Niger: Eighth Review Under the Extended Credit Facility Arrangement and Request for Waivers of Nonobservance of Performance Criteria and for Modification of Performance Criteria

This paper discusses Niger's Eighth Review Under the Extended Credit Facility (ECF) Arrangement and Request for Waivers of Nonobservance of Performance Criteria (PC) and for Modification of PCs. Niger's medium-term prospects are closely linked to returns on major projects in oil and mineral extraction that are under way. Two of the end-2015 PC for the eighth ECF review were missed (on domestic financing and domestic arrears repayment), as were several indicative targets. The IMF staff supports the authorities' request for waivers for the unmet PC on domestic financing and domestic arrears repayments at end-December 2015.

Abstract

This paper discusses Niger's Eighth Review Under the Extended Credit Facility (ECF) Arrangement and Request for Waivers of Nonobservance of Performance Criteria (PC) and for Modification of PCs. Niger's medium-term prospects are closely linked to returns on major projects in oil and mineral extraction that are under way. Two of the end-2015 PC for the eighth ECF review were missed (on domestic financing and domestic arrears repayment), as were several indicative targets. The IMF staff supports the authorities' request for waivers for the unmet PC on domestic financing and domestic arrears repayments at end-December 2015.

Context

1. Structural bottlenecks, adverse developments in world commodity markets, and a fast-growing population hamper Niger’s economic and social prospects. Domestic production still largely consists of subsistence agriculture where frequent drought, flooding, and lack of inputs hold back productivity growth, together with significant infrastructure gaps and weak institutional capacity. The expected economic boost from higher oil and uranium production may now take longer to materialize given the decline of the prices of those commodities. A fast-growing population (3.9 percent per annum) and an influx of rural youth and refugees to the cities are fueling a growing urban unemployment problem.

2. Regional hostilities remain elevated, resulting in a diversion of spending from other priority sectors and threatening recent gains in social indicators. A concerted regional military response seems to have weakened Boko-Haram, but the group’s attacks continue to claim Nigerien lives, disrupt living conditions, domestic production, and trade flows, particularly in the Diffa region. The UNHCR estimates that, as of February 2016, 137,000 Nigeriens were internally displaced, and Niger was hosting 138,321 refugees from Nigeria, and 59,956 refugees from a separate conflict on the Mali side of the border (Text Figure 1a). Prior to the 2015 hostilities, Niger already ranked last in the UN Human Development Index, but gains have been recorded in social indicators in recent years (Text Figure 1b).

Text Figure 1.
Text Figure 1.

Niger: Refugees from Neighboring Countries’ Conflicts 2013–16 and Social Indicators

Citation: IMF Staff Country Reports 2016, 247; 10.5089/9781498379410.002.A001

Sources: United Nations High Commissioner for Refugees (UNHCR); and World Bank.Notes: Poverty Rate is defined as the percentage of population below $1.25 (PPP) per day. The latest available data is from 2011. Literacy Rate refers to the literacy rate of 15–24 year-olds, women and men. The latest available data is from 2014. Child Mortality is defined as the children under five years-old mortality rate per 1,000 live births. The latest available data is from 2015.

Recent Developments, Outlook and Risks

A. Economic and Institutional Developments

Niger’s overall macroeconomic performance has been mixed reflecting the resource sector downturn, elevated security risks, the regional economic slowdown, and institutional weaknesses.

3. Economic growth in 2015 was slowed by exogenous regional and commodity price developments. After accelerating to 7 percent in 2014, growth is estimated to have eased to 3.5 percent in 2015 due to lower agriculture, oil, and mining production (Table 1), and to contagion effects from the economic slowdown in neighboring countries after oil prices plummeted in 2014 (Box 1).

Table 1.

Niger: Selected Economic and Financial Indicators, 2013–21

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

Revenue minus expenditure net of externally-financed capital expenditure.

Revenue (including budgetary grants) minus expenditure net of externally-financed capital expenditure.

4. Inflation remains well below the West African Economic and Monetary Union (WAEMU)’s “three percent” convergence criteria, partly reflecting good harvests and the price stabilization program. Average annual inflation, which was negative in 2014 (-0.9 percent), has remained contained below 1 percent through end-April 2016 (Table 1). With inflation largely driven by food prices, a good harvest last year and government food programs have played a key stabilizing role (MEFP, ¶1).

Niger: Spillovers from the Economic Slowdown in Nigeria

Niger and Nigeria share a 1,500 kilometers long border, on both sides of which commerce has flourished for centuries. The CFA franc and the Naira are accepted on both sides of the border and opportunities for arbitrage abound. Nigeria’s highly-subsidized fuel products find their way into Niger, which also serves as a transit route for imports disembarked in Benin and destined for Nigeria. Such re-exports are taxed at low rates (in the 5–10 percent range), but yield non-negligible customs revenues (1 percent of GDP in 2014). Niger also exports domestically-produced merchandise, such as fresh produce and livestock.

A01ufig1

Niger: Exports and Customs Revenue with Nigeria, 2014–16

(Billions of CFAF)

Citation: IMF Staff Country Reports 2016, 247; 10.5089/9781498379410.002.A001

Source: Nigerien authorites.

The economic slowdown in Nigeria that followed the collapse in international oil prices in late 2014 has resulted in a reduction in disposable incomes and a shortage of foreign exchange that have greatly reduced Nigeria’s demand for Niger’s products. In value terms, Niger’s conventional exports to Nigeria fell 16 percent in 2015, while the much more voluminous re-exports fell 18 percent. While customs revenues from re-exports fell by 17 percent, this was partially offset by an increase in merchandise imports from Nigeria (38 percent in CFAF terms) as Niger’s importers took advantage of Nigeria’s sharply depreciated currency.

5. While budgetary revenues from non-resource sources increased significantly over 2014, shortfalls in resource revenues and in external financing, coupled with an unexpected surge in capital spending, led to slippages in fiscal targets and new accumulation of domestic arrears during 2015.

  • Total revenue increased by 0.6 percent of GDP, compared to end-2014, as non-resource revenues increased by 1.7 percent of GDP reflecting ongoing reforms at the tax and custom administrations and a larger contribution of the telecommunications sector (Table 3). However, total revenues fell short of program targets, as petroleum and uranium revenues fell by 1 percent of GDP reflecting lower international prices and a four-month closure of Niger’s refinery. Subdued trade with Nigeria affected customs revenue performance. Weak capacity of customs and tax administrations played also a key role in the shortfalls of fiscal revenues.

  • Current government spending was held below budget limits (and program targets); a minor overrun on the wage bill due to additional payments to security forces and hiring of teachers (Text Figure 2, right chart) was more than offset by savings on subsidies and transfers. Domestically financed capital expenditures increased sharply in the last quarter, as the government accelerated implementation of priority investments envisaged in the Plan de Développement Economique et Social (PDES) 2012–15 and had to address additional infrastructure needs arising from the aggravated security situation (Text figure 2, left chart). Overruns in spending also reflect budget execution weaknesses, lack of effective oversight over the expenditure chain, and inadequate follow up on the alignment of spending commitments with projected revenues.

  • The resultant larger deficit was financed by recourse to domestic financing and accumulation of domestic arrears, the total stock of which stood, at end-2015, at CFAF 89.1 billion (2.1 percent of GDP), compared with CFAF 104.5 billion (2.5 percent of GDP) at end-2014.

Table 2.

Niger: Financial Operations of the Central Government, 2013–21

(Billions of CFAF)

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

The special accounts include the financing on the National Retirement Fund, Priority Investments Fund, and Fund for Continuous Professional Development.

Revenues minus expenditure net of externally-financed capital expenditure.

In 2015, actual includes in non-tax revenue the CFAF 34 billion of exceptional revenues from the telecom sector.

Table 3.

Niger: Financial Operations of the Central Government, 2013–21

(In Percent of GDP)

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

The special accounts include the financing on the National Retirement Fund, Priority Investments Fund, and Fund for Continuous Professional Development.

Revenues minus expenditure net of externally-financed capital expenditure.

In 2015, actual includes in non-tax revenue the CFAF 34 billion of exceptional revenues from the telecom sector.

Text Figure 2.
Text Figure 2.

Niger: Sectoral Distribution of the Excess Capital Spending Over Program Target in 2015 (left chart) and Evolution of Civil Servants per Sector, 2011–15

Citation: IMF Staff Country Reports 2016, 247; 10.5089/9781498379410.002.A001

Sources: Nigerien authorities; and IMF staff calculations.

6. Growth in monetary aggregates slowed in 2015, in line with nominal GDP growth (Table 4). Credit to the economy grew by 13.2 percent, reflecting an increase in credit across all sectors, but particularly the non-agricultural sectors.

Table 4.

Niger: Monetary Survey, 2013–21

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Sources: BCEAO; and IMF staff estimates and projections.

7. The external sector deficit widened in 2015 reflecting a deterioration in the terms of trade (Table 5). With uranium and oil exports falling sharply, the external current account worsened by 2.4 percent of GDP, to 17.5 percent of GDP in 2015. External reserves declined, but remained at comfortable levels equivalent to 4.4 months of projected 2016 imports of goods and services.

Table 5.

Niger: Balance of Payments, 2013–21

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

Projections of FDI for 2017–19 are based on the construction of a pipeline expected to come on stream in 2019.