Niger has made substantial economic progress over the past several years, but poverty is widespread and growth, though improved, remains short of the rate required to reach the Millennium Development Goals.

Under the previous three-year PRGF arrangement, which Niger completed on June 28, 2004, macroeconomic imbalances were reduced and key structural reforms were implemented to improve the supply response of the economy. Growth performance strengthened and inflation remained at low levels. And in April 2004, Niger reached the completion point under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative, with debt relief totaling US$663.1 million in net present value terms. Macroeconomic imbalances remain relatively large, however, and the economy is susceptible to droughts, terms of trade volatility, and uncertain aid flows.

The key challenge facing the country is to create conditions for stronger and sustainable growth to make poverty reduction more effective. To meet this challenge, the government's strategy focuses on strengthening macroeconomic stability, expanding access by vulnerable groups to social services, building institutional capacity and improving governance, and supporting sectors with high growth potential, such as agriculture, tourism, and mining.

Program Summary

Niger's PRGF-supported reform program focuses on fiscal consolidation, public and financial sector reforms, and development of social and priority sector strategies.

Key macroeconomic objectives for 2005-07 are to achieve an annual real GDP growth rate of about 4 percent; limit annual inflation to under 3 percent; and reduce the external current account deficit (excluding official transfers) by 1 percent of GDP to about 6.3 percent of GDP by 2007.

On the fiscal side, the government will seek to gradually reduce fiscal imbalance so as to raise its contribution to domestic savings and investment. Core revenue-enhancing measures introduced under the revised 2005 budget will be critical to this effort. Overall spending is projected to remain largely unchanged as a percent of GDP, with shifts in spending favoring priority socio-economic programs.

The structural reform agenda will focus on achieving a more efficient allocation of resources and on improvements in economic governance. The government will continue reform of public administration and revisit its privatization program, with the technical support of the World Bank. It will also take steps to strengthen financial intermediation by expediting financial sector reforms.

Finally, the authorities will seek to develop and implement sectoral strategies, in line with the country's Poverty Reduction Strategy. The government expects to complete during 2005 the third report on the implementation of the Poverty Reduction Strategy Paper (PRSP) and to outline the steps and costs required to achieve the Millennium Development Goals.

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