Document of The World Bank

FOR OFFICIAL USE ONLY

Report No. 44611-NE

INTERNATIONAL DEVELOPMENT ASSOCIATION

PROGRAM DOCUMENT

FOR A PROPOSED

GROWTH POLICY REFORM GRANT 1 (GPRG-1)

TO THE REPUBLIC OF NIGER

IN THE AMOUNT OF SDR 26.5 MILLION

(US$40 MILLION EQUIVALENT)

February 27, 2009

Finance and Private Sector Development Country Department AFCF2 Africa Region

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS

(Exchange Rate as of January 31 2009)

Currency Unit F CFA

US$1.00 = F CFA 520 US $1.00 = 0.6617 SDR

FISCAL YEAR January 1 – December 31

ABBREVIATIONS AND ACRONYMS

AAA Analytic and Advisory Activities AAP Africa Action Plan AFD French Development Agency AfDB AIPU ANIPEX

African Development Bank Agricultural Inputs Procurement Agency Agency for Export Promotion

ARMP Public Procurement Regulation Agency BCEAO CA

Central Bank of the West African States Contracting Authority

CAFER Road Fund CAS Country Assistance Strategy CEM Country Economic Memorandum CFAA Country Financial Accountability Assessment CIP CNE

Inter-ministerial Steering Committee for Rural Development Caisse Nationale d’Epargne

CNIP Business Association CNPC China National Petroleum Company CNSS Caisse Nationale de Sécurité Sociale COA Bid Review Commission COMINAK Compagnie Minière d’Akouta CPAR CPI CRD

Country Procurement Assessment Report Consumer Price Index Resolution Committee

DGB General Budget Directorate DGCMP DGI

Public Procurement Directorate General Directorate of Taxes

DGPP DHS

Government Declaration of Population Policy Demographic and Health Survey

DPM Public Procurement Units DPO Development Policy Operation DSA Debt Sustainability Analysis EITI Extractive Industries Transparency Initiatives EU European Union FAO Food and Agriculture Organization of the United Nations FDI Foreign Direct Investment FIAS Foreign Investment Advisory Services FINAPOSTE

Postal Bank of Niger

FNR Fonds National de Retraite

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FPD Finance and Private Sector Development GDP Gross Domestic Product GPRG Growth Policy Reform Grant GoN Government of Niger HALC High Authority to Fight Corruption HIPC Heavily Indebted Poor Countries Initiative HIV/AIDS Human immunodeficiency virus/ Acquired Immunodeficiency Syndrome IAS International Accounting Standards ICA Investment Climate Assessment IDA International Development Association IDF Institutional Development Fund ISB Impot sur les Bénéfices IFC International Finance Corporation IFRS International Financial Reporting Standards IMF International Monetary Fund INS National Institute of Statistics IPP Independent Power Producer MCC Millennium Challenge Corporation MDGs Millennium Development Goals MDRI Multilateral Debt Relief Initiative M&E Monitoring and Evaluation MEF Ministry of Economy and Finance MP/SR Ministry of Population and Social Reforms MTEF Medium-Term Expenditure Framework NIGELEC Niger’s electric company NGO Non-Governmental Organization NPV Net Present Value OECD DAC OHADA ONPE PEFA PEM PEMFAR

Organization for Economic Co-operation and Development Organization for Harmonization of Business Law National Post and Savings Office Public Expenditure and Financial Accountability Public Expenditure Management Public Expenditure Management and Financial Accountability Review

PER Public Expenditure Review PETS Public Expenditure Tracking Survey PRSC PLIADI PPP

Poverty Reduction Support Credit Lutte contre l’insecurité alimentaire à travers le développement de l’irrigation Private Public Partnerships

PRGF PRMP

Poverty Reduction and Growth Facility Regional Program for Procurement Reform

PRODEM Multi-sector Demographic Program PRSC Poverty Reduction Support Credit PRSP Poverty Reduction Strategy Paper RDS Rural Development Strategy RSRC Rural and Social Policy Reform Credit SDRs Special Drawing Rights SME Small and Medium Enterprises SML Société des Mines du Liptako SNDI National Strategy for Irrigation Development SOE State-Owned Enterprises SOMAIR Société des Mines de l’Aïr SONITEL Niger’s state-run telecom company SSA Sub-Saharan Africa SWAP Sector-Wide Approach

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TFP TFR

Total Factor Productivity Total Fertility Rate

UNDP United Nations Development Program UNFPA VAT

United Nations Population Fund Value Added Tax

WAEMU West African Economic and Monetary Union WFP World Food Program WHO World Health Organization

Vice President: Obiageli K. Ezekwesili Country Director: Madani M. Tall Sector Manager: Iradj Alikhani

Task Team Leader: Ivan Rossignol

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THE REPUBLIC OF NIGER

GROWTH POLICY REFORM GRANT (GPRG-1)

TABLE OF CONTENTS

I. INTRODUCTION......................................................................................................................................................1

II. COUNTRY CONTEXT...........................................................................................................................................2 A. OVERVIEW...................................................................................................................................................................2 B. ECONOMIC CONTEXT AND RECENT MACROECONOMIC PERFORMANCE .........................................................................4 C. MEDIUM-TERM MACROECONOMIC FRAMEWORK AND FINANCING REQUIREMENTS......................................................6

III. THE GOVERNMENT’S MEDIUM-TERM PROGRAM ..................................................................................9 A. POVERTY REDUCTION STRATEGY (PRSP) ...................................................................................................................9 B. KEY ISSUES AND SECTOR STRATEGIES........................................................................................................................10

(i) Private sector development.........................................................................................................................10 (ii) Infrastructure .............................................................................................................................................17 (iii) Agriculture and Rural Development ........................................................................................................18 (iv) Public Finance Management and Procurement ........................................................................................21 (v) Demographics............................................................................................................................................26

IV. BANK ASSISTANCE TO GOVERNMENT......................................................................................................28 A. LINKS TO COUNTRY ASSISTANCE STRATEGY AND PRSP...........................................................................................28 B. COLLABORATION WITH IMF AND OTHER DONORS .....................................................................................................31 C. ANALYTICAL UNDERPINNINGS ...................................................................................................................................32 D. LESSONS LEARNED.....................................................................................................................................................34

V. PROPOSED GROWTH POLICY REFORM GRANT (GPRG-1)....................................................................35 A. OPERATION DESCRIPTION ..........................................................................................................................................35

Evolution of triggers and prior actions............................................................................................................35 B. OBJECTIVE OF GPRG-1 .............................................................................................................................................36

Medium-term approach ...................................................................................................................................37 Tranching, prior actions, and triggers .............................................................................................................38

C. POLICY AREAS COVERED BY THE OPERATION.............................................................................................................41 Policy area 1: Private sector growth...............................................................................................................41 Policy Area 2: Addressing infrastructure constraints for private sector growth ............................................43 Policy Area 3: Support Agriculture Sector and Rural Development...............................................................44 Policy Area 4: Public Finance.........................................................................................................................45 Policy Area 5: Demographics .........................................................................................................................46 Status of prior actions......................................................................................................................................47

VI. OPERATION IMPLEMENTATION .................................................................................................................47 A. POVERTY AND SOCIAL IMPACTS AND ENVIRONMENT .................................................................................................47

Poverty and social impact: ..............................................................................................................................47 Environmental aspects.....................................................................................................................................48

B. IMPLEMENTATION, MONITORING, AND EVALUATION..................................................................................................48 C. FIDUCIARY ASPECTS ..................................................................................................................................................49 D. DISBURSEMENT AND AUDITING..................................................................................................................................50 E. RISKS AND RISK MITIGATION......................................................................................................................................50

TABLES

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Table 1: Key macroeconomic indicators, 2006-2013 ................................................................ 5 Table 2: External Financing Requirements and Sources, 2006-2013 (CFAF billions) ......... 7 Table 3: Ease of Doing Business in Niger ................................................................................ 11 Table 4: Investment Climate in Niger...................................................................................... 11 Table 5: Budget Allocation and Execution for Social and Rural Sectors (millions CFA) .. 22 Table 6 Selected Projects under Disbursement linked to GRPG-1....................................... 30 Table 7: Planned lending program linked to GRPG-1........................................................... 31 Table 8: Recent analytical work related poverty reduction .................................................. 33 Table 9: Indicative triggers for a new DPO in RSRC 2 ......................................................... 35 Table 10: GPRG-1 Prior Actions and GPRG-2 Triggers ...................................................... 39 ANNEXES Annex 1: Letter of Development Policy ................................................................................... 54 Annex 2: Donor Budgetary Support Programs ...................................................................... 71 Annex 3: IMF Assessment Letter for World Bank................................................................. 73 Annex 4: IDA Program Summary - Proposed Lending Program (As of 4/30/08) .............. 77 Annex 5: Niger at a Glance ....................................................................................................... 78 MAP IBRD 33457

The Grant was prepared by an IDA team led by Ivan Rossignol (Sector Leader, AFTFP). The core team included Amadou Ibrahim (Senior Country Economist, AFTP4), Mamadou Yaro (Senior Financial Management Specialist), Emile Finateu (Lead Financial Management Specialist, AFTFM), Djibrilla Issa (Senior Financial Sector Specialist, AFTFP), Marc Lixi (Operations Officer, AFTRL), Eric J. Yoboué (Senior Procurement Specialist, AFTPC), Ibrah Sanoussi (Senior Procurement Specialist, AFTPC), El Hadj Adama Touré (Senior Agriculture Specialist), John F. May (Lead Population Specialist, AFTH2), Zachary Kaplan (Consultant, AFTPS), Peter Miovic (Consultant, AFTFP). In addition, valuable inputs and suggestions were provided by Helene Bertaud (Senior Counsel, LEGAF), Setareh Razmara (Lead Social Protection Specialist, AFTH2), and Philip English (Lead Economist, AFTP4). Peer reviewers were Brendan Horton (Lead Economist, Consultant) and Jean-Michel Marchat (Senior PSD Economist). Ousmane Diagana (Country Manager, AFMNE) provided valuable advice and guidance. Sidonie Jocktane (Program Assistant, AFTFP) provided assistance to the team.

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The Republic of Niger

Growth Policy Reform Grant (GPRG-1)

Grant and Program Summary

Borrower Republic of Niger

Implement. Agency Ministry of Economy and Finance

Financing Data IDA Grant of SDR 26.5 million (US$40 million equivalent)

Operation Type One tranche Development Policy Operation to be disbursed upon grant effectiveness

Main Policy Areas GPRG-1 will support five main policy areas with an emphasis on private sector growth. Other sectors covered in this operation are infrastructure, agriculture and rural development, public finance reform, and population growth.

Key Outcome Indicators

Outcomes will be measured in the context of a series of two Growth DPOs to be disbursed over two years. The main expected outcome is higher private investment and job creation through improving the business climate. More specifically, the two DPOs are expected to bring about:

Improved business environment, freeing up financing for short term capital needs, increased access to finance.

Improved road infrastructure; increased private sector participation in

public infrastructure projects.

A better performing agricultural sector, through food imports rationalization and technology investment.

Improved public financial management by: (i) enhancing the linkages

between budget and treasury functions which will directly translate in the reduction of payment delays to private suppliers; (ii) strengthening the financial relationship between the State and the private sector; (iii) encouraging an increase in registered tax-paying firms by lowering the profit tax; (iv) and bolstering financing for infrastructure maintenance.

Implementation of the government’s policy on demographics

Program Development Objectives and Contribution to CAS

GPRG-1 is the first of a new series of Development Policy Operations that target private sector growth in Niger. The main objective of this operation is to help overcome policy constraints and institutional bottlenecks to growth by: (i) addressing the main business environment obstacles, including taxes; (ii) relieving infrastructure constraints for the private sector; (iii) promoting rural sector growth; (iv) pursuing public finance management reform; and (v) addressing demographic issues. This operation builds on results achieved under two previous budget support operations (RSRC-1 and RSRC-2). In the

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subsequent GPRG-2, the business environment and rural development agendas will be emphasized, while the demographics agenda will be phased out.

Risks

The main risks associated with GPRG-1 are: (i) The upcoming presidential elections and the low intensity insurgency in the Northwest region of the country over the sharing of revenues from uranium mining might lead to increased spending, which would undermine macroeconomic stability and discourage investors; (ii) Increased attention to foreign direct investment in mining might slow down implementation of the reform agenda; (iii) The large non-tax revenues derived from foreign investment in the uranium and oil sectors might decline significantly during the period of 2009-2011, which would create a revenue shortfall on top of the one resulting from the lowering of corporate tax. (iv) External shocks: drought, locust infestation, volatility of the CFAF against the Nigerian Naira, could affect the country’s capacity to maintain its long-term reform agenda; the Dutch disease associated with rapid growth of the mining and oil sector might undermine the competitiveness of Niger’s economy; (v) Weak institutional capacity might slow down implementation of the reform agenda; (v) Fiduciary risks, particularly as concerns public procurement, might reduce the quality of public expenditure. To mitigate these risks, the operation has been built through a consultative process with the aim of broadening the consensus for the reform program. It will provide budgetary resources to the Government to help stave off a possible macroeconomic downturn. In addition, capacity on fiduciary risks is being addressed through the IDA portfolio.

Operation ID Number P107741

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I. INTRODUCTION

1. The proposed Growth Policy Reform Grant-1 (GPRG-1) for SDR 26.5 million (US$40 million equivalent) will help the Government of Niger (GoN) undertake major policy reforms to achieve accelerated growth. GPRG-1 is a one-year budget support operation to be disbursed in one tranche. It is the first in a series of two budget support operations focusing on institutional bottlenecks that hamper private sector growth, including in rural development and investment in infrastructure. Building up on past achievements, it will also address issues in public finance management, and population growth. GPRG-1 is closely linked to ongoing investment operations.

2. As described in the Country Assistance Strategy (CAS) discussed with the Board on May 29, 2008, the proposed Development Policy Operations (DPO) series is part of a continuum of budget support operations funded by International Development Association (IDA) since the restoration of political stability early in this decade. The reform program supported by the first three operations was largely focused on improving Public Expenditure Management (PEM), and mostly based on the consensus built among development partners around the Public Expenditure Management and Financial Accountability Review (PEMFAR). In 2005, internal discussions within the country team and exchanges with Government and stakeholders, revealed certain strengths and weaknesses in the approach. The main strength resulted from a well focused and well understood agenda. The main weakness was the insufficient attention to key issues in the rural, social, infrastructure, and private and financial sectors. Furthermore, little had been done to build up synergies between DPOs and the fairly well developed investment lending portfolio, which was affected at times by slow implementation of essential sector reforms.

3. In view of the above, Government and IDA, in consultations with other donors, agreed that future DPOs would be broadened beyond the PEM agenda to include key reforms in various sectors and remove critical bottlenecks. The decision to use DPOs was deemed to be an appropriate way to reinforce implementation of sector strategies and maximize the developmental impact of ongoing investment lending.

4. On this basis, two broader two-tranche DPOs (Rural and Social Policy Reform Credit - RSCR-1&2) were implemented between 2006 and 2008. They were articulated around a programmatic PEM theme, while addressing critical bottlenecks affecting human and rural development. The new proposed DPO series, described below, has been envisaged within the same conceptual approach, including continued PEM reform, further strengthened by the recently completed Public Expenditure and Financial Accountability (PEFA) assessment, but with a shift in focus towards the growth agenda instead of human development -- which is well covered under ongoing Sector Wide Approaches programs (SWAPs). In addition, in line with the CAS, demography has been retained as a cross-cutting theme. The strong link with the existing and planned portfolio continues to be emphasized. The Government’s relatively good track record in implementing increasingly complex DPOs supported by IDA funding, indicates that the PEM systems are adequate to handle budget support funding.

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5. The main features of this new series of DPOs are defined in Chapter V of this Program Document. It is expected that this new series will help pave the way for planned Programmatic Poverty Reduction Strategy Credits (PRSCs) starting in FY11.

II. COUNTRY CONTEXT

A. OVERVIEW

6. Niger is a large, mostly desert, country with an area of 1.27 million square kms and a population of around 14 million. Niger is land-locked and relies mostly on the Niger River as a water source. The country constantly battles drought and only about 12 percent of all its land is arable, with rainfall in these areas at less than 350 mm per year. Irrigation, which is still rather underdeveloped, thus takes on great importance as do the varieties of crops that can be grown in these climatic conditions. Niger’s population is concentrated in the areas around the Niger River in the western corner of the country bordered by Mali, Burkina Faso and Benin, and then stretches through the Sahel region all along Nigeria’s long northern border. North of this belt the land is largely desert. Niger’s population is growing fast with 47 percent of its population under the age of 15. At current rates of population growth of 3.3 percent per annum it would reach about 54 million by year 2050.

7. After the somewhat turbulent and unstable 1990s, the country has enjoyed social and political stability under the leadership of President Mamadou Tandja, who was elected in 1999. In 2004 he was re-elected with a strengthened coalition of six parties, and Niger’s first local elections were successfully completed on July 24, 2004 as part of a program of political decentralization. The next local elections are scheduled for March 2009, followed by Legislative and Presidential elections by end 2009. These two events will test the strength of Niger’s democratic institutions. While the situation has significantly improved in this decade, the country is still faced with recurrent rebellions in the Northwestern mineral rich region.

8. Niger is a very poor country with a limited natural and human resource base. According to United Nations Development Program (UNDP’s) Human Development Report (UNDP 2007/2008), Niger ranked 174 out of 177 countries on its Human Development Index with a Gross Domestic Product (GDP) per capita in Parity Purchasing Power (PPP) terms equal to US$780, one of the lowest in the world. Nevertheless, since 2000 there have been improvements in both economic and social indicators. Despite periodic setbacks due to droughts, locust invasions, and avian flu, growth has slowly been gathering momentum. Average per capita GDP growth has been positive since 2000, marking an encouraging shift from falling per capita GDP during the 1990s (Figure 1). Donor support under debt relief initiatives has contributed to this improved performance.

9. With the exception of some niche markets, Niger’s private sector base is poorly connected to the global economy, making it relatively insulated from global economic shocks. With approximately 1,000 formal enterprises and an underdeveloped financial sector, Niger’s

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private sector base is one of the smallest in the region. Most of Niger’s growth potential is associated with the oil and mining sector, and with regional trade in the West African Economic and Monetary Union (WAEMU) and with Nigeria. While most countries in Africa are experiencing a slowdown in mining and oil and gas related investments, this is not the case in Niger, where these investments have been initiated and largely implemented before mid-2008. The recent downturn in food and oil prices benefited Niger’s economy. Its non-mining exports (live animals, onions and cowpeas) are sold in the regional markets and are therefore not directly affected by the global decline in demand. Overall, it is expected that the ripple effects of the on-going global financial crisis and recession will be moderate in Niger. Should the expected global recession continue for some years, however, its negative impact would build up, affecting not only the pace of expansion in the existing projects in the medium-term, but also new foreign and domestic investment. The flow of remittances from Niger’s workers abroad (currently about 2 percent of GDP) would also recede.

10. In past years Niger’s social indicators have improved. Gross primary school enrolment rate increased from about 29 percent in the early 1990s to 62 percent in 2007 and the ratio of girls to boys in primary schools also increased from 25 to 40 percent over the same period. Further improvements are expected. Mortality rate for children under 5 has decreased from 320 to 198 per thousand between 1990 and 2006. Prevalence of Human immunodeficiency virus/ Acquired Immunodeficiency Syndrome (HIV/AIDS), at less than 1 percent, is low for sub-Saharan Africa (SSA). In spite of progress, gender differences persist, however. Data from end-2005 indicate that HIV/AIDS prevalence among young women (15-24) is 0.8 percent, four times higher than prevalence among males of the same age (0.2 percent). This suggests that young women remain especially vulnerable to HIV even when overall prevalence rates are low.

11. Despite the improvements noted above, Niger remains behind on most of the Millennium Development Goals (MDG’s) and, if current trends persist, will not reach most of them by 2015. The most recent Country Economic Memorandum (CEM) notes that Niger is off track in achieving the MDG’s and that changing this course requires a forward-looking and comprehensive public investment program in priority sectors1. It also requires a concerted follow-through on the ongoing reform program backed up by adequate resources from Niger’s development partners – including through the proposed GPRG.

12. Poverty incidence remains high. The last household budget survey conducted in 1993 found that the proportion of people living under the poverty threshold was about 63 percent and 34 percent of people lived in extreme poverty2. Poverty is mainly a rural phenomenon in Niger; 86 percent of the rural population is poor and 36 percent extremely poor compared to 52 percent and 26 percent, respectively, for urban areas. The depth and severity of poverty are all higher in rural areas. According to the recent Core Welfare Indicators Questionnaire survey (CWIQ), the incidence of poverty in 2005 is 62.1 percent of the total population. While the methodology for the most recent survey cannot be compared to the 1993 survey, the slow

1 See WB (2007) and IMF (2008a) Figure 1. 2 According to Niger PRSP 2002-2005 (WB 2002), the poverty line is set at CFAF 75,000 in urban areas and CFAF 50,000 in rural areas and the extreme poverty threshold is set at two-thirds of poverty line (CFAF 50,000 in urban areas and CFAF 35,000 in rural areas).

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growth in GDP per capita between 1990 and 2006 (see Figure 1) suggests that little improvement in poverty incidence has been made in over the past 15 years. A new Household Budget Survey (2007/08) was completed in May 2008 and preliminary results show that poverty incidence decreased to 59.5 percent in 2008.

B. ECONOMIC CONTEXT AND RECENT MACROECONOMIC PERFORMANCE

13. Niger’s economy has been growing strongly in the past four years. This was particularly the case in 2005 (8.4 percent) and 2006 (5.8 percent), mainly due to a rebound from the 2004 drought. On the other hand, 2007 turned out to be another difficult year for agriculture, reducing GDP growth for that year to 3.3 percent. The estimated growth of GDP of close to 6 percent for 2008 is based on an expected bumper crop harvest (Table 1). These variations underscore the country vulnerability to droughts and its undiversified and small private sector base in other sectors than natural resources.

Figure 1: Niger GDP Per Capita Annual Growth Rate (1991-2006)

-10

-5

0

5

10

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Source: Country data

14. Niger, like most countries in the region, was not able to avoid the impact of the rapid rise in international food and oil prices that began in the latter part of 2007 and continued well into 2008, worsened by the poor domestic crop year in 2007. As a result, Niger’s rate of inflation began to rise late in 2007 and the Consumer Price Index (CPI) for all of 2008 is expected to be around 9 percent, but dropping to an annual rate of 2.5 percent in 2009 and beyond. The expected reduction is based both on the recent decline in international grain and oil prices, as well as on this year’s domestic bumper harvest.

15. Both the food and the energy crises of 2007/2008 have been contained. To address the food crisis, the authorities implemented a program of targeted free and moderate-cost distribution of cereals and eliminated or reduced the taxes on sensitive food items for several months. Now they need to rebuild the cereal buffer stocks with support from donors. This will be facilitated by the current bumper crop. In the longer run the expansion of irrigation associated with the Kandadji dam project and implementation of other strategies to improve yields in agriculture and livestock should improve food security. On the energy side, the recent

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steep slide in oil prices and continued downward pressure on these prices from the recession in developed countries will help the country face immediate needs. By 2013, Niger is expected to become a net exporter of oil products.

Table 1: Key macroeconomic indicators, 2006-2013

2006 2007+ 2008* 2009p 2010p 2011p 2012p 2013p Real GDP growth ( percent) 5.8 3.3 5.9 4.5 4.5 5.0 7.1 4.3 Inflation (CPI - percent, annual. average) 0.1 0.1 9.0 2.5 2.3 2.0 2.0 2.0 In percent of GDP: Gross investment 23.6 23.6 26.3 36.9 44.6 35.4 27.3 23.4 o/w non- government investment 16.8 17.6 19.4 28.9 37.6 26.6 20.1 15.7 Foreign direct investment 1.4 3.0 8.1 13.5 21.4 11.9 4.8 1.2 Government revenue 13.0 15.2 17.5 12.3 12.4 13.0 14.5 15.0 o/w tax revenues 10.7 11.5 11.0 11.6 11.7 12.1 12.2 12.6 o/w exceptional mining receipts 1.6 1.4 5.3 0 0 0 0 0 Government expenditure 19.8 23.4 24.2 26.3 23.7 23.2 22.8 23.6 o/w capital expenditure 10.6 11.6 11.3 13.4 11.6 11.4 12.0 12.8 Overall budget balance (commitment) -6.8 -8.2 -6.7 -14.0 -11.3 -10.3 -8.3 -8.7 Basic (budget) balance 0.3 -0.9 -0.6 -5.4 -2.9 -1.9 0.1 -0.2 Ext’l current account balance, excl. grants -10.5 -11.1 -12.3 -29.1 -34.9 -24.9 -15.7 -10.4 Memo Items: GDP (in CFAF billions) 1906 2035 2333 2481 2661 2821 3296 3513

Terms of trade ( percent change) 1.8 18.0 9.0 3.4 2.0 -0.8 24.2 3.5 Net foreign assets of BCEAO (months of imports

3.6 4.5 5.3 2.7 1.8 1.7 1.8 2.5

Foreign aid (as percent of GDP) 9.1 9.8 7.8 12.5 10.9 10.8 10.4 10.4 NPV of external debt (as % of GDP) 10.2 10.5 9.2 10.9 11.6 12.7 12.4 13.1 NPV of external debt (as % of exports) 62.6 60.4 47.9 57.4 59.6 65.2 49.9 45.5

Source: IMF and WB, based on Statistics by Government of Niger. (+) estimates; * preliminary; (p) projected

16. The Government’s fiscal position has been fairly stable with the deficit easily covered by external financing. Niger did not need to resort to domestic bank financing in the past four years and has even been able to build up its net international reserves, which are held at the regional central bank – Central Bank of the West African States (BCEAO) and currently exceed 5 months’ worth of imports (Table 1). There was some decline in external donor financing between 2006 and 2008 that was offset by greater domestic fiscal revenues, mostly from agreements with the French mining company AREVA on investment in uranium mining and from the US$300 million signature bonus for the oil extraction and refinery building contract with a subsidiary of the China National Petroleum Corporation.

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17. The external account deficit, excluding grants, has been stable as a proportion of GDP at around 11 percent through 2007. In 2008 it has widened to 12.3 percent of GDP, due to higher capital imports by extractive industries and increased prices of food and oil imports (see Table 2).

18. Non-mining exports, essentially agricultural products and livestock to Nigeria (Niger’s largest trading partner in non-mining products), are affected by the fluctuations in the exchange rate between the CFA franc (pegged to the euro) and Nigeria’s naira, which tends to follow the US dollar with occasional adjustments. Given that the naira is not convertible, a parallel market has developed. This has kept trade between the two countries mostly in the informal sector with negative implications for Niger’s tax revenues.

19. With the debt initiatives e.i. Heavily Indebted Poor Countries Initiative and Multilateral Debt Relief Initiative (HIPC and MDRI) completed, Niger’s Net Present Value (NPV) of external debt to export ratio has been reduced to the 55-65 percent range, which is well below the threshold of 150 percent as underlined in the joint Debt Sustainability Assessment - DSA produced by staffs of the International Monetary Fund (IMF) and the World Bank in December 2008. The NPV to GDP ratio has come down to near 10 percent, which is also well below the policy-dependent threshold of 40 percent. The main assumptions underlying this assessment are: (i) real GDP growth is expected to rise from its historical average (1998-2007) of 4.8 percent to an average of 5.2 percent in 2005-2013, fostered mainly by increased investment in and production of oil and uranium; and (ii) the investment rate is projected to range from 27 to 44 percent of GDP in 2008-2012, largely as a result of planned oil and uranium related investments. Niger remains at moderate risk of debt distress, although the debt indicators have improved compared with the 2007 DSA.

20. Niger is a member of the West African Economic and Monetary Union (WAEMU) and shares a common currency, the CFA franc, with the other member countries. The WAEMU member countries agreed to adhere to macro economic convergence criteria. In 2007, Niger was in compliance with 5 of the 8 criteria. Its basic budget balance was slightly below the WAEMU criterion of 0, and its current account balance at 11.1 percent was well above the criterion of 5 percent of GDP. Both, however, were manageable due to strong donor support. Its tax revenue to GDP ratio of 10.7 percent well below the 17 percent target and is among the lowest in WAEMU countries, but is not unusual for a country at Niger’s level of development (IMF 2008c). As noted later, the broadening of the tax base is a major objective of the GPRG.

21. Overall, the Government’s macro-economic framework has been adequate to respond to the recent food, energy and global financial crises. In the case of the food and energy crises, the level of response has allowed to address both short-term needs (e.g. food imports) and long-term needs (e.g. construction of a new dam to generate electricity and irrigate). The expected moderate impact of the financial crisis is closely monitored by the authorities.

C. MEDIUM-TERM MACROECONOMIC FRAMEWORK AND FINANCING REQUIREMENTS

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22. The macroeconomic framework for 2008-2011 in the IMF new Poverty Reduction and Growth Facility (PRGF) program is based on an average annual GDP growth rate of 5 percent. Achieving this growth rate is realistic in the absence of severe exogenous shocks. Assuming that the on-going financial crisis has limited impact on the mining and oil development prospects in Niger, surging Foreign Direct Investment (FDI) and a pick up in Government spending on infrastructure should give a strong boost to the economy for some years. In the longer run, however, this growth is not likely to be sustained without diversification of the economy beyond the mining sector, which requires a better enabling environment for Small and Medium Enterprises (SMEs).

23. Prospects for reform can be viewed with cautious optimism. With the strong support of the World Bank and other donors, Niger has been working on a series of reforms to make public financial management more effective, improve incentives for the private sector, strengthen physical infrastructure and develop more rapidly its human capital.

24. Niger has benefited from rising uranium prices in the past two years. FDI is projected to surge to over 20 percent of GDP by 2010 due to major new investments in expanding uranium production, which is expected to almost double between 2012 and 2013 as new capacity comes on line. Also the starting of oil extraction and refining in 2012, will make Niger a small (net) exporter of oil and refined products. A further increase in oil exports is possible if concessions that have been issued for oil exploration prove successful.

25. While FDI has been rising sharply, it has been almost entirely confined to the mining sector. This enclave type of investment can be profitable and relatively safe even in the absence of an enabling broad-based investment climate. Private domestic investment has been relatively stagnant over the past five years, however, suggesting that domestic investors do not find a competitive advantage in the investment climate. Once they do, FDI might spread beyond the oil and mining sectors (See next chapter on Business Environment).

26. Public expenditure is expected to reach 26.3 percent of GDP in 2009, almost 3 percentage points higher than in 2007. About two thirds of this increase comes from increased capital expenditures, while one third is due to increased current expenditures (mainly subsidies and transfers). Yet total revenues are expected to decline, since no further exceptional revenues from uranium are in sight. The combination of higher expenditures and lower revenues is expected to lead to an overall balance deficit of 14.0 percent of GDP. Even with higher projected support for projects from donors, the basic budget balance will move from virtual equilibrium in the last three years to a 5.4 percent of GDP deficit in 2009 (roughly CFAF 134 billion).

Table 2: External Financing Requirements and Sources, 2006-2013 (CFAF billions) 2006 2007 2008* 2009p 2010p 2011p 2012p 2013p

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I. Current account -158.2 -181.1 -230.2 -611.7 -859.9 -630.0 -445.0 -291.0 Balance on goods -117.8 -107.0 -147.7 -485.5 -605.2 -437.0 -87.7 122.2 Exports f.o.b. 273.5 341.0 393.1 410.9 462.1 481.7 736.5 926.7 Uranium 79.6 143.1 178.2 192.2 229.9 234.5 258.0 430.5 Imports f.o.b. 391.3 448.0 540.8 896.4 1067.2 918.0 824.2 804.5 Food products 87.8 73.8 94.7 85.2 92.5 98.0 99.3 103.1 Petroleum products 43.7 63.3 82.7 90.0 116.1 105.3 57.9 65.8 Capital goods 135.8 159.8 193.8 533.0 663.9 507.1 396.1 319.3 Other 124.0 151.1 169.6 188.2 194.7 208.2 270.9 316.3 Services and income (net) -123.8 -160.7 -182.2 -288.2 -379.1 -323.7 -492.3 -562.5 Income (net) 0.6 -16.6 -9.7 -9.4 -50.1 -38.8 -174.8 -251.5 Unrequited transfers (net) 85.4 86.6 99.8 162.0 124.4 130.7 134.9 149.3 o/w grant budget support 18.6 27.5 38.9 89.7 47.5 48.2 47.5 47.2 II. Capital and Financial a/c 254.4 253.0 326.7 549.6 808.7 587.1 447.2 354.6 Capital account 887.7 153.6 114.5 151.7 162.8 172.5 200.5 214.7 o/w Project grants 75.5 119.0 107.2 143.3 153.7 162.9 190.3 202.9 Financial account -623.9 100.1 212.2 397.9 646.1 414.7 246.7 139.9 o/w Foreign direct invest. 26.9 61.0 188.3 333.6 568.4 335.4 157.4 43.5 III. Overall Balance 98.2 69.0 96.5 -62.1 -51.2 -42.9 2.1 63.6 IV Financing -98.2 -69.0 -96.5 62.1 51.2 42.9 -2.1 -63.6 Net foreign asset(BCEAO) -101.2 -72.4 -96.5 62.1 51.2 42.9 -2.1 -63.6 Memo Items: Current Account Bal. (%GDP) (excluding official grants)

-10.5 -11.1 -12.3 -29.1 -34.9 -24.9 -15.7 -10.4

Uranium as % of total exports 29.1 42.0 45.3 46.8 49.8 48.7 35.0 46.4 Net Foreign Assets of BCEAO (in months of imports)

3.6 4.5 5.3 2.7 1.8 1.7 1.8 2.5

GDP (in CFAF billions) 1906 2035 2333 2481 2661 2821 3296 3513 Source: IMF (2008c) (*) estimated (p) projected

27. The current account deficit is projected to increase sharply from 12.3 percent of GDP in 2008 to 35 percent of GDP in 2010, before subsiding back into the 10 percent range by 2013. This is the result of the surge in FDI in uranium and oil. Sharply increased FDI will finance a major expansion of capital imports during the period 2009-2011, subsiding (although still high) in 2012-2013. The current account deficit is projected to fall sharply in 2012 as the refinery comes on stream leading to a halving of petroleum imports and some expansion of their exports. This trend will be reinforced in 2013 as the new uranium mining capacity at Imourarem comes on stream, nearly doubling the exports of uranium in a single year. The reduction in the current account deficits is expected to happen despite a rise of profit remittances to the foreign investors starting in 2010 and accelerating significantly from 2012 onwards.

28. The danger of a potential Dutch disease is manageable. The current exchange rate is judged to be near equilibrium (IMF 2008c). Continued future improvements in the terms of trade will keep upward pressure on the exchange rate, hence making it necessary for Niger to invest these new revenues in pro-poor activities or in the non mining/oil productive sector.

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29. Although there will be an increase in public sector borrowing to improve infrastructure, especially in the area of power generation and distribution, external public debt is expected to rise only slowly and internal public debt, which consists mainly of arrears, should decline as the arrears are paid off – helping to rebuild the private sector’s working capital. The recent DSA carried out jointly by the Fund and the Bank shows that under the baseline assumptions, the risk of debt distress remains moderate. Debt and debt service ratios remain at comfortable levels, and unlike in the previous DSA, stress tests result in no breaches of the policy-dependent debt distress thresholds (see IMF 2008b).

30. The recently approved IMF Poverty Reduction and Growth Facility (PRGF) program estimates budget support from Niger's development partners of around CFAF 95.7 billion for 2009 - CFAF 89.7 billion would be in grants and CFAF 6 billion would be a loan from the African Development Bank (AfDB) on concessional terms. The grant portion includes CFAF 46.8 billion from the World Bank, of which US$40 million equivalent is budget support for 2008 that was postponed and will now be disbursed in the first half of 2009, while the remainder would come from the 2009 budget support under GPRG-2. The European Union is expected to contribute CFAF 28.9 billion, while the remaining CFAF 14.0 billion is expected to come from France, Belgium and other development partners. The financing picture from the point of view of the Balance of Payments is presented in Table 2. Grant budget support of CFAF 89.7 billion appears above the line under unrequited transfers, while the CFAF 6 billion worth of budget support in loan appears below the line in the Financial Account section. The anomalously large capital and financial account numbers for 2006 reflect the final major adjustments of debt balances under the HIPC/MDRI initiatives.

III. THE GOVERNMENT’S MEDIUM-TERM PROGRAM

A. POVERTY REDUCTION STRATEGY (PRSP)

31. The second Poverty Reduction Strategy Paper (PRSP-II) was completed in August 2007 and adopted by the Government on October 10, 2007. Preparation of PRSP-II involved extensive consultations with the Parliament, private sector, civil society and academia. Following the adoption of PRSP-II, a Round Table to discuss its financing was held in Brussels where donors pledged US$4 billion equivalent to support its implementation. PRSP-II is built around seven strategic pillars and includes all the main objectives of the first PRSP. The seven pillars are: (i) strong, diversified, sustainable and job-creating growth; (ii) equitable access to quality social services; (iii) addressing the demographic challenge; (iv) reduction of inequalities and strengthening of social protection for the vulnerable groups; (v) infrastructure development; (vi) promotion of good governance; and (vii) effective implementation of the strategy. Cross-cutting issues of demographics and good governance, which had not been part of the first PRSP, are addressed in the second PRSP.

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B. KEY ISSUES AND SECTOR STRATEGIES

32. The following sections systematically present first the issues and second the Government strategies in addressing these issues, in the areas of: (i) private sector development; (ii) infrastructure; (iii) agriculture and rural development; (iv) public sector management; and (v) demographics.

(i) Private sector development

33. The PRSP-II’s objective to accelerate growth places the focus on private sector-led growth. Recent growth was mostly induced by increased public investment (fueled by aid and debt reflows) and, more recently, by an increase in the uranium price. This growth may not be sustainable in the medium-term. To help shift growth toward private sector activities the Government identified areas where private sector investments are needed, including export-oriented rural development, mining, financial sector, and tourism. It is also expected that the private sector would contribute to the development of infrastructure through Public-Private Partnerships (PPPs). The private sector in Niger remains small and mostly composed of micro and small enterprises. About 1,000 enterprises are registered with the tax authorities and contribute to approximately 15 percent of GDP3. The informal sector is difficult to measure. A proxy shows that the absolute number of tax payers amounts to 42,000 out of 800,000 potential payers in Niger. The informal sector contributes to an estimated 75 percent of total GDP.

Key issues in private sector development

34. Private sector development is hampered by a difficult investment climate, poor infrastructure, and lack of linkages across sectors. Recent analytical work includes a 2006 Investment Climate Assessment, a 2007 Country Economic Memorandum, a 2007 Diagnostic Trade Integration Study (Modernizing Trade during a Mining Boom), annual Doing Business surveys, a 2008 Financial Sector Assessment, and on-going analyses of pension systems, political economy in the mining sector, and skills development and growth.

35. A Poor Investment climate: The 2009 Doing Business report ranks Niger as one of the countries in which it is most difficult to engage in private sector activities – 172 out of 181. The report, which covers data through June 1, 2008, notes that Niger is one of a handful of countries in the world that had no improvement in its business climate in the previous year. It takes 11 procedures, on average 19 days and approximately US$475 to set up a firm4. Closing a business is cumbersome and provides a further incentive to stay in the informal sector. Some of these high costs are directly attributable to the supranational Organization for Harmonization of Business Law (OHADA) legislation, which is currently under reform with support from the World Bank Group.

3Niger- Accelerating Growth and Achieving Millennium Development Goals: Diagnosis and the Policy Agenda. September 2007. p. 101 4 Based on Doing Business 2008 calculations.

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Table 3: Ease of Doing Business in Niger

Ease of... Doing Business 2008 rank

Doing Business 2009 rank

Change in rank

Doing Business 169 172 -3 Starting a business 153 159 -6 Dealing with Permits 155 157 -2 Employing Workers 161 166 -5 Registering Property 63 75 -12 Obtaining Credit 135 145 -12 Protecting Investors 147 150 -3 Paying Taxes 115 120 -5 Trading across Borders 163 169 -6 Enforcing Contracts 132 134 -2 Closing a Business 133 138 -5

Doing Business 2008 and 2009

36. The 2006 Investment Climate Assessment (ICA) also ranks Niger as one of the most challenging business environments in sub-Saharan Africa. Tax and tax administration, access to finance, informal sector practices, and corruption are the main impediments to business activity.

Table 4: Investment Climate in Niger

Constraints Niger Benin Cambodia Mali Senegal Tanzania Uganda China Turkey

Cost of financing 66.7 78.2 10.5 57.3 64.5 56.2 60.3 21.6 28.2Tax rates 68.4 87.7 18.6 36.4 50.4 72.1 48.3 34.1 38.1Practices of competitors in the informal sector 61.5 71.7 33.7 42.2 48.6 23.9 31.1 17.6 22.7Tax regulations 63.2 86.2 20.7 30.1 47.2 54.7 36.1 23.7 33.1Corruption 59.0 83.9 55.9 48.7 39.9 50.0 38.2 22.4 23.7Customs and trade regulations 38.5 64.7 25.6 19.9 36.6 30.8 27.4 21.1 8.9Transportation 35.9 42.1 7.8 20.1 36.1 22.5 22.9 19.4 8.4Electricity 41.0 69.2 12.7 24.2 30.6 57.6 44.5 28.1 17.3Access to land 18.0 33.7 3.2 13.0 29.7 24.3 17.4 16.3 6.0Inadequately educated workforce 41.0 25.6 6.6 20.1 17.3 24.6 30.8 26.7 12.8Labor regulations 15.4 35.4 5.9 3.9 15.8 11.9 10.8 19.4 8.7Telecommunications 28.2 40.7 3.2 14.3 3.5 11.6 5.2 16.5 10.9

NB: Manufacturing only. Source: Enterprise Survey 2001-2006, Investment Climate Assessment, World Bank 2006

37. Given this environment, most enterprises operate and remain in the informal sector. This has kept down productivity, and competitiveness. Both labor productivity and total factor

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productivity (TFP5) are lower than in other Franc Zone countries such as Senegal or Cameroon.

38. In Niger, investment climate reforms are supported by several groups. The National Private Investors Council (CNIP) was established in 2004. Chaired by the Prime Minister, the CNIP seeks to foster better synergy between the private sector and the State. The implementation of a national private sector promotion policy has led to the creation and strengthening of several support and supervisory structures, in particular, the Chamber of Commerce, the Investments Promotion Center (CPI), the Niger Exports Promotion Agency (ANIPEX), the National Management Development Center (CNPG), and “Entreprendre au Niger” (EAN). Coordination among these multiple institutions remains a challenge, however.

39. Heavy Taxes: close to half of Niger’s fiscal revenues is generated by the Value Added Tax (VAT) and excise taxes, 20.9 percent by custom duties, 20.2 percent by profit and income taxes and about 11.5 percent by a variety of other taxes6. The corporate profit tax rate is 35 percent of declared benefits with a floor at 1 percent of all sales (Impôt Minimum Forfaitaire). Even though the corporate tax was reduced from 46 percent to 35 percent, new firm entry into the formal sector continues to be slow. About 92 percent of the corporate tax is generated by less than 20 percent of registered firms, mostly in the mining, oil and financial sectors. However, the burden of direct and indirect taxes still acts as a disincentive for private firms to enter the formal sector. The impact of the Impôt Minimum Forfaitaire is seen as negative on small and medium sized enterprises. At 27.4 percent, the marginal effective tax rate is also much higher than the SSA average of 21.7 percent7, while revenue collection is well under WAEMU’s 17 percent convergence criterion. The tax system is currently focused on the collection of tax revenue from a limited base of formal firms, and informal firms. Tax administration encourages payment of financial incentives to tax inspectors based on the number and volume of penalties given. Any registered firm had to make 42 payments to fulfill their tax obligations. Furthermore, firms are subject to about 14 different non sector specific taxes. This generally encourages tax fraud and evasion. As evidenced in other West African and other countries, tax reform targeting both the level of taxation (including exemption regimes), as well as the tax administration, should help reduce the tax burden on firms while helping grow the tax revenues for the state.

40. A small financial sector: With 10 retail banks, the banking sector represents about 20 percent of the country’s GDP and employs less than 1,000 people. Of these 10 banks, 4 control about 80 percent of the market. The state continues to play an important role in this sector and owns about 26 percent of the total banking assets in the country. Niger shows the lowest penetration rate for microfinance institutions in the WAEMU region (0.7 percent as opposed to 2.9 percent), and overall the lowest density of financial institutions in the region. In the rural area, this trend is more acute. The agriculture sector representing about 41 percent of GDP benefits from only 1 percent of all credits. Access to finance is expensive, especially for the

5 Defined as the increase in output not caused by labor or capital factors. 6 IMF, “Propositions pour la réforme des impôts et taxes sur l’investissement et les capitaux”, September 2008. 7 FIAS, “Taux effectif marginal de fiscalisation de l’entreprise” June 2007.

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Small and Medium Enterprises (SMEs), who pay on average 2.2 percent more for the same credit than larger enterprises8.

41. The post-office financial services, which were present in rural areas, have not been operating since 1998, and deposits in 130,000 savings accounts for a total of CFAF 4.89 billion, have been frozen since 1992. Following a long process, the National Post and Savings Office (ONPE) was restructured into NIGER Poste in 2005. NIGER Poste is a public enterprise allowing for private shareholding. FINAPOSTE was created as a wholly- owned subsidiary of NIGER Poste in 2005, with the purpose of taking over the financial services activities of the former ONPE. It will operate as a commercial bank with about 50 postal agencies and offices, and technical assistance provided by IDA and other donors. The recapitalization process has started but needs to be completed to meet new BCEAO guidelines.

42. The pension system: The current condition of the pension system is severely compromised. The coverage of the Nigerien pension system extends to only about 3 percent of the labor force, mainly civil servants and workers in the formal sector in urban areas. While the large majority of the elderly do not receive a public pension, the pension plan for civil servants is generous and allows for a 80 percent replacement rate for a full-career civil servant retiring at age 60. Furthermore, the pension system lacks transparency and defined parameters that allow the system to adjust to exogenous budget shocks. The result is an unstable system where benefits are inconsistent and unsustainable.

43. Internal Debt Arrears: According to the most recent audit in December of 2007 Niger’s internal debt arrears stood at around 8.3 percent of GDP. The repayment schedule calls for a full repayment of all arrears by 2017. The current 2009 budget proposes a repayment to the level of 0.7 percent of GDP. Commitments made by the Government to the private sector would lead to a full repayment of all arrears managed ahead of schedule. This would lead to a cash injection of about CFAF 2.5 billion to the formal private sector, which would in turn help foster domestic investments in productive activities.

44. Corruption: Corruption is perceived to be a significant obstacle to doing business in Niger, which was ranked 123 out of 179 countries by Transparency International in 2007. Nearly 60 percent of Nigerien firms surveyed for the 2006 ICA Report ranked corruption as a serious problem, creating instability in the business climate and additional costs. To combat corruption, Niger’s leadership took unprecedented actions following the revealing of misused education funds in 2006, charging and jailing those responsible and ensuring that funds were fully reimbursed. The Government put in place the High Authority to Fight Corruption (HALC) and appointed staff to combat corruption and promote transparency in public financial management.

45. In May 2007 the Government created the Priority Investment Fund (FIP) for uranium receipts and integrated revenues in the revised 2007 and 2008 budget laws. To strengthen transparency and governance in the management of mining revenues, the Government has asked for World Bank support in adhering to the Extractive Industry Transparency Initiative

8 FSAP 2008.

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(EITI). This would ensure that all financial flows are reported by operators and matched by budget inflows. Niger has until March 2010 to reach the EITI validation stage, but is already planning to publicly disclose mining receipts.

46. Mining and petroleum sector: The mining sector in Niger offers important commercial prospects with uranium, gold, phosphate, cassiterite, gypsum, and natron. There are also important deposits of iron, phosphate and salt. Niger ranks among the top 10 producers of uranium worldwide. For the past several decades, two companies - the Compagnie Minière d’Akouta (COMINAK) and the Société des Mines de l’Aïr (SOMAIR) – have been involved in the production of uranium. They are both major subsidiaries of the French AREVA group. The next major investment to extract uranium is expected in the Imourarem field, with an investment of up to EUR1 billion. The Société des Mines du Liptako SA (SML), a subsidiary of the Quebec–based Canadian Junior, Semafo Inc. launched large-scale gold extraction in the country in 2004. Over past years, the country has increased its institutional capacity to attract large-scale investment in the mining sector. Uranium remains Niger’s largest source of export revenues, with exports expected to triple by 2017. Oil could also become another important source of revenue. China intends to invest US$5 billion over the next three years to develop oil production in Agadem through its State-owned China National Petroleum Corp (CNPC). Under the agreement, CNPC would build a 580-km pipeline to a refinery with a capacity of 20,000 barrels a day. Niger’s first barrel of oil is expected in 2012.

47. Public enterprises agenda: The Privatization and Regulatory Reform project completed in 2007 helped Niger implement its privatization program of State-Owned Enterprises (SOE). The creation of Cellule de Coordination du Programme de Privatisation (CCPP) oversaw the privatization of SONITEL (Niger’s state-run telecom company). Other SOE’s such as Niger’s electric company (NIGELEC) has remained in the public sector, however. Following project completion, the CCPP unit was disbanded and there was a shift of focus from privatization to a broader approach of SOE reform through restructuring and management contracts. While PPPs can be concluded on an ad hoc basis, Niger needs to take a more systematic approach through the promulgation of a PPP law to increase opportunities for the private sector and encourage outside financing for infrastructure development.

Government strategy for private sector development

48. The Government has launched an ambitious program of reforms to foster private sector growth and diversify the economy. Diversification would help dampen the cyclical nature of mining and provide employment and income opportunities to the population. The first Government’s priority is to improve the investment climate, with doing business indicators providing an entry point, while addressing and taking-on other reforms such as judicial effectiveness through OHADA, financial reforms or tax reforms. Second, recognizing that private sector growth in Niger is likely to be based on the development of economic niches, the Government is taking specific actions to facilitate value chain approaches, with the private sector playing a leading role. Such niches include various livestock and agri-business activities, linkages with mining, telecoms/IT, tourism, energy and financial services, as well as broader development of medium and small enterprises. Third, the Government intends to

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address main infrastructure constraints to the development of the private sector, with focus on road infrastructure and water and irrigation.

49. Investment Climate Reforms: By mid-2007, Niger had taken first steps to improve the investment climate, including lowering the time and cost of starting a business from 417 to 170 percent of GNI per capita on average, and streamlining the property registration. As Table 3 shows, the efforts to improve the climate for doing business were not as effective in 2008, showing lack of coordination between the various institutions responsible for the reform agenda, the rigidity of OHADA legislation, on which Niger has little influence, and less focus on the non-oil economy. The Government is aware of this situation and intends to tackle this through medium-term reforms that will be supported by the DPO series. The main focus of reforms in GPRG-2 will be the time and cost to register and close a business. Other reforms dependent on the OHADA legislation will be tackled outside of the scope of this operation but with the support of the Foreign Investment Advisory Services (FIAS).

50. Tax Reforms: To foster private sector growth, and aligned with the WAEMU objectives, the Government intends to carry out a new corporate tax reform with the objective of broadening the number of firms paying taxes, facilitating entry into the formal sector and raising more revenue. Consistent with this, the Government is in the process of rationalizing tax exemptions and offset possible revenue losses due to the drop in corporate tax. Finally, the Government has launched a program to strengthen the capacity of the office in charge of tax management, DGI (Direction Générale des Impôts). In the 2007 Finance Law, three key measures, to improve tax management and return, were taken: (i) the abolition of pre-payment of business tax when starting a business; (ii) deduction of 5 points from the registration rate for some deeds of conveyance; and (iii) streamlining the procedure for issuing tax status attestations. Monthly performance indicators are now set for the main customs offices, consistently tracking compliance. Issue-oriented audits are now produced for the DGI. The reform now calls for the reduction of the corporate tax from 35 percent to 30 percent, applicable to 2009 financial results of medium and large corporations, as a first step9. More reforms to reduce the Impôt Minimum Forfaitaire, and ensure the full reimbursement of the VAT, are also being discussed and considered for 2010 and 2011. Given the narrow growth base in Niger, accelerating tax reforms at a higher pace than what is expected in the WAEMU zone may give the country a competitive edge in the medium-term.

51. Financial sector reform: The Government established a financial sector reform action plan in 2004 to target: (i) the restructuring of the Credit du Niger and Caisse de Prêt aux Activités Territoriales; (ii) the operationalization of FINAPOSTE, which is taking over the financial activities formerly carried out by the ONPE; (iii) an actuarial audit of the Caisse Nationale de Sécurité Sociale (CNSS); and (iv) the promotion and the supervision of the microfinance sector. By mid-2008 good progress was made, including enacting a decree to create a microfinance regulatory agency, the creation of FINAPOSTE, the sale of the state share in Crédit du Niger to a private operator and the restructuration and recapitalization of

9 Assuming a constant tax base, the lowering of the corporate tax level from 35 percent to 30 percent would represent a fiscal loss of about CFA3.5bn (about x percent of total tax revenues). This calculation however does not take into account the growing tax base that is generally recorded subsequent to a decrease in tax.

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two commercial banks. FINAPOSTE is not yet operational, however. Its share capital of CFAF 1 billion is below the CFAF 5 billion required by BECAO and frozen deposits have not been transferred to FINAPOSTE and made available to depositors. In 2009 the Government expects to increase the share capital of FINAPOSTE to CFAF 5 billion, from a bond issue. The reform process is supported and closely followed by IDA in the context of the Financial Sector project.

52. Pension systems: The pension system is managed by two separate institutions, the CNSS and the Fonds National de Retraite (FNR), for non civil servants and civil servants respectively. The Government has initiated the first steps of a reform program of the CNSS, which could face a shortage of liquidity by 2011. The Government has also made the proposal to transform FNR into a new institution, while an action plan for the restructuring of the pension system is expected in 2009. The reform process will be supported under the overall dialogue on financial sector reform and under GPRG-2.

53. Mining sector: The Government strategy in the mining sector consists of updating the mining code to ensure a transparent mechanism for the allocation of mining concessions and a fair and equitable management of revenues and profits. Niger’s participation in the EITI will be continued and Niger should be fully compliant within the next few years (with the validation stage expected by mid 2010).

54. Divestiture from public enterprises: The privatization agenda remains incomplete. To gain a new momentum, the Government intends to prepare a new Public Private Partnership bill and propose it for Parliament’s approval. At stake is more private sector entry into the infrastructure sectors.

55. Potential Sources of Growth: The Government has identified four main sources of growth that could help accelerate the development of the country:

• Rural Development: Given the recent food shortages that Niger has experienced, a drought-prone climate and the fact that an overwhelming proportion of Nigerians live in the countryside, the Government will emphasize more rural sector development. Increasing agriculture productivity by one percent per year would have a multiplier effect of increasing GDP by 1.9 to 2.6 percent and help to significantly reduce poverty10. This should be achieved by improved irrigation and better access to land, markets via feeder roads, and credit. • Mining and petroleum: The vast potential of the country makes this sector a priority for the Government. By encouraging more investments in the sector and better transparency in the management of mining-related fiscal revenues, this sector is expected to be one of the main growth areas for Niger. Most reforms in this sector are carried out through the on-going dialogue within the EITI framework.

10 Niger Country Economic Memorandum: Accelerating Growth and Achieving the Millennium Development Goals: Diagnosis and the Policy Agenda, World Bank, September 2007.

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• Tourism: Tourism was once considered a source of economic growth for Niger, but recent political unrest in the Sahel is a major obstacle to its development in the short-term. Discussions with the Government confirmed that this sector will not be emphasized in GPRG-1. • Handicrafts: A survey conducted in 2001 showed that about 367,000 micro and small handicraft enterprises employed more than 600,000 persons, of which more than a half, women. They are engaged in weaving, pottery, basket making and processing. The dialogue on sector issues was initiated in the context of the elaboration of the Private Sector Assessment (PSA) in 2001 and the Country Economic Memorandum (CEM) in 2006. GPRG-1 will not directly target this sector, however.

(ii) Infrastructure

Key issues in infrastructure

56. External trade is constrained by high cost. It is almost three times as costly to export/import a container from Niger than from neighboring Nigeria (DB 2009), because the country is landlocked and infrastructure is much less developed than in sub-Saharan Africa as shown in a few indicators (SSA averages in brackets): (a) electricity access 8 percent (15 percent); (b) water access 46 percent (58 percent); (c) paved roads 25 percent (13 percent); and (d) tele-density 8 percent (64 percent). The road infrastructure network is maintained by the Road Fund CAFER, which is currently not sustainable. It is estimated that about 5.6 percent of manufacturing firm's annual turnover is lost due to electricity shortages. Poor infrastructure is both a constraint and an opportunity for private sector development.

Government strategy in infrastructure

57. Infrastructure Reforms: Improvements to the main infrastructure are at the heart of the accelerated growth reform strategy proposed by the Government and are essential to the development of the private sector and particularly the rural sector. Reforms in the energy, water and sanitation and transport sectors are driven by the Government supported by donors through sector specific programs:

• Telecommunications - Make the sector more competitive through issuance of a license for a second national operator, expansion of rural services, and lower cost through reduced reliance on transmission of international calls via satellite.

Energy - The three-pronged strategy involves the diversification of energy

sources mainly from planned dams on the Niger River, a potential independent power producer (IPP) based in-country, increased efficiency of the national operator through a management contract and expansion of the transmission and distribution network. Two power plant projects were approved by the Government in June 2008 for completion in 2017. The first, a hydroelectric plant, will produce 130 megawatts; the second, a coal-burning plant, will produce 200 megawatts. They are aimed at improving availability of

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power supply and are therefore an upstream input to the agenda of increasing access to electricity throughout the country.

• Water and Sanitation – The strategy is to continue with ongoing enhanced leases, improve contractual agreements where feasible and expand services.

• Transport – The strategy is to develop a financially and institutionally sustainable road fund, with sufficient resources to maintain roads. CAFER was created in 1999 and restructured as a second generation road fund in 2005. It is an autonomous fund responsible for the maintenance of the national road network, and contributes to the maintenance of rural roads, urban roads, and toll roads. Its current organizational structure is satisfactory, but its resources (fuel levy and user fees) are not sufficient for road maintenance and rehabilitation; no policy decision to achieve the financial sustainability of this fund has been taken. The Government intends to increase CAFER’s financial resources. The road fund now sets annual km rehabilitation targets and discusses financial needs with Government authorities at the end of each fiscal year. A recently approved IDA funded transport project will support the national transport sector program, including adequate maintenance of the road network.

(iii) Agriculture and Rural Development

58. The rural sector contributes to about 40 percent of GDP, a declining trend since 1980, with agriculture accounting for about 52 percent and livestock about 30 percent of rural output. Agro-pastoral products account for about 24 percent of export revenues recorded in 2007. Overall, the country’s agricultural trade balance remains heavily in deficit and imports of foodstuffs represent a third of the country’s import bill. The majority of the rural population pursues subsistence farming and animal husbandry using low-productivity and traditional techniques. Almost 83 percent of the country’s population lives in rural areas, most of them below the poverty line. With increasing concentration of population in the most productive zones, the sustainable management of natural resources has become a major challenge.

Key issues in agriculture and rural development

59. In spite of favorable agricultural production years in 2006, 2007 and probably in 2008, the 2008 food price crisis has increased food insecurity. The Government has responded by temporarily cutting taxes on key imports. The cost of tax and excise cuts amounted to CFAF 10.8 billion (about 0,54 percent of GDP), of which 6.8 billion on imported rice, CFAF 2.9 billion on domestic rice, CFAF 500 million on vegetable oil CFAF 380 million on sugar and flour, and CFAF 200 million on milk.

60. Prices of major cereals (rice, wheat and maize) rose sharply from their levels of early 2006. Maize prices increased by 45 percent in Euro (and CFAF) terms between March 2006 and March 2007. Wheat prices did not rise sharply until late 2007, when a poor harvest in Australia (a major exporter of wheat) aggravated a situation of low world wheat stocks, so that

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the wheat price in CFAF terms in March 2008 was 96 percent higher than a year earlier. Rice prices were the last to rise sharply but their increase has been most dramatic.

61. Food insecurity, which affects 80 percent of the population, is also a chronic issue in Niger. It is aggravated by high incidences of rural poverty, low purchasing power and lack of access of vulnerable groups to food. Over 22 percent of the total population suffers from extreme chronic food insecurity (e.g. per capita caloric consumption of less than 1800 kcal/person/day). In addition to chronic food insecurity, much of Niger’s population suffers from seasonal and transitory food insecurity.

62. Productivity and food prices are affected by inadequate policies. Small farmers have little access to inputs and services, because of the current management import of agricultural inputs through the Agricultural Inputs Procurement Unit (AIPU), and the low amount of resources allocated to the ministries responsible for research and extension, as well as its disseminetion.

Government strategy for agriculture and rural development

63. The Government’s Rural Development Strategy (2006) and the related 10-year Action Plan (2006) proposed to invest in following programs: (i) agriculture technology; (ii) sustainable land and water management as part of irrigation expansion; (iii) market access and value chain development through infrastructure investment, access to finance to producers of on-hoof animals, onion, niebe, gum arabic, sesame, and yellow grass nut; and (iv) food security by providing direct food relief. This strategy is supported by on-going sector specific investment grants.

• Land Tenure: Adoption of the Rural Code in 1993 underlined the intention of the Government to improve land tenure security. To promote more effective local governance of natural resources the Rural Code set in motion the decentralization of the land administration through the appointment of land commissions at a decentralized level (commission foncière, COFO). COFOs play a key role in land tenure security, as their mandate includes the issuance of property or user rights, and the prevention of conflicts in rural areas. Three priorities from these ongoing reforms have been recently met: (i) installing land tenure commissions at the regional level (7 installed out of 8) where data and information from all lower commissions will be assembled and processed; (ii) pursuing the land policy dialogue among stakeholders; and (iii) carrying out analytical work to address specific land issues affecting the pastoral zone. Such issues are covered in Niger’s Rural Development Strategy (RDS) program 2 on local governance of natural resources, and program 12 on pastoral management.

• Irrigation: Niger’s vision on irrigation development is laid out in the national strategy for development of irrigation (SNDI, 2005) as well as in the program on food insecurity reduction through the development of irrigation (PLIADI, 2006). Both are integrated into the RDS under sub-Program 4.1 (Infrastructures hydro-agricoles) and priority Program 11 (Lutte contre l’insecurité alimentaire à travers le développement de l’irrigation, PLIADI) respectively. The overall aim of SNDI is to increase the

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contribution of irrigation to agriculture GDP from the current 14 percent in 2006 to 28 percent by 2015. As such, it will also contribute to the country’s food security agenda.

SNDI has the following short- and medium-term objectives: (i) improving the productivity of irrigated land and promoting diversification and value-added to increase the return on investment and (ii) increasing the total acreage under irrigation. These are complemented by longer-term objectives: professionalizing the management of irrigation and promoting sustainable management of natural resources for irrigation. A number of constraints to achieving these objectives need to be overcome, however. In particular, issues of land tenure and the definition of the respective roles of the state, its decentralized services and private operators remain formidable obstacles. The Special Program of the President also addresses the issue of irrigation by investing HIPC resources in small dams for improving the management of run-off waters. Supported by the dialogue with the donors, the Special Program is now fully mainstreamed into the budget.

• Food Security: Cereal production remains inadequate. In 2002-2005, production covered about 93 percent of domestic consumption. Reducing vulnerability and ensuring food security is an overarching priority for the Government, as reflected in the action plan for the RDS Program 9 (Réduction de la vulnérabilité des ménages). The existing national system for crisis prevention and mitigation, created in 1989 in agreement with donors, has been improved over time to better target vulnerable zones and households. Under the authority of the Prime Minister, this system constitutes a unique framework for public intervention in prevention and management of food crises. It enabled the Government to manage the two previous crises relatively well. In light of lessons learned from the 2005 crisis, the Government has taken several important measures, e.g. incorporating the nutrition and health dimensions of food insecurity in household vulnerability analyses. The Government has further pursued efforts to finalize a National Emergency Plan for the Management of Food Crises that addresses replenishing the national strategic food reserves (a total of about 68, 000 metric tons).

• Institutional reforms: The Government is pursuing sectoral reforms with the assistance of development partners. Under RSRC-1 and 2, the Bank supported the establishment of local land administration commissions to facilitate the delivery of property rights. This action is being extended under the Millennium Challenge Account. Food and Agriculture Organization of the United Nations (FAO) and EU assisted in preparing an input marketing strategy in 2006, and FAO is providing technical assistance to develop a comprehensive plan for agricultural services modernization.

The input marketing strategy provides for an increase of competition in the sector. The AIPU is to become a wholesale supplier and market regulator, while farmers can procure inputs from local stores. New organizational structure for the AIPU is now to be adopted, which will lead to revised procurement and stock management. The expected impact is a reduction of input prices and increased supply to farmers. The process leading to this involves the organization of a national workshop to discuss the strategy ( held at end-January 2009); and the validation of the restructuring option by end February 2009 and

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its implementation by 2010. The GPRG series will support the policy decision to support the key steps to effectively restructure AIPU. This reform will increase effectiveness of new investment operations such as the Emergency Food Security Support Project.

There are currently four ministries in charge of rural development. Each of these is supposed to focus on agricultural services, but they lack resources to do so effectively. The Government has launched an effort to integrate agriculture services based on an EU-FAO sponsored study. The objective of this integration is to better identify resources needed to develop these services and provide them to the largest number of farmers. At stake is access to technology and higher productivity. This reform will complement the upcoming Agro pastoral Exports and Markets Development Project.

Progress made under RSRC-1 and 2 in agriculture and rural development

64. Under RSRC-1 and 2, the Government has reached some milestones in the reform agenda in agriculture and rural development. The action plan of the rural development strategy (RDS) has been revised to include the Food Security through Irrigation Development program (PLIADI). Costing for all RDS programs was completed, which provided the basis for the finalization of the rural Medium-Term Expenditure Framework (MTEF) (covering all four line ministries). A bill was adopted on land tenure, security and local governance of natural resources to gradually install regional land administration offices (SPR-CR). Finally, following successive workshops organized by the GoN, a Presidential decree approved the study of the national system for food crisis management and prevention and validated it as a National Emergency Plan for the Management of Food Crises. Implementation of such plan is in the nascent stages. The Country Assistance Strategy for 2008-2011 expands on rural and agricultural development programs. Set for delivery in FY09 is the Agro Pastoral Export Promotion project (US$30 million equivalent) which will expand Niger’s ability to bring goods to the world market. The following year, FY10, the Water Sector and Support II (US$50 million equivalent) will improve irrigation capacity and management.

(iv) Public Finance Management and Procurement

65. Public Expenditure Management (PEM) reform was initiated in 2000 and its implementation gathered momentum over time. Reforms since 2005 have been underpinned by a comprehensive assessment of the public expenditure management systems (Public Expenditure Management and Financial Accountability Review - PEMFAR, issued in 2004; and Public Expenditure Financial Assessment – PEFA issued in December 2008). In budget execution, the Government introduced, among other measures, a Financial Management Information System (FMIS), which has led to a computerization of budgetary processes and revamped the cash management systems to protect priority allocations in favor of the social sectors. Implementation of public finance reforms in 2006-2007 included measures to further strengthen: (i) the Government’s cash management system; (ii) the process of budgetary allocations to priority sectors by, among others, adopting a code that identifies pro-poor expenditures in the budget; and (iii) the monitoring of expenditures in education, health and the rural sector which represented 51 percent of the recurrent budget in 2006.

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66. Niger adopted a Procurement Code in 2002 with support from a 2002 grant under the Institutional Development Facility (IDF). The Government created the Public Procurement Regulation Agency (ARMP) responsible for the formulation of policy, the national strategy for development of capacity, and the handling of complaints and non jurisdictional procurement audits. Niger was also one amongst the eight member states of the WAEMU involved in the Regional Reform Program of Public Procurement (PRMP). Following the Union’s Council of Minister’s adoption in December 2005, the program has implemented two Directives on public procurement and concessions of public service; one relates to the procedures to be applied and the other to the regulatory and controls functions.

Key issues in public expenditure management

67. Building on achievements to date, public finance management reforms need to be deepened and accelerated. A review of the PEMFAR action plan was conducted in late 2006. It identified key remaining issues including the need to continue improving budget preparation and execution, strengthening internal and external controls, and completing the FMIS.

68. Budget preparation follows the stages and timetable adopted by decree in 2003. This process is led by the Ministry of Economy and Finance (MEF) with contributions from the line ministries. In principle, these are based on the MTEF for the priority sectors (Education, Health and Rural sector). However, in practice: (i) links between the budget and the Government’s PRSP objectives still need to be strengthened; (ii) sectoral MTEFs need to be better taken into account in the annual budget preparation; and (iii) integration of the public investment program, especially donor-funded projects, in the overall budget needs to be improved, particularly as concerns the links between recurrent and capital expenditures. PEFA also stresses that at the time of budget discussions with the Parliament, all relevant documents supporting the discussion on the new law of finance are not provided. This is inconsistent with Niger’s organic law 2003-2011.

69. Budget execution would benefit from stronger ownership from the line ministries and their greater involvement in the management of financial flows. The budget regulation put in place to link public expenditures and PRSP objectives needs to better protect identified expenditures when revenues are lower than expected. Budget execution is negatively affected by weak monitoring and reporting..

70. The public accounting system is computerized at the central level and to some extent at the regional level and can produce monthly balance of accounts within a month. However, the public accounting system still has problems which need to be addressed: (i) improvements in the preparation of closing Treasury balances still have to be made; and (ii) the Government budget only integrates all externally financed investment expenditure including most projects managed by donors ex-ante. As a result of these issues, and in spite of efforts already made by the Government, the budget review law submitted yearly to Parliament does not reflect fully the execution of the foreign-financed investment and is therefore incomplete.

Table 5: Budget Allocation and Execution for Social and Rural Sectors (millions CFA)

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FY 2005 FY 2006 FY 2007 FY 2008

Social Sector 117,640 117,538 145,537 179,162% executed 72 84 73 **

Rural Sector 87,843 119,840 108,347 119,093% executed 67 65 68 **

Total 1,755,000 1,871,000 1,998,000 2,195,000

*Source: Niger Budget Data. 2008.** Budget not yet fully disbursed.

71. Constraints to smoother budget execution include: lack of computerization and continued reliance on manual systems; and inadequate internal controls. External controls are hampered by the lack of autonomy of the Court of Accounts, which was created in January 2007, but is not yet operational and is still under the authority of the Supreme Court. Its capacities (human and financial) are expected to be strengthened during the coming years with the support of the donor community.

72. The lack of computerization has a direct impact on the process time for payment of receivables to private suppliers. The processing of documents to authorize payments takes time, while effective payments are also delayed and dependent on cash availability. Overall, payments often exceed the 90 days fixed as the norm to pay private suppliers.

Government strategy in public expenditure management

73. The Government’s PEM reform strategy is based on a medium-term program of financial management reforms based in the PEMFAR, the recently prepared PEFA, WAEMU directives and requirements from the Extractive Industries Transparency Initiative (EITI). A steering committee has been established to monitor PEMFAR implementation. The steering committee, which meets every year, is led by the MEF and includes representatives from EU, UNDP, France, Belgium, and the World Bank, which provide assistance to Government in this area.

74. Building on progress in the implementation of the PEMFAR action plan, the Government intends to deepen reforms mainly in budget preparation, execution and oversight. To this end, the Government has requested continued assistance from the World Bank and the donor community. The major challenges include the following: (i) modernization of the Treasury in line with the WAEMU guidelines and improved budget preparation; (ii) improvement of budget execution through the introduction of a reliable cash management system; (iii) completion of the reorganization of Ministry of Economy and Finance; (iv) stronger involvement of line ministries in the budget preparation and execution processes and greater accountability; and (v) strengthening internal controls and external oversight (Court of Accounts) on budget execution to improve the quality of public expenditures and regular reporting to Parliament. Finally, the Government intends to fulfill its commitments under EITI to strengthen transparency and good governance in the management of mining revenues. The GPRG series will assist the Government achieve objectives under (i) above.

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75. Specific to the dialogue supported under the GPRG series, the Government expects to reduce delays in paying private suppliers by making operational the pilot computer room. While this computer room exists and is functional, the decision to use it and move from paper based processing to electronic processing, has been missing. In addition, based on some of the PEFA recommendations, the Government has committed to improve its budget documents to be submitted to Parliament for budget approval. At this stage, 8 out of 9 supporting documents are missing in the package transmitted to Parliament. The Government expects to correct this effective for the preparation of the 2010 Finance Law, which would facilitate Parliament deliberations and improve transparency.

Progress made under RSRC-1 and 2 in public expenditure management

76. A new cash management plan has been designed and has been implemented by the Treasury since 2004-2005 with World Bank technical assistance. After salaries and debt service payments, importance has been given to priority and seasonal public expenditures directly related to the PRSP objectives. The introduction of the measures related to cash management has enabled the Government to avoid shortages of cash to meet recurrent expenditures and the accumulation of domestic arrears.

77. The legal texts to improve the structure and functioning of the Ministry of Economy and Finance (MEF) have been adopted. Government has completed a report with concrete measures to structure the MEF.11 Based on the recommendations of the report the following measures have been implemented: (i) the Financial Control Directorate has been elevated to a General Directorate and is no longer part of the General Budget Directorate (DGB); and (ii) the responsibilities in the Treasury have been restructured and modernized in line with WAEMU directives which separate administrative and accounting functions.

Procurement

Key issues in procurement

78. The latest Country Procurement Assessment Report (CPAR) in 2004 identified several remaining deficiencies including: (i) delays in the enactment of implementing decrees of the Code, in the preparation of standard bidding documents, in the establishment of the ARMP, and in the dissemination of the Code; (ii) weak capacity of the public and private sectors; and (iii) inadequate control complaint mechanisms. Processes for evaluating bids and awarding contracts are incomplete. The Government organized a commission for bid opening and an ad hoc commission for bid evaluation and contract awards. Yet, these commissions fail to work harmoniously and their composition (private sector individuals, members with no technical expertise) raises issues on technical capacity, conflict of interest and efficiency. This results in long delays (2 to 3 months) between bid opening and bid evaluation. Moreover, the legal

11 Rapport sur l’amélioration de la Structure et du Fonctionnement du Ministère de l’Economie et des Finances ,

December 29, 2006.

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framework still remains inconsistent with the WAEMU Directives on public procurement procedures and public service concessions.

Government strategy in public procurement

79. The medium- and long-term vision adopted in the context of the public procurement reform will further improve transparency and efficiency of the public procurement system, which is in line with the PRSP and the WAEMU Transparency Code for public finance management. The achievement of this objective will contribute to an effective implementation of the Paris Declaration on Aid Effectiveness with regard to the use of country systems for donor-financed projects. To achieve this objective, the Government intends to: (i) set up a regulatory body comprising of representatives of the public and private sectors and civil society, and responsible for policy, handling complaints from bidders, carrying out non jurisdictional audits; (ii) strengthen procurement control at the level of line ministries (public contracting authorities); (iii) modernize the legal procurement framework through improvements of procedures and elaboration of procurement regulations; (iv) develop procurement capacities of line ministries and the private sector, setting up of information system for management, and monitoring & evaluation of procurement transactions; (v) rely on systematic procurement audits and publication of the findings to the public (website); and (vi) enforce sanctions against fraudulent and corrupt behavior. 80. The Government started the process of setting up the Public Procurement Directorate (DGCMP) to provide an effective control on public procurement. This measure was supported by the previous RSRC series. However the ordinance creating the DGCMP has not been ratified at this stage and the validity of this institutional set-up could now be questioned. The Government has recently announced its decision to seek such ratification and thereafter to confirm the institutional set-up.

81. The delay in the effective set-up of the DGCPM reinforces the need to apply prior controls where the private sector and the representative of the MEF are not part of the bid evaluation committee. The Government will achieve this by revising decrees 113 and 114. Progress made in procurement under RSRC-II 82. One major achievement under the RSRC has been the setting up of the recourse mechanism for handling complaints from bidders. The dispute resolution committee (CRD) is now functional and has successfully handled several complaints from bidders that have improved transparency and controls within the system. However, the setting up of the DGCMP responsible for controlling procurement transactions handled by all of the contracting authorities (CAs) remains problematic. While a decree establishing this entity was approved by the Government in May 2008, the draft Public Procurement Law (legally necessary for its enforcement) has been rejected by the Parliament in June 2008. This draft law is now to be re-considered at an extraordinary parliament session. However, taking into account that the internal control mechanism of procurement done by the CAs is still not operational and ARMP has not yet conducted any audit there is an absence of control on procurement transactions.

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83. This DPO series will support actions to promote prior reviews of contract awards, and enhanced transparency and controls. Two decrees are directly affected by this: 113/10/06 and 114/10/06, which will need revision. In addition, the DPO series will be used to confirm the validity of the draft Public Procurement Law to ensure that the initial strategy is still being implemented.

(v) Demographics

Key demographics issues

84. Faced with the highest population growth rate in Africa (3.3 percent per annum), Niger’s prospects for accelerated growth are seriously challenged. Population growth impedes Niger’s ability to improve its human capital (education and health), meet the MDG’s, and reduce poverty. In the 2006 Demographic and Health Survey (DHS), the total fertility rate (TFR) was estimated at 7.1 children per woman, one of the highest in the world. According to Government's population projections issued in 2005, if population growth does not decelerate and fertility does not decline, Niger’s population will reach 56 million in 2050. With such a population, Niger would become the most populated country in West Africa after Nigeria. This trend is chiefly explained by the rapid decrease of infant and under-five mortality, high fertility rates and low contraceptive use.

85. The continued high fertility rate is the result of multiple social factors that determine the current reproductive behavior of Niger’s population. These factors include pro-natalist attitudes, religious beliefs, gender inequality, poor levels of female literacy, very early age at marriage, and poverty. Marriage is universal and early, especially in rural areas; one in two women is married by the age of 15. High fertility rates have also contributed to a very young age structure; close to 50 percent of Niger’s population is under the age of 15. This in turn fuels population growth as many young people enter their reproductive age.

Government’s strategy on demographics

86. The Government is showing increasing commitment to better manage the demographic dynamics. Proposed policy reforms in this area are culturally sensitive, however, and must be carefully handled. The Government is aware of the challenges that need to be addressed:

• At the institutional level, the newly created Ministry has a weak capacity and limited authority to influence the broader regulatory framework regarding demographics and reproductive health issues.

• On the supply side, expanded provision of family planning services is crucial to meet existing demand and bring about the behavioral changes that would trigger a fertility decline (survival prospects for infants and children have improved recently as demonstrated in the 2006 DHS and this should entice couples to space and eventually limit their births).

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• On the demand side, the issues are far more complex because it involves changing attitudes and behaviors that are deeply entrenched in Nigerien culture and norms. Demand for lower fertility is at the heart of the matter and supply interventions will not be effective on their own unless the demand for children is affected as well. Addressing the demand dimension will require a multi-sector approach that touches upon many sensitive issues, such as legal reform, female empowerment and access to education, and men sensitization.

87. A Multi-sector Demographic Program (PRODEM) has recently been approved in 2007, based on key analytical work prepared by the Bank (see Niger: Providing All Nigeriens with Food, Education, and Health Care: A Demographic Perspective”, WB #34219-NE, November 2005). PRODEM aims at: (i) strengthening the Government’s capacity to coordinate, monitor and evaluate large multi-sector demographic interventions; and (ii) launching a nation-wide communication campaign on demographics and reproductive health issues. In particular, PRODEM will focus on advocacy, Information, Education, and Communication (IEC), and behavioral change communication (BCC) campaigns, female empowerment interventions, nation-wide coordination of population activities, monitoring and evaluation, and capacity building. These actions are expected to support Government efforts to ratify the protocol to the African Charter on the rights of women. In parallel, some efforts are made to provide more resources to the Ministry of Population and Social reforms (MP/SR). The implementation of the MP/SR’s action plan is one of the key measures to be adopted to complement investments financed under the PRODEM. This will allow better resource transfer to the Ministry. Since economic growth cannot be disassociated from population growth, GPRG-1 will continue to support this strategy, albeit staying away from bold reforms that would not be supported by the Government or the population.

Progress made under RSRC-2 on demographics issues

88. The series of RSRCs was designed to support the Government’s strategy in the area of demographics and reproductive health as outlined in the recent Government Declaration on National Population Policy (DGPP) issued in February 2007. The new World Bank-supported operation (PRODEM) is the main instrument to help implement it.

89. To reduce the total fertility rate and improve the status of women, the Government began small-scale information and awareness campaigns under RSRC-1. To address the cultural and religious sensitive nature of the topic, measures under the RSRC-1 involved initiating dialogue on the subject and supporting both key actors and stakeholders in the development of culturally acceptable strategies. To strengthen the awareness campaigns, the Government is preparing under the PRODEM a nation-wide communication plan on demographics with technical support from the United Nations Population Fund (UNFPA). This communication plan is aimed at policy makers and communities and will address issues of early marriage and access to family planning.

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IV. BANK ASSISTANCE TO GOVERNMENT A. LINKS TO COUNTRY ASSISTANCE STRATEGY AND PRSP

90. The Country Assistance Strategy (CAS) covering FY08-11 was presented to the Board on May 29, 2008. It is built around two pillars: (i) accelerating sustained growth that is equitably shared; and (ii) increasing access to basic services and developing human capital; and two cross cutting issues that cover demographics and good governance. This new CAS reflects the PRSP focus on the shared growth and governance agendas, by giving greater prominence to supporting reforms aiming to spur accelerated growth and incorporating governance. The GPRG series makes substantial contributions to the two pillars, with however a specific focus on the first pillar. 91. To achieve the first CAS strategic objective of accelerating sustainable and shared growth, the World Bank seeks to promote the key sectors that drive growth and have the greatest potential for creating jobs---such as the agro-pastoral and mining sectors---while also supporting efforts to strengthen the private sector, business climate and regional and global commercial opportunities through the GPRG series, investment instruments, technical assistance and non-financial services. This is in line with PRSP-II Pillar 1 (Achieve strong, diversified and sustainable growth that creates jobs) and Pillar 5 (Endow the country with economic infrastructure to promote growth).

92. To achieve the second CAS strategic objective of developing human capital, the World Bank is supporting access to basic education and improved quality of teaching including at the vocational level; expanded coverage of basic health care and HIV/AIDS prevention and treatment; and enhanced protection for the most vulnerable groups. GPRG-1 supports the latter objective by including measures to strengthen the Agricultural Inputs Procurement Unit, a mechanism to help reduce food insecurity for the poorest. This pillar is in line with PRSP-II Pillars 2 (Equitable access to social services); and Pillar 4 (Reduce inequalities and strengthen social protection for the poorest).

93. While GPRG-1 is intended to strengthen governance in the various sectors it supports, Policy Area 4, Public Financial Management, specifically aims to strengthen the governance and management of public resources (PRSP-II Pillar 6) including to ensure that donor resources are used transparently. Policy area 5, Demographics, supports long-term efforts to slow rapid population growth so that economic growth can have greater impact in improving the lives of Nigeriens (PRSP-II Pillar 3).

94. GPRG-1 is complemented by a number of IDA-funded investment operations that help ensure a coherent strategic approach to achieve the long-term objectives, including: for private sector growth, the Financial Sector TA Project, the forthcoming Agro-Pastoral Export Promotion and Irrigation Project and a Sources of Growth Operation (FY10/11); for infrastructure sector, the Transport Sector Program Support Project; for support to the agricultural sector and rural development, the Food Emergency Support Project; for public finance reform, the Reform Management TA project; and for demographics, the Multi-Sector Demographic Project.

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Box 1. Synergies between the Country Assistance Strategy and the GPRG series

Pillar 1: Accelerating sustainable growth that is equitably shared The GPRG series aims at removing regulatory constrains for the development of the private sector. This will be achieved through transversal reforms targeting the doing business agenda, taxes, the financial sector, and the road infrastructure. Reforms that stimulate Public Private Partnerships will further strengthen diverse economic growth and attract more foreign investment. Finally, this DPO series will also focus on the need to specifically support reforms that directly affect the growth of the rural sector. Policy reforms supported by the GPRG series will be closely associated to on-going investment lending in Rural development, Transport, Financial sector, Irrigation and Water management. Pillar 2: Increasing access to basic services and developing human capital The GPRG series is not designed to support the human development agenda. However, intricately associated with growth, this DPO series will support reforms associated with population growth. This will be done in complement to the PRODEM investment lending operation. Cross cutting: Population growth and Promoting Good Governance

GPRG-1&2 specifically address demographics, which follows-up on important social reforms and investments in human capital initiated in RSRC-1 and RSRC-2.

GPRG-1&2 focus on deepening public finance management reforms as per the conclusions of the 2006 PEMFAR and 2008 PEFA. The objective is to improve budgetary preparation and reduce budgetary reporting delays. Procurement reforms will also be sustained through a renewed focus on prior reviews in public contract awards. Finally, tax reforms will also have a positive impact on governance.

In addressing these issues, the GPRG series will complement analytical work and technical assistance provided in the areas of procurement and public financial management.

95. Based on lessons learned from the previous Niger CAS (2003), the new World Bank strategy seeks to: (i) address both the constraints of Niger’s operational context and consequent human vulnerabilities; and (ii) based on a medium-term approach, support DPO-type operations by proposing to allocate to budget support operations approximately one third of Niger’s future IDA resources. Combined with similar operations from other donors and resources from debt service cancellation, this approach should enable the Government to fulfill the PRSP II goals. The reforms supported aim to spur economic growth while maintaining fiscal sustainability. By alleviating key sector policy bottlenecks, they also help improve the performance and accelerate the implementation of existing or planned investment operations, and ultimately increase the developmental impact of IDA programs.

96. The experience under RSRC-1 and 2, which were fully disbursed without fiduciary issues, has confirmed the relevance of this approach. However, the experience with tranching has not been positive, as the disbursement of the second tranche was delayed for the two budget support operations to the next budget year cycle. This reflects the limited capacity to carry out complex reforms program and in dealing with multiple objectives. The completion report for the RSRC series rated their outcome as moderately satisfactory.

Relationship with other Bank operations and sector work

97. The proposed GPRG series builds upon and reinforces the policy dialogue carried out over the past four years through other World Bank-supported operations and sector work. It

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complements existing operations in the Transport and Rural Development sectors; in the Demographic sector; in the Public Finance Management sectors. See Table 6 and 7 below.

Table 6 Selected Projects under Disbursement linked to GRPG-1 Project

ID Project Title Closing

Date Original

Amount (SDR)

P095346 Carbon Sequestration and Rural Livelihoods Improvements through Acacia Plantations 31-Dec-08 696,600

P099592 Niger Statistical Capacity Building and National Strategy 29-Dec-08 240,000

P072996 Private Irrigation Promotion SIL 31-Dec-08 36,368,269 P108253 Niger Reform Management and TA 01-Sep-09 500,000

P113222 Emergency Food Security Support Project 31-Dec-09 7,000,000

P095210 Niger Agro-Pastoral Export and Market Development Project 20-Feb-09 600,000

P092473 Africa Emergency Locust Project 30-Jun-09 9,900,000 P061558 Water Sector Project 31-Dec-09 46,991,798

P105056 Strengthening Results-Based M&E for the Rural Development Strategy 15-Jan-11 484,000

P101434 Transport Sector Program Support Project 15-Dec-12 30,000,000 P096198 Multi-Sector Demographic Project 31-Mar-13 10,000,000

P093806 Niger Basin Water Resources Development and Sustainable Ecosystems Management 13-Jan-13 15,000,000

P095949 Local Urban Infrastructure Development Project 15-Jan-13 30,900,000

98. The GPRG series introduces a new theme on growth and private sector development, also supported under the first pillar of the CAS. It is expected that this series will help pave the way for a new investment lending operation on Sources of Growth, planned in FY11.

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Table 7: Planned lending program linked to GRPG-1

Year Proposed Operations

FY09

Agro Pastoral Export Promotion and Irrigation

Reform Management and TA

FY10 GPRG-2 Water Sector Support

FY11 Sources of Growth DPO (PRSC )

B. COLLABORATION WITH IMF AND OTHER DONORS

99. IMF: The World Bank and IMF have jointly assisted the Government of Niger in the preparation of the PRSP-II together with other donors. They also assisted the authorities in the elaboration of the four progress reports assessing implementation of PRSP I. World Bank and IMF staff prepared a Joint Staff Advisory Note, which was distributed for information to the IMF Board on March 18, 2008 and endorsed by World Bank’s Board on April 29, 2008. Implementation of the Poverty Reduction and Growth Facility (PRGF) program has been satisfactory. A key prerequisite for World Bank assistance is to maintain a stable macroeconomic framework, reviewed and endorsed by the IMF, under the PRGF.

100. 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 PRGF arrangement approved on January 31, 2005 for SDR 6.58 million (about US$10.7 million). The Executive Board also approved a successor SDR 23.03 million (about US$37.5 million) PRGF arrangement to support Niger's efforts to move towards meeting the Millennium Development Goals (MDG’s), while preserving economic stability. In general, the World Bank leads the policy dialogue on structural reforms, rural development, social sector reform (particularly in the education and health sectors), and poverty monitoring. In addition, the World Bank leads the exchange of information and collaboration on local development in Niger. The IMF leads the policy dialogue on macroeconomic management, fiscal and monetary policy. Moreover, the World Bank and IMF share joint responsibility on the poverty reduction strategy, debt sustainability, budgetary public expenditure reforms, financial sector reforms, civil service reform, and decentralization. In this context, the IMF was heavily consulted during the preparation of this operation, and supports the proposed changes to the fiscal regime. Measures on the fiscal regime currently proposed under GPRG-2 are still under discussion.

101. Other Donors: The World Bank has expanded external partnerships in the framework of the Government’s current efforts to mobilize and coordinate donor support for PRSP implementation. In addition to the strong partnership with the IMF, the World Bank is collaborating with a number of donors in different areas, including the UNDP (with which it co-chairs the Organization for Economic Cooperation and Development (OECD-DAC group), the European Union, the African Development Bank, and other key bilateral donors. The Government has used its first PRSP to improve coordination of development efforts in the country, including donor-supported activities. The Government organized a successful Round

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Table on PRSP-II financing in Brussels (October 25-26, 2007) and donors pledged about US$4 billion to support the strategy. There have been close consultations with donors during the preparation of the proposed Growth DPO and the policy matrix is shared with all donors to strengthen alignment.

C. Analytical underpinnings

102. GPRG-1 builds on analytical work carried out by the Government, the World Bank, and other donors, who provide technical assistance and financing. Table 8 summarizes key recommendations from recent analytical work conducted by the World Bank. The World Bank’s economic and sector work program has helped the Government in areas such as poverty analysis, gender, population growth, sources of growth, and the Millennium Development Goals (MDG’s). The economic and sector work program also aims at reinforcing public sector capacity in pursuit of the PRSP objectives and in preparing Niger to transition to fully programmatic lending. In support of these objectives, sector work on demographics, rural development, a Public Expenditure Management and Financial Accountability review (PEMFAR), a Public Expenditure Financial Assessment (PEFA), a Country Procurement Assessment Report (CPAR), and a Participatory Poverty Assessment have been completed. A Country Economic Memorandum (CEM) focusing on accelerating growth and achieving the MDG’s in Niger was finalized in 2006 and also an Investment Climate Assessment (ICA) in March 2007.

103. The World Bank is also preparing a Public Expenditure Tracking Survey (P.E.T.S.) in FY09 in the education and health sectors to improve the efficiency of public spending and enhance outcomes by tracking leakages, execution rate, and delays in public spending, as well as document the arrays of administrative procedures. For FY08/09, to help the Government reduce vulnerability to food insecurity and develop a comprehensive social protection strategy, the World Bank has prepared sector work on food security and safety. In Agriculture and Rural Development, the Government and the World Bank have prepared a number of analytical activities in 2007/2008 which include a review of the irrigation sector, a rural public expenditure review; and an impact evaluation of sustainable land management. The preparation of this work is closely linked to other development partners programs.

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Table 8: Recent analytical work related poverty reduction

S tu d y M a in F in d in g s /R e c o m m e n d at io n s

• E xp la in r ea s on s f o r f o od c ri se s i n p re vio u s ye a r s;• Id en ti fy h o u se h ol d gr o up s t ha t a r e ch r on ic a ll y fo o d i ns e c ur e a nd th os e th a t a r e vu ln e ra b le to m a jo r f oo d c ris e s;• P r ovi de o ver vie w of th e ef f ic ie n c y of th e e xis tin g n a tio n a l fo o d a n d n ut ri tio n s e c ur ity sys te m a nd sa f e ty n e ts f o r c r is is p re ve n tio n an d m iti ga tio n ;

• P r ovi de p ol ic y o pt io ns fo r i m pr o vin g th e e f f ic ie n cy of th e e x is tin g n a tio n al f o o d a n d n u tri tio n s e c ur it y sys te m a n d in tr o du c in g sa f e ty n e ts f o r r e du c in g h ou se h o ld vu ln e r ab il itie s to f o od c r ise s .

• Im p ro ve th e e f f ic ie nc y o f pu b lic sp e n di ng in s oc i al se c to rs (e d u c at io n, h e al th , a g ric u lt ur e );• E nh a nc e th e so c ia l s ec t or ou tc o m e s b y tr a c ki ng le a ka ge s , e x e c ut io n r a te , a n d d e la ys o f pu b lic sp e n di ng a s we l l a s d oc u m e nt th e a r ra y s o f a d m in ist ra ti ve p r oc e d u re s .• Id en ti fy t he o pp o r tun it ie s a n d c o n str a in ts t o ir r iga ti on de ve lo p m e nt ( po li ci e s, in sti tu tio n s, in ves tm e n ts );• F o rm ul at e r e c o m m e nd a tio n s to G ove r nm en t t o o ve rc o m e id en ti fi ed c o ns tr a in ts a n d f u lly c a p tu re e x ist ing op p or tu n itie s ;• P r ovi de u pd a te d kn o wl e dg e b a se f or f ut ur e in ve s tm e n t o pe r a tio n s s up p or te d by t he B a nk .• As se s s th e im p a ct on ru r a l po ve r ty a n d n a tu ra l r e so u rc e s m a n a ge m e n t o f p ro gr a m s a n d p r o je c ts p ro m o tin g s us ta in a b le la nd m a n a ge m e nt ;

• Id en ti fy r a tio n a le fo r co m m u n iti es to ad o p t (o r n o t) su sta i na b le la n d m a n a ge m e nt pr a c tic e s;• P r ovi de n e w in s igh ts a n d fo r m ul at e r e c o m m e nd a tio n s to G ove r nm en t f o r th e im p le m e n ta tio n o f th e n a tu r al re s ou r ce s m a na g em en t s tr at e gy a n d th e p re p a r at io n o f o p e ra ti on s w it h r e le va nt c o m p on e n ts.

• C o m m i tm e n t fr o m th e G o ver n m e n t un d e r P EM F A R ;• B u il d th e c a pa c ity of te c h nic i an s i n t he lin e m in is tr ie s to ta k e t he le a d o n s ub s eq u e nt an n ua l r u ra l P E R ’s ;• P r ovi de u pd a te d in fo r m a tio n f o r th e r ur a l M T EF a nd b ud ge t p r ep a r a tio n p ro c e ss to i m p ro ve e f f ic ie n cy of e xp e n di tu re s i n r u ra l a r e as (a l ign m e n t of e x pe n se s wi th t ar ge t ed R D S A c tio n P la n re s ult s) .

• O u tl ine c o ns tr a in ts to th e bu s ine s s c li m a te in N i ge r ;• S pe c if ic a tte n tio n pa i d to p riva te s e ct or .

• P ro je c ti on s o f N ige r 's in te rn a l a n d e x te rn a l d e bt sta tu s ;

• D e ta il p e ns io n r e fo r m p la n f o r s us ta in a bi lity ;• M e th od s t o e x pa n d c o ve ra g e.

• As se s s N ig er 's c o nd it ion w ith m in in g se c to r a s in te gr a l re ve n ue b a se ;

• P o lic y r e c om m e nd a tio n s f or m a x im iz in g e f fe c ti ven e ss of m in in g r e so ur c e s.

• A d dr e ss co u n try str a te gy f o r e li m in a tin g p ove r ty a n d p u rs ui ng M D G 's f o r ye a r s 2 00 8 -2 0 1 2.

D eb t S tra te g y A g r ee m e n t ( I M F , 2 0 08 )T o w a rd s an In te g ra te d a n d S u st ain a ble P e ns io n S y ste m

M od er n izi ng tr ad e d u ri ng a M in in g B o o m : A D ia g no s tic I n te g ra tio n Stu d y ( W B, 2 0 08 )

• IM F r ep o r t on e c on o m ic c on d iti on a nd m a c ro e c o no m ic fr a m e w or k f o r N ig e r.

• P r ovi de s d a ta f or a lig nin g b u dg e t su p po r t op e r at io ns wi th m ac r o e co n om ic s ta bi li ty ;

R u r al p u blic e x p e nd i tu re r e v ie w ( W B, 2 0 07 )

N ig e r I n v es tm e n t C lim a te A s se s sm e n t ( W B, 2 0 07 )

P o v er ty R e d uc t io n a nd S o c ia l P ro te c ti on Pa p e r ( W B, 2 0 08 )

P o v er ty R e d uc t io n a nd G ro w th Fa c ili ty (I M F , 20 0 8)

F o od S e c ur ity a n d S a fe ty N e ts in N ig e r ( W B , 2 0 0 8)

P E T S ( W B, 2 00 7 )

I r rig a tio n s e c to r re v ie w ( W B , 2 0 0 7)

I m p a ct ev a lu a tio n o f s u sta in a ble la n d m an a ge m e n t ( W B , 2 0 07 )

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D. LESSONS LEARNED

104. The following lessons are drawn from the experience of implementing RSRC-1 and 2, and are taken into account in preparing this new budget support operation:

• The DPO is an instrument to support the acceleration of policy reforms that already are on the Government’s agenda. Its purpose is to help the Government implement a reform program in areas that are integral to the growth and poverty reduction agenda. The focus of the operation needs, however, to cover reforms that are well owned by the Government and all stakeholders. The RSRC series proposed to focus on a reform agenda well aligned with the PRSP, but not necessarily within the immediate priorities of the Government. This resulted in some delays. • The DPO needs to be complemented by sector specific investment or technical assistance projects. Policy reforms need to be supported by capacity building efforts, since financing under a budget support operation is not earmarked for sector specific investments. Parallel financing efforts to build capacity to complete the policy reforms is therefore needed. This parallel financing can come under the form of investment operations with support from the World Bank or other donors.

• The DPO should be disbursed through a one tranche approach with few triggers. The successful capacity-building efforts that were pursued in implementing of RSRC-1 and 2 have reduced the need to use a two-tranche approach to achieve the main policy objectives of a budget support operation. In addition, the focus of policy reform on a selected few but structurally important measures allow the good practice of a one-tranche DPO. This reduces delays in the implementation of the DPO and increases ownership.

• The DPO must align its budget support with the Government’s budgetary cycle. The current operation has been prepared at the same time the law of finance was drafted which allowed for fruitful exchanges with the Government.

• Complementarity with other multilateral and bilateral donors to maximize effectiveness is central to the DPO. Other aid institutions, such as the EU, MCC, AFD and USAID, finance projects that intersect with various actions of the DPO. The DPO must build on the experiences of RSRC-1 and 2 and cooperate with these agencies to achieve the desired results.

• Investment climate reforms must be conducted in a medium-term framework. Proposing immediate measures to accelerate business environment reforms was considered but judged to be too complex to be carried out between the time of identification and the effectiveness of this DPO. Consequently the team started the dialogue on this issue and proposes that improvement in some Doing Business indicators be used as prior actions for the GPRG-2.

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• Timid fiscal reforms do not have a positive impact on private sector growth. The example of Senegal, Mali and Burkina Faso of several East Asian countries (Malaysia, Thailand, etc...), and of smaller economies in Europe (Ireland, Wales) show that ambitious fiscal reforms resulted in important private sector growth. It contributed to the registration of more informal firms. It also provided the respective countries with a competitive edge over neighboring countries, thus attracting more investment and generating less capital flight.

V. PROPOSED GROWTH POLICY REFORM GRANT (GPRG-1)

A. OPERATION DESCRIPTION

Evolution of triggers and prior actions

105. The proposed GPRG-1 is the first of a series of two budget support operations that focus on growth of the productive sectors. Private sector growth being a cross-cutting activity, GPRG-1 will address some business environment issues as well as infrastructure constraints, rural development, public finance management, and demographics.

106. This new series of DPOs builds on, and ensures continuity with, the RSRC-1 and 2 in the sectors of public finance management, agriculture/rural development and demographics. Table 9 shows the indicative triggers in RSRC-2 for a follow up operation. Table 10 shows the prior actions for GPRG-1, and identifies the triggers to GPRG-2. Expected outcomes of this new DPO series are also identified in Table 10.

Table 9: Indicative triggers for a new DPO in RSRC 2

Prior Actions of RSRC-2 Indicative Triggers for RSRC-3 Status of indicative

triggers for RSRC-3

Management of public expenditures Management of public expenditures Update and officially adopt coding of pro-poor

expenditures based on a revised unified list agreed to by donors

Apply in the 2008 budget the coding of the pro-poor expenditures

Underway. Followed-up under PEMFAR and PEFA dialogue

Begin implementation of action plan for organizational modernization of the Treasury, including adoption of new organizational chart

Finalize the implementation of a digital system within MEF and provide DGCF with access to digital network

Underway. Followed-up under PEMFAR and PEFA dialogue

Appoint managers in charge of the new structures created at Treasury

Strengthen capacity of the Courts of Accounts by the nomination of magistrates, advisors, and full-time control assistants

Completed

Adopt and begin implementation of guidelines and audit techniques for Chamber of Accounts Pass decree adopting multiannual plan for development

of statistics (2008-2012)

Procurement Procurement

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Make operational the national agency for the regulation of public markets (ARMP)

Make operational within each priority ministry, the procurement unit (DPM) in charge of quality control and coordination of procurement activities

Underway. Followed-up under CPAR and PEFA dialogue.

Make operational the directorate for the control of public procurement(DGCMP) by adopting relevant regulations related to its organization and functioning and nominating its main directors

Agriculture sector and rural development Agriculture sector and rural development Designate and officially adopt the entities responsible for

the execution of various programs of the action plan of RDS

Complete the 2006 public expenditure review for the rural sector Completed.

Adopt and begin implementation of the revised National Emergency Plan for the management of food crises

Adopt by decree the action plan for the implementation of the recommendation from the harmonization study and begin its implementation operational SPR-CR

Completed.

Based on recommendations of evaluation, prepare, validate and begin implementation of an action plan with road map to improve irrigation performances of perimeters of ONAHA

Population Growth Population Growth Organize and hold a national forum to build consensus on

demographic growth, gender issues, and African Charter on women's rights

Private Sector Development Private Sector Development

Grow the formal private sector through (i) a tax reform, (ii) payment of internal debt arrears and (iii) the adoption of an action plan to improve the business environment (with an emphasis on the cost to create a business).

Triggers (i) and (ii), are proposed as prior actions under GPRG-1. Trigger (iii) is proposed as a trigger of GPRG-2

Increase access to finance through (i) the publication of the decree establishing the micro finance regulation agency, (ii) the adoption of a rural finance action plan.

Grow export value chains through: (i) the adoption of a PPP law, (ii) facilitating land access to farmers, (iii an open sky policy to facilitate the growth of the tourism sector; and (iv) a institutional review of the mining sector.

Access to finance: (i) completed, (ii) to be completed through a programmed AAA

Export value chains: (i) adopted as a trigger for GPRG-2, (ii) underway under the PRODEX project, (iii) underway under an IDA financed Regional Air Transport project, (iv) underway under IDA-financed technical assistance

B. OBJECTIVE OF GPRG-1

107. The main objective of GPRG-1 is to help reduce policy constraints and institutional bottlenecks preventing private sector growth by: (i) addressing the main business environment obstacles, including taxes; (ii) relieving infrastructure constraints for the private sector; (iii) specifically addressing growth of the rural sector; and (iv) pursuing public finance management reform. In the subsequent GPRG-2, the same policy themes will be supported to ensure continuity; with more emphasis on doing business reforms agenda.

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108. Measures focusing on private sector development, on financial sector reform and on infrastructure cut across all sectors of the economy, and are expected to directly benefit the rural sector, but also the mining sector. As such, these measures are instrumental in tackling the growth agenda. As mentioned earlier, these measures are a critical part of a broader dialogue in which the World Bank is present through investment/TA operation (notably agriculture, transport and financial sector reforms, and demography). The present DPO series thus focuses on key policies, financial, legal and regulatory issues that help accelerate these programs and/or complete these, while capacity building and institutional issues are dealt with elsewhere.

Medium-term approach

109. The proposed operation will assist the Government in implementing its reform agenda around growth starting with a two-year framework. It is expected that the GPRG series will lead the way into an investment lending operation tackling Niger’s sources of growth (expected in FY11). It would also set the stage for the next DPO series (possible PRSC) which would help further deepen these reforms, especially in the area of investment climate. The medium-term approach offers several advantages to Niger. Above all, it allows anchoring the measures to be implemented in a results framework with defined medium-term indicators. These results are expected to contribute to the strategic objectives defined by the Government in the PRSP, PEMFAR, and sector specific strategies. Furthermore, continuity in budget support operations will help ensure budget predictability.

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Tranching, prior actions, and triggers

110. Given the different thematic focus of this DPO series on growth, GPRG-1 does not carry over specific actions health and education sectors from the previous budget support operation, RSRC-2, but still consolidate some reforms in the areas of public finance management, rural development, procurement, and demographics. As explained in the Country Assistance Strategy, the human development agenda is now supported by several investment lending operations, including a Basic Educations project, a Health Sector Support project, a Demographics project and a multisectoral HIV/AIDs program.

111. Based on lessons learned from the implementation of the previous two budget support operations, this DPO carries a limited number of prior actions and will be disbursed in one tranche only. See Box 2 for Good Practice Principles on Conditionality. The proposed GPRG-1 of SDR 26.5 million (US$40 million equivalent) will be disbursed in one fixed tranche at effectiveness. Table 10 details the prior actions for this operation.

Box 2: Good Practice Principles on Conditionality

Principle 1: Reinforce ownership

There is a strong country ownership of the program design given that it is based on the PRSP, which was prepared through a highly participatory and consultative process. Stakeholder consultative workshops and focus group discussions were held with representatives of the public and private sectors and civil society, down to the level of local communities. There has also been extensive analytical work which has informed policy formulation in a timely manner. Principle 2: Agree up front with the government and other financial partners on a coordinated accountability framework

There is a joint policy matrix shared by all the donors planning on providing budget support. Prior actions for donor disbursements are identified in the policy matrix, thus allowing for aid coordination. Policy dialogue is conducted jointly and joint appraisal missions are planned to assess progress in implementing the policy matrix. Principle 3: Customize the accountability framework and modalities of Bank support to country circumstances

The joint policy matrix was developed in close coordination with the government and the various sectors, thus ensuring that it reflects the government’s expressed policy intentions and the country’s circumstances. The design of policy reforms has been backed by analytical work. Most of the reforms are either ongoing or extensions of ongoing government initiatives which are prioritized in government sector reform strategies. Donor coordination on the budget support has reduced transaction costs and the expected timing of the IDA disbursement is aligned with the government’s domestic budgeting process. Principle 4: Choose only actions critical for achieving results as conditions for disbursement

Prior actions are chosen from the policy matrix and focused on measures that are critical to achieving the objectives of the program. The matrix is selective and streamlined, consisting of only nine prior actions for the Bank’s operation. There are two prior actions that consist of preparing strategies or action plans but these are considered critical for achieving development objectives and are linked to major future actions already identified in the policy matrix. Principle 5: Conduct transparent progress reviews conducive to predictable and performance-based financial support

There are plans for annual joint reviews of the program. The reviews are expected to promote results orientation given that the policy matrix includes benchmark indicators which are results-focused. The disbursement of the IDA grant is targeted towards early-CY09, in line with the domestic budgeting process which is based on the calendar year. The disbursed funds are expected to be spent in CY09 and incorporated into the 2009 budget which was prepared in the second half of 2008. A successful combined appraisal and negotiation mission in early 2009 should allow a Board presentation in early-CY09 and provide the government enough time to incorporate the IDA disbursement in the 2009 budget.

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Table 10: GPRG-1 Prior Actions and GPRG-2 Triggers

Policy Areas Prior Actions for GPRG-1

(2009) Indicative Triggers (2010) for

GPRG-2 Outcome (2008-2010)

Indicators Bank and Donor

Assistance

1. The Government has reduced the ISB from 35% to 30% as applicable to the 2009 private enterprise financial results.

2. The Government pursues the broadening of the tax base to further reduce tax rates, based on analysis, through a revision of inter alia the minimum tax (IMF) and the tax pre- payment system. 3. Remove administrative bottlenecks for private firms by reducing the number of procedures and cutting cost to set up a firm

Improved business environment in Niger a. Cost and time to set up a firm: Baseline (2008): 19 days, US $475 Target (2010): 11 days, US$300 b. Evidence of broadening the tax base Increase of registered tax payers(baseline: 13,000) Income tax collected has increased (baseline CFAF 140 bn)

1. Clear internal debt arrears (for private enterprises only) in the amount of CFA 2.5bn, consistent with the relevant budget inscriptions in the 2009 Law of Finance.

Rebuild working capital for formal enterprises through a payment of arrears as percentage point of GDP: Baseline (2008): -0.8 percent Target (2010): 0 percent

I. Promote Private Sector Growth

2. Build confidence in FINAPOSTE: the amount corresponding to CNE’s frozen deposits (CFAF5.7bn) is deposited in a Treasury account at the BCEAO.

4. FINAPOSTE is recapitalized at CFAF 5bn. 5. The Government has initiated pension reforms

FINAPOSTE is operating and meets prudential norms as regulated by the regional central bank. Target (2010): Reporting from FINAPOSTE is satisfactory to the Central Bank Pension reforms are initiated: the action plan for the restructuring of the pension system is adopted.

For business environment: MCC and WB For taxation: EU, IMF and FIAS For internal debt:WB For financial sector reforms: WB and IMF

3. Maintain adequate funding for road maintenance, as evidenced in the 2009 Finance Law.

6. Maintain adequate funding for road maintenance, as evidenced in the 2010 Finance Law.

The road network is better maintained Length of cumulative roads maintained annually: Baseline (2008): 6000 kms Target (2010): 7400 kms

PAPST EU 10th EDF II. Address

Infrastructure Constraints for Private Sector Growth

7. The Government adopts and submits a new law on PPP to the National Assembly.

New law facilitates transparent participation of private sector in infrastructure All PPPs are in conformity with the law

PPIAF

4. The Ministry of Agricultural Development adopts and publishes a bill (Arrêté) to validate the restructuring option of theAIPU. Farmers will have access to inputs at better prices.

8. The market for inputs is competitive: the restructured AIPU is fully operational.

Access to, and use of, fertilizers improved: demonstrated by an ex-post client survey (financed in the context of the IDA financed PRODEX project) III. Support

Agricultural Sector and Rural Development as the Main Employment Generator

9. The inter-ministerial steering committee for the Rural Development Strategy has issued a bill to adopt the integrated agricultural services framework. This bill is approved by the Minister of Economy and Finance.

Access to technology improved: demonstrated by an ex-post client survey (financed in the context of the IDA financed PRODEX project)

WB Agricultutal portfolio (PRODEX and Food Emergency operation). EU and FAO technical assistance.

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5. Electronic processing of payables to private suppliers is effective.

10. Budgetary documents to be used for the preparation of the 2010 Finance Law are prepared in accordance with the organic law 2003-11, and include a functional and economic presentation. These documents are published.

Reduce delays to process payments Baseline (2003): 33 days Target (2010): 15 days The Parliament is provided with adequate documentation to make a decision on the proposed Finance Law, which includes the following annexes: a- Macroeconomic hypothesis,; Budgetary deficit; c- Financing of Deficit, d- Debt stock, e- Financial assets, f- Status of budget execution through a budget review law, g- Status of current budget execution, h- Synthetic budget table.

EU, France (AFD)

IV. Address Public Finance Constraints

6. Improve transparency and procurement controls by the revision of the decrees 113/10/06 and 114/10/06 on conflict of interest and control of contracts awards.

11. The validity of the bill establishing the procurement code, number 2008-06 and dated February 21 2008, has been confirmed.

Procurement processes more transparent and effective Baseline (2008):Less than 75% (in number and amount) of public markets are bid competitively Target (2010): More than 75% (in number and amount) of public markets are bid competitively

EU, France (AFD)

V. Demographics

7. The government has issued a decree to confirm the DGPP’s institutional set-up of the national, regional, departmental, and communal levels.

The Ministry implements the Annual Action Plans of the DGPP.

WB: PRODEM, institutional development funds-type, UNICEF, UNFPA

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C. POLICY AREAS COVERED BY THE OPERATION

Policy area 1: Private sector growth

112. This DPO series will support the Government's efforts in promoting private sector-led growth and entry in the formal sector by: (i) reducing the corporate tax from 35 percent to 30 percent, as a first step towards comprehensive tax reforms, broadening of the tax base, and overhaul of incentives to ensure a level playing field for private firms; (ii) accelerating and completing the repayment process of all internal debt arrears due to the private sector, completing a process launched in the early 2000s; (iii) completing the set-up of FINAPOSTE through its recapitalization.

i) Reducing corporate tax from 35 percent to 30 percent, applicable on 2009 financial results: A report carried out by the Ministry of Economy and Finance dated May 14, 2008 estimated that the possible loss of revenue for 2009 deriving from such a measure may reach up to CFAF 3.5 billion. A medium-term expansion of the corporate tax base is expected to compensate for a short-term revenue shortfall. There is an estimated 66.3 percent firm registration rate, about 977 enterprises. Once reduced to 30 percent, projections show that registration of formal enterprises is expected to reach up to 70 percent with over 1,038 estimated taxable firms. A CFAF 162 million increase in GDP is expected from the entry of these new firms. Similar reforms in Senegal, Mali and Burkina Faso have resulted in higher fiscal revenues for the state, while encouraging informal firms to enter into formal activities. As a result, the business environment improves and attracts more private investment. The tax reform is consistent with the overall WAEMU objectives on tax levels and tax management. The Government committed to reducing the corporate income tax at its presentation of the 2009 Finance Bill12. Since this reduction of tax level is intended to be applicable on 2009 financial results only, the 2009 Finance Law could not reflect the effective reduction: only the 2010 Finance Law, to be adopted in November 2009, can legally reflect this reduction. This DPO series has therefore engaged in an active dialogue with the Government to support the implementation of this measure. However, given the implementation timeline, this measure will be supported as a trigger to GPRG-2. Based on on-going analysis conducted by the DGI, this measure will be complemented by a review of the existing Impôt Minimum Forfaitaire – which directly affects all small and medium sized firms in Niger; and the tax pre-payment system that is not consistently applied. This tax system raises the marginal effective tax rate to levels that are above the WAEMU average. GPRG-2 will also support these next steps in the context of the tax reform.

12 In the “Exposé des Motifs” for the presentation of the 2009 Finance Bill.

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ii) Payment of domestic arrears: Nigerien firms’ lack of access to credit makes the effects of internal debt arrears even more detrimental to growth and investments. GPRG-1 supports the repayment of these arrears to the private sector, to the level of CFAF 2.5 billion in 2009. The overall Government's domestic arrears reduction plan calls for the paying down of domestic arrears to around 6-7 percent of GDP by 2013 with the hope of eliminating all arrears by 2017. Clearing these private sector arrears will result in some recapitalization of domestic firms, which will in turn pay-off much of their own debts. This action will have a trickle-down effect in other sectors to which the Government owes money and thereby generate enterprise growth. This action also follows similar reforms in DRC, Cameroon and Congo, which resulted in immediate private sector growth and higher domestic investments. It is expected that repayment of arrears will be completed by March 2009, which will not justify a follow-up trigger in GPRG-2.

iii) FINAPOSTE- repayment of frozen deposits of former “Caisse Nationale d’Epargne”: The aim of this reform is to complement the institutional reforms of postal service through their financial restructuring. The revival of the postal network's extensive branch network (50 branches) will provide access to finance and credit to people in rural areas, and will allow channeling civil servants salaries. The reform leading to the creation of FINAPOSTE has involved the adoption of a new legal and regulatory framework and related capacity building to address earlier deficiencies of the financial services of the postal bank. What is needed now is the financial structuring of FINAPOSTE, thus paving the way for the award of a banking license. To do so, the Government is in the process of completing a number of actions, including (i) the issuance of bonds by the Government to collateralize public deposits frozen after the former postal bank (CNE) ceased activities in 1992; (ii) the definition of and agreement on an action plan to pay part of these deposits (and the accrued interest) and converting part of them into term deposits to restore depositors confidence and avoid a run at the opening of new postal bank; and (iii) the disbursement by the Treasury of the remaining paid-in capital (CFAF 4 billion) to obtain a banking license. Once this is completed, capacity building to provide support in the legal, accounting, financial and organizational structure of FINAPOSTE, and involving the recruitment of an international expert to support the management, will be provided through the Financial Sector Technical Assistance currently financed by IDA.

The GPRG series supports the financial reforms to restructure FINAPOSTE. Much progress has already been made towards it. The proposed measure under GPRG-1 encourages the re-payment of outstanding frozen deposits into the Treasury’s account at BCEAO, to the level of CFAF 5.7 billion. This amount corresponds to the principal amount of frozen deposit plus accrued interests. GPRG-2 will then support the specific re-capitalization of FINAPOSTE to the level of CFAF 5 billion, hence accompanying the Government in its steps to make FINAPOSTE fully operational. It is expected that the re-capitalization will be financed through a bond issue.

113. GPRG-2 will also support actions to improve the business environment. It takes 19 days and approximately US$475 to set up a firm, which puts Niger at a competitive disadvantage. Such reforms can be completed by Government decisions, and GPRG-2 will encourage a

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significant reduction in these two indicators. GPRG-2 will also support policy reforms to help restructure and develop the Nigerien pension system, which has an important impact on private sector growth, since it provides adequate incentives for the workforce to stay in the productive sector. The reform of the pension framework has started with the preparation of an action plan, not finished at the time of preparation of GPRG-1. GPRG-2 will support the initiation of the pension reform. 114. These policy measures are complemented by the direct assistance provided by IDA on the review of the pension systems, and FIAS on business environment issues, and by an IDA-financed technical assistance in the financial sector.

Policy Area 2: Addressing infrastructure constraints for private sector growth

115. GPRG-1 focuses on two policy areas in infrastructure that have direct and indirect impact on private sector and rural growth: the quality of roads and service delivery by the infrastructure sectors including the energy and water/irrigation.

iv) Increase the sustainability of CAFER: The road network is a key factor in the inelastic costs incurred by firms in producing and supplying goods or merchandises to domestic and international markets. This is true for both businesses operating in the rural sector and the urban regions. In theory, the Road Fund (CAFER) provides for a self financed mechanism to maintain and rehabilitate the road network. Funding gaps between projected fuel levy receipts and actual have prevented the fund to operate in a sustainable way, however. The objective of the proposed reform is, as a transitional measure until the confidence in the system is built to ensure that road maintenance is adequately funded. This is a key complement to ongoing institutional reforms and related capacity building at CAFER. The first proposed measure in the GPRG-1 calls for an adequate budget allocation to bridge the fund’s financial gap for 2009. In this specific case, an adequate budget allocation is seen as a policy decision from the Government to establish a financially sustainable road fund. Overall resources needed for CAFER for 2009 amount to CFAF 5.5 billion, which constitute an adequate level of funding. These resources will be invested in road maintenance and will increase access to markets and services by improving the condition of roads and increasing their technical life, as well as reducing the cost of transport. This will be combined with close monitoring to ensure improvements in the efficiency and transparency of spending and the capacity to set objective priorities in the selection of road sections in need of maintenance, as financed under the Transport Sector Support Project. GPRG-2 will continue to support this objective, through annual reviews of the budget allocation to CAFER and based on realistic investment plans, raise it accordingly. Progress will be measured by the annual length of roads maintained.

v) Public private partnership laws: The GPRG series will help deepen the public enterprise reform agenda that the Government started in 2000, with the creation of a legal framework that permits the development of public private partnerships. This is intended to signal opportunity to the private sector to invest in the larger infrastructure projects that promise profitable returns, while simultaneously improving service delivery. While a

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draft law is currently being prepared by the Ministry of Economy and Finance, internal consultations will need to take place during 2009 to involve all ministries that would be affected. To avoid focusing a prior action on a process, GPRG-1 does not support a prior action to monitor this preparation. However, GPRG-2 will support the adoption of the PPP legal framework by the Government and its presentation to Parliament. The outcome of the new legal framework cannot be measured within the timeframe of the GPRG series. It is expected that in the medium-term, this new law will: (i) stimulate the creation of more public private partnerships such as built-to-operate transfers or management contracts; (ii) improve the business climate and motivate firms to invest private capital into the rural and agricultural sector; and (iii) heighten the attractiveness of the power sector to private investors. This new legal framework will help pave the way for the preparation of a Sources of Growth project expected for FY11.

Policy Area 3: Support Agriculture Sector and Rural Development

116. With almost 83 percent of the population living in rural areas and the majority living under the poverty line, support to rural development is central to the Government’s growth strategy. The GPRG series will support several policy reforms that are not directly associated with the rural development sector, but have an important impact on its growth. For instance it is expected that measures on the business environment including in the financial sector will positively affect farmers, while measures in the road infrastructure sector will help improve market access. Measures in the public finance management area will also allow better budgetary processes, directly affecting the four ministries in charge of rural development. The GPRG series will also support direct actions associated with the rural sector:

vi) Improve the efficiency of the input marketing system by allowing small farmers to have access to inputs at better prices. The GPRG series will support the Government’s reform strategy in accelerating the restructuring of AIPU, which currently controls about 40 percent of all input imports. It will be transformed into a wholesale supplier, which will help bring input prices more in line with world prices, while access of farmers will increase. This restructuring is critical to allow small farmers have access to inputs at cheaper prices. GPRG-1 supports the first key step in this restructuring process, involving the validation by the Ministry of the restructuring option of the AIPU. This will be immediately followed by a Government decision to restructure AIPU, expected in March 2009. GPRG-2 will then support the operationalization of this restructuring. vii) Support to modernization of agricultural services: The GPRG series will help accelerate the modernization of agricultural services, including livestock services. To do so the Government intends to integrate all relevant departments of the four ministries to focus on agricultural services. Based on the EU and FAO sponsored Integrated Agricultural Services Framework for Rural development study report (Etude pour la mise en place d’un dispositif integré d’appui-conseil pour le développement rural au Niger13),

13 The study is being carried out by a Technical committee under the SDR-Executive Secretariat. It is financed by the European Commission with FAO technical assistance.

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the inter-ministerial committee in charge of the PRSP will adopt the agricultural services modernization plan by end of September 2009. The objective of this reform is to increase farmers’ access to technology, and thus contribute to an increase in productivity. GPRG-2 will focus on the policy decision leading to the adoption of the integrated agricultural services in the form of a bill.

117. These two measures are part of a package of policy reforms and investments in the sector that are supported through the IDA-financed Agro Pastoral Export Promotion to be delivered in FY09, which will expand Niger’s ability to bring goods to the world market; the Water Sector and Support II to improve irrigation capacity slated for FY10; and the ongoing Emergency Food Security Support Project. It will be difficult to measure the specific decrease in input prices relative to international levels in a two-year framework and how effectively technology investments trickle down to the farmers level14, since no baseline data exists. However, ex-post surveys financed by the PRODEX project will help establish both the increased use of fertilizers and the improved access to technology.

Policy Area 4: Public Finance

118. GPRG-1 furthers the Government’s recent recommitment to the public finance reform agenda that began in 2000 in cooperation with the World Bank and IMF. It identifies public finance reform as complimentary to the private growth agenda and necessary for the expansion of the formal enterprise system in Niger and economic growth.

viii) Support introduction of electronic processing of payables to private suppliers and improving budget preparation process. Updating and streamlining the public administrative accounting and cash system is important for proper administrative accounting processes and budgetary maintenance. Payables to private suppliers are not processed electronically, which result in important delays and errors. The modernization of the budget office will help achieve this. The pilot computer room has been functional and ready to operate for several months. While no longer based on technical issues, the decision to use this room and move from paper based transaction to electronic processing had not been taken yet, when the program was initiated. GPRG-1 supports the move to an electronic processing of payables. This move will have a direct positive consequence on the private sector working with public services: private operators will be paid in a more transparent way and faster. Moreover, the relevant quarterly and annual statements on budget execution will be available faster after the closure of the budget execution period.

Also associated to a better budgetary process is the preparation of budget documents according to Niger’s own laws (ref 2003/11). The recently prepared PEFA showed that Niger is not in compliance with its own law and does not provide adequate documentation to support discussions on the budget. Eight documents are missing in the presentation of the draft Finance Law to Parliament, including: a- Macroeconomic hypothesis; b- Budget deficit document; c- Financing of Deficit, d- Debt stock, e-

14 Access to technology has been measured in the recent PIP2 project, but only for irrigated perimeters. Baselines on technology access for the whole sector do not exist at this stage.

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Financial assets, f- Status of budget execution through a budget review law, g- Status of current budget execution, h- Synthetic budget table. GPRG-2 will support full compliance by the Government with its own laws. Following approval of the Finance Law, these documents will be published on the MEF’s website to improve transparency.

119. Despite adoption of the new Procurement Code in 2002, and a good action plan derived from the 2004 CPAR, meager results have been obtained at the level of institutional capacities and compliance. GPRG-1 will help deepen procurement reforms to ensure transparent/effective control of contract awards during bid opening and technical evaluation of bids. The measure specifically targets the revision of two decrees :

ix) Improve transparency and procurement controls by the revision of the decrees 113/10/06 and 114/10/06:

120. The delay in making effective the institutional set-up of the DGCPM has resulted in a need to enforce prior controls in bid opening contract awards and in removing any potential source of conflict of interest in the evaluation committee. GPRG-1 will support the revision of the following two decrees:

Decree 114 is revised to establish a unique committee responsible for bid opening and contracts award, so as to ensure effective prior control (which does not exist at that time in the system). Since the setting up of the DGCMP is delayed, this revision is necessary to ensure transparency in the current system.

Decree 113 is revised for removing the private sector and the Ministry of

Economy and Finance’s representatives from the bid evaluation committee. The inclusion of these members in this committee creates major conflicts of interest in the system.

121. These revisions will be complemented under GPRG-2 by the Government’s confirmation that the bill establishing the DGCPM is valid. These actions are consistent with recommendations issued in the CPAR. They are supported by technical assistance provided by several donors in Niger, including IDA. Overall, progress in procurement will be measured by an increased number of markets bid publicly following proper and transparent processes.

Policy Area 5: Demographics

The high rate of population growth impedes Niger’s ability to improve its human capital (education and health), meet the Millennium Development Goals (MDGs), and reduce poverty. The Government is gradually showing stronger commitment to address this difficult and highly sensitive issue. Specifically, the Government is aware that the capacity of the Ministry of Population and Social Reform (MP/RS) needs to be strengthened for an effective implementation of the Declaration of the Government on Population Policy (DGPP) adopted in February 2007.

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x) The DGPP’s institutional set-up is made effective at the national, regional, departmental, and communal levels. MP/RS has prepared a plan for the institutional set-up of the DGPP. This set-up encompasses the quantity and quality of staff, at the central level but also at the regional (divisions) and sub-regional levels. GPRG-1 supports the issuance of a Government decree to formalize this set-up and make it sustainable. While the dialogue and World Bank support to demographic issues will continue under PRODEM, no further trigger is envisaged under GPRG2. It should be noted that this is based on the understanding reflected in the letter of development policy that Government will fully fund the DGPP action plan for 2010. This would need to be reflected in the appropriate budget allocation, up to CFAF 2 billion, in the 2010 Finance Law. This action will be measured by reviewing progress under the DGPP, as completed by the PRSP committee.

Status of prior actions

122. All GPRG-1 prior actions have been met. Work on triggers for GPRG-2 has started.

VI. OPERATION IMPLEMENTATION A. POVERTY AND SOCIAL IMPACTS AND ENVIRONMENT

Poverty and social impact:

123. Budget support provides incremental resources to finance Government PRSP priorities, specifically around the themes of job creation, infrastructure constraints, rural development, public finance reform and demographics. All have direct effects on poverty reduction and improved services to the poor.

124. It is expected that the following prior actions and triggers will have an impact on poverty and social development:

Promoting private sector growth (prior actions 1 and 3; triggers 1 to 3). An improved

business environment in Niger will directly translate into more formal productive activities and job creation. Through the growth of the rural sector, families will benefit from higher revenues and improved livelihood. The Niger Poverty and Social Incidence Analysis (PSIA) indicated that a large segment of the population suffers from high indirect taxation: the reform of the tax system will contribute to increasing their revenues.

The full repayment of internal debt arrears due to private sector firms will help improve

debt management and will allow use of future resources to sectors identified as priority to the PRSP-2, including those sectors focusing on human development. It will also provide a boost to domestic investments, hence creating more jobs.

Removing infrastructure constraints (prior action 4 and triggers 5 and 6): improvements to

the road network and laws for PPP’s will stimulate growth and reduce poverty. Better

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infrastructure will lead to greater exports and access to jobs; PPPs will make more efficient service delivery to the poor and increase direct investment. Stronger support to the agriculture sector will target the largest and most vulnerable segment of the population.

Support to the rural sector. Prior action 5 and triggers 7 and 8 help address main constraints

in the rural sector. Lowering the cost of inputs will allow farmers to produce at lower cost and will help increase benefits; while giving access to technology will help increase productivity, also contributing to higher benefits. Higher benefits will translate into higher household revenues, thus helping improve rural population’ standards of living.

Public finance: Prior actions 6 and 7 and triggers 9 and 10 do not have a direct impact on

poverty levels. However improved public finance should help free up resources that could be allocated to PRSP-2 priorities.

Demographics: Prior action 8 and trigger 11 will help implement the population policy

adopted by the Government to lower growth. Over time this should reduce poverty.

Environmental aspects

125. As per OP 8.60, GPRG-1 does not trigger any safeguards policies. However GPRG-1 supports policy reforms in sectors such as road infrastructure and agriculture development and improved regulatory environment for imports of agricultural inputs, which could have significant environmental consequences.

Road transport: all environmental and social impact issues attributed to the development

and management of the road fund are managed under the Environmental Management Plan of the IDA-financed Transport Sector Support Program.

Agriculture development: all environmental and social impact issues deriving from the

development of irrigated agriculture, agricultural imports are addressed and managed under the IDA-financed Food Emergency project, and the IDA-financed Agro-pastoral Export Promotion currently under preparation.

126. In addition, in the face of important expected new investment in the extractive industries, the Government will need to strengthen the country’s framework to ensure due environmental diligence in these growing economic sectors. This DPO series does not specifically support policy reforms in the extractive industry. However, the on-going dialogue around the EITI initiative and technical assistance provided by the World Bank in the mining sector will help address these issues.

B. IMPLEMENTATION, MONITORING, AND EVALUATION

127. The reform program under the GPRG-1 is led by the Ministry of Economy and Finance, working closely with line ministries and other stakeholders. It is overseen by an Inter ministerial Steering Committee that was set up in 2006 for RSRC-1 and 2. The committee is

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responsible for monitoring outputs and outcomes and ensuring that remedial actions are implemented in time to avoid slippage. The Committee’ performance has improved over the implementation of the past two budget support operations. It provided a good structure for discussion and analysis during the preparation of GPRG-1. Several reports on the impact of the tax reform and on domestic debt repayment were produced by this Committee to help prepare this DPO, which indicates ownership of the reform agenda as well as capacity to monitor reforms.

C. FIDUCIARY ASPECTS

128. The latest Country Procurement assessment Report (CPAR, 2004) and the Public Expenditure Management and Financial Accountability Review (PEMFAR, 2004) analyzed the institutional, legal and regulatory frameworks, procurement issues, private sector performance, and public management. As noted earlier, recommendations of the PEMFAR, which have been endorsed by donors providing budget support, have been implemented, under RSRC-1 and 2. The implementation of the public finance management reform program to date and Government’s commitment, have been satisfactory.

129. PEMFAR-2, which started in January 2009, will review the recent country’s PEFA/PFM-Performance Measurement in the following areas to which particular attention will be attached, given related bad scores resulting from: (i) stock and monitoring of expenditure payment arrears (credibility of the budget); (ii) budget comprehensiveness and transparency, excluding budget classification and public access to key fiscal information for better scores; (iii) existence of and adherence to a fixed budget calendar and linkages between investment budgets and forward expenditures estimates (policy-based budgeting); (iv) recording and management of debt and guarantees, existence of payroll audits to identify control weaknesses and/or ghost workers, coverage and quality of the internal audit function (control in budget execution); (v) timeless and regularity of accounts reconciliation, availability of information on resources received by service delivery units, completeness of the financial statements (accounting, recording and reporting); and (vi) timeless of submission of audit reports to legislature, evidence of follow-up on audit recommendations (external scrutiny and audit). The review is also an opportunity to assess the legal framework for PFM and the computerized integrated public expenditure management system in place with the view to improving the accounting system. This particular attention lies on the importance of continuing to curtail the country PFM for the World Bank and the donor community for budget’s support.

130. The Central Bank of the West African States (BCEAO) is the common central bank of the West African countries. In 2005, IMF staff carried out an on-site safeguards assessment of the BCEAO and found that progress had been made in strengthening its safeguard framework since 2002, when the last safeguard assessment was undertaken. The BCEAO now publishes a full set of audited financial statements and improvements have been made to move financial reporting closer to International Financial Reporting Standards (IFRS). IMF staff noted that the BCEAO has improved the explanatory notes to the financial statements and further changes are scheduled for the next fiscal year, with a view toward a graduate alignment with International Accounting Standard (IAS), as adopted internationally by other central banks. Furthermore, an

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internal audit charter has been put in place, mechanisms have been established to improve risk management and risk prevention, and follow-up on internal and external audit recommendations has been strengthened.

131. World Bank financial management specialists reviewed the flow of funds arrangement between the Central Bank (BCEAO) and the Treasury. The team concluded that current arrangements are adequate with fiduciary risks within acceptable risk tolerance levels.

D. DISBURSEMENT AND AUDITING

132. The operation will follow the World Bank’s disbursement procedures for development policy lending. The untied balance of payments/budget support will be disbursed against satisfactory implementation of the development policy program and will not be tied to any specific purchases. No procurement requirements are needed.

133. Once the operation is approved by the Board and the Grant becomes effective, IDA will disburse the single tranche at the request of the Borrower into a dedicated account that forms part of the country’s official foreign exchange reserves (held by BCEAO, the Central Bank). This dedicated account will be established for the purpose of this operation.

134. The budget support provided under GPRG-1 is not intended to finance goods or services in the standard negative list. The Borrower shall ensure that upon the deposit of the Grant into said account, an equivalent amount is credited in the Borrower’s budget management system, in a manner acceptable to IDA. Based on previous experience, the execution of such transaction from the Central Bank to the Treasury (Ministry of Finance) does not require more than four days. The Borrower will report to IDA on the amounts deposited in the foreign currency account and credited in local currency to the budget management system. Assuming that the withdrawal request is in US dollars, the equivalent amount in CFAF reported in the budgetary system will be based on the market rate at the date of the transfer. The Borrower will promptly notify IDA by fax or email that such transfer has taken place, and that proceeds have been credited in a manner satisfactory to IDA. If after deposit in this account the proceeds of the Grant are used for ineligible purposes, IDA will require the Borrower to promptly refund the amount directly to the Association. Amounts refunded to IDA upon such request shall be cancelled. The administration of this credit will be the responsibility of the Ministry of Economy and Finance. The expected closing date of GPRG-1 is June 30, 2009.

E. RISKS AND RISK MITIGATION

135. Political risks: Niger has enjoyed relative political stability since its successful transition to a democratically elected Government in 1999, under the leadership of President Mamadou Tandja, who was re-elected in 2004, with a strengthened coalition of six parties out of the eight represented in the Parliament. Since early 2007 there has been unrest in the North where Tuareg rebels claim to be marginalized and would like to benefit from the increased

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revenues from uranium mining. The upcoming local and general elections (March and November 2009) have the potential for consolidating democracy, but could also lead to increased spending that would undermine hard earned macroeconomic stability of recent years.

136. Mitigating this risk consists in involving the parties who feel aggrieved into the political process, including having them participate in the design and implementation of the policies that affect them and by continuing to exercise fiscal discipline by staying within the agreed guidelines for the 2009 budget (which does contain an allocation for the expenditure on elections). Providing more economic opportunities to enter the productive sector to this segment of the population will also help mitigate the risk.

137. A Slowing Reform Program: While Niger has made steady progress in reforms, including achieving an encouraging level of macroeconomic stability and positive GDP growth per capita, there seems to have been a slow-down in the past year in the development of a more encouraging business environment. The latest Doing Business report carried out by the World Bank (Doing Business 2009) shows stagnation and hence relative deterioration in each of the 10 broad areas covered by Doing Business surveys, as other countries, including some of the neighboring ones, improved their business climate. This happened at the same time the country experiencing a strong increase in FDI for the production of uranium and exploration for oil, with promises of more to come. However, those are enclave operations which have a strong impact on revenues of the Government, but are not affected by the general business environment that is so important for the large number of small entrepreneurs who are trying to make a living in the other part of Niger’s economy. Focusing on deeper reforms through this operation will help address some of the key constraints preventing a better environment for the emerging micro, small and medium private entrepreneurs. A final risk in this area relates to policy reversal, especially around the time of the elections. This is mitigated by the fact that, while Government has at times been slow in implementing reforms, such reversals have not occurred in the past. Furthermore, the World Bank, in collaboration with donors, monitors the sustainability of past reforms, notably in the area of PEM. PEMFAR-2 will provide the opportunity for a more in-depth review.

138. Macroeconomic Stability and Fiscal Risks: Niger has run a basic budget balance in the past three years, partly because of the discipline it exercised on the expenditure side, but mostly because of large non-tax revenues from uranium, oil and the issuance of a telecom license. These revenues will decrease during the period 2009-11 and, although the ordinary tax revenues can be expected to grow slowly as a proportion of GDP, the needs on the expenditure side could easily outrun them. The situation needs to be careful monitored until 2012, when the start-up of new production capacities in uranium is expected to bring in additional non-tax revenues. The fiscal impact of a lowering of the corporate tax could amount to CFA 3.5 bn15. This calculation is static, however, and does not project the estimated growth of the tax base nor of the growth of the economy. Would such a risk materialize, however, the loss incurred would be covered by the current budget support operation.

15 DGI estimate September 2008

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139. The potential gap could be closed through continued budget support by Niger’s development partners, but only if Niger keeps up with the development program laid out in its PRSP-2. The Government has also been strengthening its debt management capacity so that it can keep its debt levels sustainable. Under the current circumstances this means obtaining at least two thirds of its aid as grants and the balance through concessional lending (with at least a 35 percent grant element).

140. External Shocks: Niger is prone to drought. Yet more than 80 percent of its population depends on income from agriculture. Niger is also subject to strong terms of trade swings in commodities that are important on either the export or the import side. On the export side the two important prices are those of uranium and the exchange rate between the CFAF (pegged to the euro) and the naira, which fluctuates closer to the dollar and is not fully convertible. This means that there is a parallel market in the naira. Nigeria is Niger’s largest market for its agro-based exports (including livestock) so sudden shifts in Nigeria’s demand for Niger’s goods matter and they have occurred in the past. On the import side, Niger (like many other countries around the world) has recently been hit hard by the sharp rise in the international prices of oil and cereals, both of which figure prominently in Niger’s imports.

141. Niger is trying to respond through programs that would strengthen its agricultural production (including through increased and improved irrigation) and is developing mechanisms to respond to food emergencies more rapidly and to be able to target the most vulnerable segments of its population. But it is a race against time as Niger adds around 450,000 extra mouths to feed each year.

142. The impact of the on-going global financial crisis should be moderate in Niger. This is in part due to a low integration of its financial system in the global economy. In addition, most large investments in the extractive sectors were committed prior to the crisis (with the notable exception of the Imourarem uranium investment to be made by a subsidiary of AREVA). Finally, remittances to Niger remain small and not significant for Niger’s balance.

143. Institutional Capacity: While Niger has made significant improvements in its capacity to carry out its reform program and in administering the more routine Government operations, there is little doubt that many weaknesses remain. These weaknesses can be found across a wide range of areas: in the financial sector, in the building of a more conducive business regulatory environment, in the building of human resources (general education as well as vocational and technical education), in the quality and efficiency of its public administration, and in the transparency and accountability across the public sector.

144. The building of individual and institutional capacity is a slow process. Most World Bank-financed projects and programs now have a capacity building component, replacing technical assistance by domestic resources as quickly as it is feasible.

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References IMF (2008a), Niger: Country Report No. 08/211, July 2008, www.imf.org/external/country IMF (2008b), Niger: Joint Fund-Bank Sustainability Analysis, Draft, December 3. 2008 IMF (2008c), Niger: Staff Report for the 2008 Article IV Consultation and First Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility. Draft, November 26, 2008 Republic of Niger, Office of the Prime Minister (2007), Accelerated Development and Poverty Reduction Strategy (SDARP) 2008-12, August 2007 version, can be found at www.worldbank.org (under Joint WB/IMF Assessment of PRSP-2 for Niger, March 4, 2008) UNDP (2007/2008), Human Development Report, Fighting Climate Change, Annex Table 1, hdr.undp.org World Bank (2002), Niger Poverty Reduction Strategy Paper 2002-2005, www.worldbank.org, also available at www.imf.org/external/country World Bank (2007), Niger Country Economic Memorandum: Accelerating Growth and Achieving the Millennium Development Goals, Report No. 41408-NE, September 2007 World Bank (2008a), Niger: Modernizing Trade during a Mining Boom, a Diagnostic Trade Integration Study, February 2008, www.worldbank.org World Bank (2008b), Niger Country Brief, www.worldbank.org World Bank (2008c), “Republic of Niger: Towards an Integrated and Sustainable Pension System,” Draft Report, October 17, 2008.

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Annex 1: Letter of Development Policy

REPUBLIC OF NIGER

MINISTRY OF THE ECONOMY AND FINANCE

BUDGET SUPPORT FOR GROWTH

LETTER OF DEVELOPMENT POLICY (LDP)

JANUARY 2009

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CONTEXT, STRATEGY AND OBJECTIVES

Niger is a landlocked Sahelian country about 1,000 km from the West Coast of Africa. Niger shares borders with Nigeria and Benin to the South, Burkina Faso and Mali to the West, Algeria and Libya to the North, and Chad to the East. Niger is 1,267,000 km2 in area with a population estimated to be 14.3 million in 2008. The country has two structural problems: it is landlocked, which generates high transaction costs; and it has a harsh climate, which makes agricultural production vulnerable. Most of the country (two-thirds) is covered by the Sahara desert, and water covers just 0.02 percent of the country’s area. Niger has been penalized over the last decades by cycles of drought, the advance of the desert, falling uranium prices, and political instability in the 1990s. All of these factors have exacerbated the people’s living conditions and have made Niger a poor country. Poverty continues to be widespread in Niger. The incidence of poverty was 59.5 percent in 2007-2008 according to the survey conducted by the INS (National Statistics Institute) using a methodology based on the Unified Questionnaire on Well-Being Indicators [Questionnaire Unifié des Indicateurs du Bien Etre – QUIBB]. To improve the people’s living conditions, in 2002 the Government developed a poverty reduction strategy (PRS), which has become the frame of reference for its economic policy. The PRS has the objective of achieving the MDGs, in particular the one on reducing poverty by half by 2015. The main thrusts of the strategy are to promote a stable macroeconomic framework; promote rural development; develop the social sectors of education, health and access to drinking water; improve road transportation and develop the mining and energy sectors; promote the private sector, tourism and crafts; foster urban development; and advance good governance and strengthen institutional capacities and decentralization. Because the incidence of poverty is very high (59.5 percent in 2007-2008), Niger has begun to put a new strategy in place: the Accelerated Growth and Poverty Reduction Strategy (GPRS), covering the 2008-2012 period. As part of this new strategy, the Government plans to achieve a 7 percent average annual real growth rate to lower the poverty rate to 42 percent by 2012. The other social indicators should also improve, including access to drinking water, which should benefit 80 percent of the population. Infant mortality should be 108 per thousand; 45 percent of the adult population should be literate, and gross enrollment rate should be 94 percent. In particular, the country plans to rely on a more diversified economy, investments in the area of infrastructure, more effective demographic policies, and good governance. Niger’s economic and social activity is characterized by the following data: - The economic growth rate was reportedly 5.9 percent in 2008 versus 3.3 percent in 2007; - Over 12 months, in August 2008, inflation measured based on the consumer price index reached 15 percent, but the index was down slightly between July and August 2008; - In 2008, the basic budgetary balance, which excludes investments financed using external resources, should reach a deficit of 0.6 percent of GDP;

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- The current balance of payments deficit compared to GDP was 11 percent in 2008 as opposed to 9.1 percent in 2007; - In 2008, the money supply expanded by 3 percent, while lending to the economy expanded by 11 percent, and the money supply grew by 20 percent; - Social indicators improved considerably: The poverty index was 59.5 percent in 2007-2008 versus 62.1 percent in 2005; hydraulic infrastructure coverage was 62 percent in 2007 versus 59 percent in 2005, and the gross enrollment rate was up from less than 42 percent in 2002 to 57.1 percent in 2006-2007. It should be noted that since 2000, Niger’s performance has been remarkable, primarily due to the design and implementation of development programs and projects, some of which are: - The World Bank’s RSRC 1 and 2 programs, which provided budget support to Niger to overcome the constraints to the political and institutional reforms of public expenditure management, rural development, health, education and the demographic growth and the gender issue; - The economic and financial programs with the IMF, whose reforms have improved government expenditure, made the mobilization of domestic resources stronger, and strengthened the financial system and the business climate. In the 2009 Budget Law, the fact that budget allocations were made consistent with the Accelerated Growth and Poverty Reduction Strategy (GPRS) is one of the most important guidelines. Strengthening the business climate through better access to credit in the rural sector is also still at the core of the accelerated growth strategy in Niger. This Letter of Development Policy (LDP) relies on the general outline of the GPRS, in other words, it is based on the principal objective of budget support for growth, which entails removing certain constraints to growth and private sector development. Budget support for growth will support the reforms the Government launched in the growth sectors (tourism, the mining sector, and agricultural export industries). In this regard, the measures it adopts converge toward: - promoting the private sector; - eliminating the constraints related to infrastructure to develop the private sector; - supporting agriculture and rural development; - removing constraints related to government finance; - harnessing demographic growth.

I. PROMOTING THE PRIVATE SECTOR 1. The Government agreed to lower the profit tax from 35 to 30 percent no later than December 31, 2009 There are five reasons for the planned measure to lower the profit tax:

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a) To clarify and simplify business taxes A rate reduction will adapt taxes to a level that will render inappropriate the arsenal of various tax exemptions and advantages, which should be reduced or even eliminated. Direct business taxes will be clarified and simplified as a result, for officials as well as economic operators. b) Niger’s attractiveness for investment As part of improving the business climate, several experiments are in progress in the subregion that suggest lower tax rates on profits, combined with a downward revision of the aforementioned exemption arrangements. These rates are generally deemed too high, and lowering them, along with the elimination of certain exemptions, will make the country more attractive in the subregion and will be an incentive for the Nigerien economy. c) Current favorable business conditions Current favorable business conditions, particularly in the mining sector, will soften the impact of the reduction of short-term revenue by expanding the taxable base. Over the coming years, many large businesses will probably be created, but especially small and medium enterprises or small and medium satellite industries of large businesses will be created due to the growth in mining. d) Context of the 2008-2012 Accelerated Growth and Poverty Reduction Strategy (AGPRS) The Accelerated Growth and Poverty Reduction Strategy, which requires substantial increases in tax revenue, took into account the Tax Department’s tax revenue mobilization operational strategy and its 2006-2008 detailed action plan. Since requirements for budget resources are constantly rising, this approach will continue for the years 2009 and beyond, in particular through the new 2009-2012 strategy, which the Tax Department is now preparing. e) Harmonization in the subregion In the WAEMU countries, the harmonization of direct business taxes makes it necessary to reexamine the profit tax level, especially since it appears that the landlocked countries, which are at a disadvantage in terms of the cost of shipping goods, have higher tax rates than the other member countries and, consequently, are less attractive economically. For legal persons, taxation is proportional as the table below shows:

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Legal persons Rate Comments COTE D’IVOIRE 25% GUINEA BISSAU 25% SENEGAL 25% Rate lowered in 2004 from

35% to 33%, and in 2006 (fiscal year ended in 2005) to 25%

BURKINA FASO 30% Rate lowered in 2008 (fiscal year ended in 2007) from 35% to 30%

NIGER 35% MALI 35% TOGO

Proportional

37% - 40% BENIN 38% With regard to natural persons, taxes are either proportional or progressive, with a marginal rate that is the same as for legal persons, unless a general income tax exists. NATURAL PERSONS RATE COMMENTS BURKINA FASO

Progressive 30% marginal rate

Rate lowered in 2008 (fiscal year ended in 2007) from 35% to 30%

MALI Proportional 35% Before 1999: 15% Law 99-01 of April 1, 1999: from 15% to 25% Law of 02-05 of January 18, 2002: 35%

NIGER Proportional 35% SENEGAL Progressive 25% marginal

rate General Income Tax (Schedule ranging from 0% for the bracket between 0 and 600,000 francs to 50% for incomes greater than 12,650,000 francs)

The Tax Department’s strategy for 2006-2008 recommended a profit tax rate within the average of the countries in the subregion, thus keeping the tax rate at 35 percent. The table above shows that the dynamics of the decrease in most countries results in planning another decrease in the rate to remain within the subregional average. Of course, this measure requires both a favorable policy and business conditions, mainly through active support from the political authorities and improvements in corporate citizenship in terms of taxation. The median assumption for Niger would be a profit tax rate of 30 percent. This is five (5) points higher, at the request of the economic operators (in any event based on their expectations

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expressed in the National Private Investors Council - CNIP), but it is still five (5) points lower than the rate still in effect, which the agencies consider reasonable compared to the tax on income from labor, for example. 2. Clear the arrears for the domestic debt owed to private suppliers in the amount of CFAF 2.5 billion, justified by appropriate budgeting in the 2009 Budget Law The total outstanding debt and domestic arrears for 1999 and previous managements amounted to CFAF 295.56 billion. Since 2000, the Government has worked to prepare and implement a strategy to clear the debt and domestic arrears. The methodology was to take an inventory of the amounts cleared for the different creditors from 2000 to 2007 based on debt status and domestic arrears as of December 31, 1999. Thus, debt stock and domestic arrears were lowered from 295.56 billion as of end-1999 to 168.71 billion as of end-2007, for 126.85 billion cleared, equivalent to roughly 43 percent. The general clearance strategy takes the State’s cash position into account, given the high amount and diversity of domestic arrears, the impact payments have on economic recovery, the consolidation of government finance, clearance for a rather large number of creditors, their geographic distribution, and the recovery of the sectors that are part of the accelerated poverty reduction strategy. Based on the foregoing, the arrears clearance strategy will include compensation for creditors that have tax arrears and/or other debts to the State and its authorities, combined with an abatement based on a threshold, which contributes to the effort to consolidate the national economic environment, before payment which will essentially be made through bank transfers. The specific strategies consist of adapting appropriate methods for dealing with each category of arrears, by implementing appropriate abatements as needed. The result is a major reduction in the current domestic debt level due to the implementation of abatements and writing off certain categories of claims in the amount of CFAF 58.21 billion. The savings to be realized are summarized as follows: - Commercial arrears: CFAF 27.134 billion - Arrears with households: CFAF 7.62 billion - Treasury deposits: CFAF 23.46 billion. These savings will lower the domestic debt as of end-2007 from a gross amount of CFAF 168.71 billion to CFAF 110.5 billion. For the proposed clearance plan, it should be noted that the proposed time frames span payments in 2008 (private suppliers, fringe benefits and treasury bills excluding banks), 2008 and 2009 (private Treasury deposits), 2008 to 2010 (local government wages and other correspondents), 2008 to 2012 for the other arrears and debts with the business sectors, households and deposits with the Treasury, and 2008 to 2017 for financial and bank debts.

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3. Boost confidence in FINAPOSTE by transferring the equivalent amount of frozen deposits from the former CNE (CFAF 5.7 billion) into a Treasury account with the BCEAO As part of the postal sector reform, there are plans to divide the National Post and Savings Office [Office National de la Poste et de l’Epargne – ONPE] into two entities: Niger Poste for managing the postal business and Finaposte with bank status to manage financial services. Niger Poste was created by Law 2005-21 of June 28, 2005, which authorizes the conversion of the ONPE into a mixed company called Niger Poste. Regarding the creation of Finaposte, it was decided to carry out several fundraising operations to ensure the financial balance of the future bank and to reimburse the depositors of the former Caisse Nationale d’Epargne for a total amount of CFAF 5.971 billion, consisting of 4.891 billion in principal and 0.9 billion in interest. Regarding the reimbursement of the depositors of the former CNE, it should be noted that the program agreed upon with the partners (WB/IMF) plans to stagger the replenishment of the amount owed to the depositors until 2009. Thus, as of today, of the total sum of CFAF 5.791 billion to be replenished, the State has paid an amount of 3.6 billion and deposited it with the BCEAO; the rest, or 2.191 billion, has been entered in the draft 2009 budget. One of the essential conditions for establishing and submitting the approval application for Finaposte, enacting a regulation that determines the methods of reimbursing the frozen deposits in the former CNE, has been met with the adoption of Decree No. 2008-421/PRN/MEF/MC of December 19, 2008, which determines the methods for dealing with the former CNE’s assets.

II. REDUCE THE PRINCIPAL INFRASTRUCTURE CONSTRAINTS TO PRIVATE SECTOR GROWTH

4. Support road maintenance through an additional subsidy to CAFER to cover the gap between the amounts that are budgeted and revenue actually received as the oil tax. Budget allocations for road maintenance are CFAF 5.5 billion in the 2009 Budget Law. a) Estimated revenue from the Autonomous Road Maintenance Fund (CAFER) in 2009 Over the last three years, the CAFER budget the Board of Roads adopted was prepared based on monetary revenue, contrary to the previous years, when State budgeting was included. For fiscal year 2008, the budget was set at the sum of CFAF 3.950 billion for revenue and expenses. As of July 31, 2008, or seven months after the fiscal year began, the actual rate for revenue was 56 percent in the amount of CFAF 2.217 billion, broken down as follows among the different categories: CATEGORIES PROJECTIONS ACTUAL % Oil royalty 2,790,000,000 1,607,455,080 58%

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Toll/weigh-in contribution 1,000,000,000 585,278,122 59% DAO sales 5,000,000 24,300,000 486% Others (advertising, financial products)

1,000,000 300,000 30%

GERTA contribution 150,000,000 - 0% Sale of real estate and financial products

4,000,000 - 0%

TOTAL 3,950,000,000 2,217,333,202 56% The actual rate of the oil royalty, which accounts for 80 percent of revenue, is 58 percent and amounts to CFAF 1.607 billion. The average actual rate is CFAF 229 million, as opposed to a projection for the year of CFAF 232.5 million. The toll and weigh-in contribution, at CFAF 584.2 million, has an actual rate of 58 percent for the first seven months of the year. Average monthly collection is CFAF 83.4 million, versus a projected CFAF 83.3 million. For fiscal year 2009, resource projections will once again be based on revenue actually discounted. Revenue projections based on actual figures for the first seven months of fiscal year 2008 are estimated at CFAF 3.930 million, as shown in the following table: CATEGORIES 2008

PROJECTIONS 2009 PROJECTIONS

%

Oil royalty 2,790,000,000 2,750,000,000 -1% Toll/weigh-in contribution 1,000,000,000 1,000,000,000 0% DAO sales 5,000,000 25,000,000 400% Other (advertising, financial products)

1,000,000 5,000,000 400%

GERTA contribution 150,000,000 150,000,000 0% Sale of real estate and financial products)

4,000,000 - -100%

TOTAL 3,950,000,000 3,930,000,000 -1% The oil tax category was down slightly, by 1 percent, compared to the 2008 projections with estimated revenue of CFAF 2.750 billion. For the “toll and weigh-in contribution” category, the projection of one billion for fiscal year 2008 will be used in 2009 as well. However, this level cannot be attained if certain users continue to fail to observe the tolls and weigh-in legislation. The other revenue (DAO sales, financial products, etc.), was also estimated on the basis of revenue actually collected during the first seven months. The amount of the GERTA contribution was steady at the agreed level of CFAF 150 million. This brings the total amount of estimated revenue to CFAF 3.930 billion, a slight 1 percent drop compared to the projections of the previous fiscal year. b) 2009 road maintenance requirements The road network, with a total length of 18,949 km, is divided as follows:

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Paved roads: 3,912 km Dirt roads: 6,810 km Rough roads: 8,227 km The total length of the road system maintained by the Ministry of Infrastructure is 10,200 km (3,912 km of which is paved roadway), estimated at over CFAF 800 billion. Over the last ten years, major efforts have been made to periodically maintain and rehabilitate the network; however, over the same period, funding for everyday upkeep was insufficient to maintain a good level of service for road users. The everyday upkeep shortfalls accumulated to cancel out periodic maintenance and rehabilitation efforts. The road maintenance strategy the Government adopted in 2004 shows minimum requirements for resources spent on everyday upkeep, below which it is not possible to maintain the assets or provide a level of service appropriate for road users. An amount of CFAF 5.5 billion was included in the 2009 Budget Law for proper maintenance of the entire network. c) 2009 road maintenance financing gap The resources allocated to the network amount to 5.5 billion, compared to the 3.930 billion that CAFER is able to raise (all revenue combined), so that the national government must cover a 1.570 billion financing gap. 5. Creation by order of the Minister of the Economy and Finance of a multidisciplinary committee in charge of proposing a draft law on the public-private partnership - By order, the Ministry of the Economy and Finance will create a committee in charge of proposing a draft public-private partnership law. - The economic crisis that Niger has experienced over two decades has limited the State’s capacity to meet the multiple investment needs. However, in the 2000-2008 period, Niger made considerable progress that resulted in the stabilization of the macroeconomic framework, an improvement in the social indicators, and the emergence of major projects that give reason to be hopeful for Niger’s economic future. Some of these projects are: - coal mining in Salkadalma; - the Kandaji dam; - the mining of large uranium reserves; - oil drilling. This potential that Niger possesses affords the country new prospects in terms of credibility, not just with the development partners, but with individuals as well who wish to settle or invest in Niger. Thus, it has appeared necessary to find a modern type of public/private management to

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implement the major investment projects, and this is the partnership contract that is to be governed by a law. This legislation establishes an appropriate legal framework for governing partnership relations between the government players or between the government players and potential foreign private investors in Niger as part of projects that technically and financially are large in scope. The practice of partnership contracts has the benefit of attracting potential investors by offering them a secure framework and a guarantee that they will earn a return on their investments. In addition, in this contract the State or one of its authorities makes a third party responsible for all or some of the phases of an investment project for a determined period based on the amortization term for the investments or methods of financing. These responsibilities include the design, financing, construction, conversion, upkeep or maintenance, operation or management of facilities or equipment necessary for public service, and, if applicable, the provision of other services that contribute to having the Government carry out the service mission with which it is entrusted.

III. SUPPORT AGRICULTURE AND RURAL DEVELOPMENT 6. Adopt an order of the Ministry of Agricultural Development to validate the restructuring option for the supply warehouse The Government is determined to implement the Decentralized and Partnership Strategy for the Supply of Inputs for Sustainable Agriculture (SIAD) to ensure access for producers to agricultural inputs and equipment by creating a reliable and efficient system in which the supply warehouse (SW) will play an important role. In this context, there are plans to review the place and the role the SW plays in a supply system in which the private sector and producer organizers are the special players. To achieve this objective, the supply warehouse will be restructured: - organizing a national workshop to select an option for restructuring the supply warehouse; - preparing, adopting and implementing a restructuring plan for the supply warehouse based on the option that is selected. 7. Implement an integrated counseling support system for the rural sector Making the Rural Development Strategy operational is based, among other things, on an adequate counseling support system for the rural sector, involving all the ministries of the sector including the NGOs/DAs, the private sector, local governments and producers. To this end, in 2008 the Executive Secretariat of the Rural Development Strategy (SE/SDR), launched a study of the implementation of a new integrated counseling support system for the rural sector with technical and financial support from the FAO and the European Union.

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The assessment phase of the study has been completed and the results have been submitted to the interministerial monitoring committee for the study. This assessment was shared with the farmers during regional farmer workshops organized in Dosso, Tahoua, and Zinder. Currently, the consultants are preparing the proposal for the new counseling support system. The Government agrees to validate the proposal for the new system through the monitoring committee and to implement the relevant findings of this study with the support of the technical and financial partners from the sector.

IV. ADDRESS GOVERNMENT FINANCE CONSTRAINTS 8. Make the pilot room operational The pilot project room is part of the expansion of the computerized expenditure chain to the loan officers and financial auditors. This is an intermediate stage in the deconcentration of the system to other ministries. The loan officers are the principal players of the line ministries in the government expenditure chain. One of the “pilot room’s” objectives is to support and supervise the spending entities that are not in the habit of using computer tools. But this intermediate stage is also necessary due to the lack of an extensive network that links the ministries together. This project is first and foremost a reform project that aims to upgrade the expenditure system, mainly by: directly involving the principal players in the computerized system based on their roles and responsibility; “streamlining the system” by better distributing access to information as well as eliminating redundant controls. The deconcentration of the expenditure system should thus enable the players involved to play their roles in the expenditure system without going through an intermediary for data entry, and it should enable them to access information on expenditure as well. This involvement of the different parties should also improve the quality of their exchanges and hence, save considerable time in file processing. 9. Improve the transparency of government procurement audits by revising Orders 113 and 114 of October 10, 2006 on conflicts of interest in contract award procedures. The revision of Orders 113 and 114 of October 10, 2006 on the opening commissions and assessment commissions for bidding on government contracts is in progress.

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There are plans to discuss the draft prepared for this purpose in the Public Procurement Regulation Agency (ARMP)/Public Procurement Directorate (DGCMP)/Financial Control Directorate (DGCF) dialogue framework before it is signed.

V. DEMOGRAPHY 10. The Government published a decree that implements the institutional structure of the Government Population Policy Declaration (DGPP) at the central, regional, departmental, and communal levels

It is obvious that to strengthen economic growth, it is essential to juggle, among other challenges, the challenge related to the very rapid growth our country has experienced. In fact, as long as the efforts to bring about dynamic growth in our economy are canceled out by the accelerated growth of requirements in food resources, education, health care, drinking water, decent housing, employment, etc., poverty with its corollaries will only intensify. In this spirit, on February 13, 2007 the Council of Ministers adopted a Government Population Policy Declaration (DGPP) to lower the annual population growth rate from 3.3 percent to 2.5 percent by 2015. The DGPP clearly presents the Government’s intentions and conditions in the area of population, and seeks mainly to align the growth level of our economy with the level of population growth. Harnessing demographic growth is the third of the seven priority thrusts of the Accelerated Growth and Poverty Reduction Strategy (GPRS). Thus, Niger is demonstrating its political will to act in this priority yet highly sensitive area. Moreover, by adopting the DGPP on February 13, 2007, the Government of Niger confirmed this political will and its resolute commitment to curb the adverse effects of one of the world’s fastest population growth rates. It should be noted that the principal goal of the DGPP is to contribute to reducing poverty in Niger by harnessing the population growth rate. Through the Ministry of Population and Social Reforms, the Government of Niger is actively implementing the following five (5) programs:

- Advocacy and awareness program on population and development issues; - Information, Education and Communication Program for Behavior Change (IEC/BCC)

in reproductive health, birth spacing, breastfeeding and early marriage; - Program to promote the accessibility and use of reproductive health services, and family

planning in particular; - Program to make couples responsible and to economically empower women; - Coordination, monitoring, and evaluation program.

To bring the new population policies in the DGPP to fruition, the Ministry of Population and Social Reforms used a participatory process to prepare a strategy document and action plan for

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implementing these five programs at the national, regional, and local levels for the 2007-2015 period. These documents were validated in September 2007. For carrying out the programs in the action plan to implement the DGPP, the Ministry of Population and Social Reforms opted to develop two principal strategic approaches:

- the multisector approach, which will consist of involving and making all the players responsible (ministries, organizations of civil society and technical and financial partners) in program design and implementation;

- the civil society/NGO involvement strategy, which entails having the players with comparative advantages carry out the activities in the annual work plans prepared on the basis of the strategy documents and action plans for implementing the DGPP.

The programs will be implemented in stages, the first of which is the organization of an advocacy campaign to involve all the decision makers and opinion leaders in carrying out programs that seek to change the behavior and mentality of the men and women of Niger in the area of procreation. The other stages that will begin in turn will deploy intense IEC/BCC communication campaigns for the people to make them aware of adopting behaviors and mentalities that foster demographic growth and social progress. The estimated cost of the programs amounts to nearly CFAF 35 billion over eight years (2008-2015).

REFORM PROGRAM MONITORING SYSTEM The Government will monitor the program and the reform measures. To this end, the Government will go through the Interministerial Committee for monitoring the budget support program. This committee brings together all the organizations involved in the program. The Economic Commission serves as secretariat. The Secretariat’s principal activities will be as follows:

- monitoring the implementation of reform measures using the focal points (the SGs of the ministries involved, the Budget Directorate and the Tax Directorate);

- preparing the committee’s reports; - the general organization of work related to other budget support, from the European Union, the ADB, France, etc. Niamey, [date] ALI MAHAMAN LAMINE ZEINE MINISTER OF THE ECONOMY AND FINANCE

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ANNEX: PRELIMINARY LDP III MEASURES AND LDP IV TRIGGERS

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LDP III: Preliminary measures and LDP 4 triggers

Topics Preliminary measures for the GPRG 1 (2009)

Triggers planned for the GPRG 2 (2009-2010)

Results (2008-2010) Indicators

Banks and donors

I. Promote the private sector

1. Clear the internal debt arrears owed to private suppliers in an amount not to exceed CFAF 2.5 billion (included in the 2009 Budget Law) 2. Strengthen confidence in FINAPOSTE by transferring the equivalent amount of frozen deposits from the former CNE (CFAF 5.7) billion into a Treasury account with the BCEAO

1. The Government is continuing its policy of expanding the tax base in order to lower the tax rates on the basis of a study, especially the minimum lump-sum tax and the withholding tax 2. Reduce the number of procedures to create a business and related costs 3. FINAPOSTE is recapitalized for CFAF 5 billion. 4. The Government initiated the implementation of the pension system reforms. (This measure must be more specific.)

Improve the investment climate in Niger a. Cost and time to create a company Reference (2008: 19 days; US$475 Objective (2010); 11 days: US$300 b. The tax base is expanded Number of companies that pay the [illegible] Tax revenue increased [illegible] propose targets for these two indicators Working capital requirements for businesses are financed: Payment of arrears as a percentage of GDP Reference (2008): -0.8% Objective (2010): 0 percent FINAposte is operating and observing the prudential banking standards. Objective: (2010): FINAPOSTE reporting is satisfactory according to Central Bank standards The parameter reforms have been initiated

Business environment, MCC and WB EU, IMF and HAS (WB) taxation WB internal debt Financial sector WB and IMF

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II. Reduce the principal infrastructure constraints to private sector development

3. Adequate support for road maintenance as shown in the 2009 Budget Law

5. Support road maintenance by the effective disbursement and an increase in budgetary allowances to CAFER on the basis of annual reviews performed by the Ministry of Finance and taking budgetary constraints into account 6. The Government is adopting and submitting a draft law on PPFs to the Assembly

The road network is better maintained. Total road length maintained annually. Reference (2008) 6,000 km Objective (2010) 7,400 km The new law facilitates private- sector involvement in government projects All the partnerships are consistent with the law

PAPSI UU 10-TBE PPIAF

4. The Government adopted and published a ministerial order considering the option of the Ministry of Agricultural Development’s supply warehouse (SW)

7. The agricultural inputs market is competitive. The SW has been reorganized and is indeed operational

Access to fertilizers has improved as demonstrated by an ex-post survey of the beneficiaries financed under PRODEX

WB (PRODEX) and emergency project (EU and FAO)

III. Support agriculture and rural development

8. Through an order, the interministerial committee of the SDR (Rural Development Strategy) adopted the integrated counseling support system. The Minister of the Economy and Finance has approved this order.

Access to technology has improved as demonstrated by an ex-post survey of beneficiaries under PRODEX

IV. Address fiscal constraints

5. Shorten the amount of time it takes to process applications in the expenditure chain by making the pilot computer room operational.

9. The budgetary documents attached to the Draft Budget Law, submitted to the Parliament for approval, are consistent with Organic Law 2003/11 and will

Shorten supplier lead times: Reference (2008): 33 days Objective (2010): 15 days Parliament has adequate documentation to

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include an economic presentation and a functional presentation of the budget beginning with the 2010 Budget Law. These documents are public.

analyze and make a decision on the draft budget. This documentation includes the following annexes: a – macroeconomic assumptions; b – the budget deficit; c – financing for the deficit; d – the debt stock; e – financial assets; f – status of execution of the previous budget through the Payment Law; g – status of execution of the current budget; h – budget synthesis tables.

EU, France (AFD)

6. The Government revised Orders 113 and 114 of October 10, 2006 to avert conflicts of interest and to ensure transparency and effective monitoring when the bid envelopes are opened and when the technical assessment of the bids is performed in the contract award procedures

10. The order on the government contracting code has been validated (ref. 2008-06 and dated February 21, 2008)

Procurement processes are more transparent PEFA indicator: Pi-19 (i) Reference (2008): B Objective (2010): A Reference: (2008) Less than 75% (number and amount) of government contracts are competitive; objective (2010): more than 75% (number and amount) of government contracts are competitive

EU, France (AFD)

v. Demography 7. The Government published a decree making the institutional structure of the DGPP effective at the national, regional, departmental and communal levels

11. For 2010, the implementation of the Ministry of Population and Social Reforms’ action plan on the DGPP is financed in the amount of CFAF 2 billion, as reflected in the 2010 Budget Law

The Ministry of Population and Social Reforms is setting up the DGPP The principal measures of the DGPP for the years 2008-2010 are implemented.

WB, PRODEM, UNICEF, UNFPA

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Annex 2: Donor Budgetary Support Programs European Union Budgetary Support (2006-2008) 1. The common framework used by donors proving Budget support for enhancing public finance reform programs is the Public Expenditure Management and Financial Accountability Report (PEMFAR) prepared jointly by the government, European Union, France, UNDP and the World Bank and adopted by Decree in July 2005. Development partners providing Budget support coordinate their interventions within the Joint Steering Technical Committee (ministry of economy and finance and donors) in charge of monitoring the implementation of the PEMFAR priority action plan. Hence, while there’s no joint budget support program, the different interventions are complementary and well coordinated. Bank budget support aims to implement key institutional reforms and other target specific, measurable indicators in the areas of public finance, Health, Education, Roads, etc. 2. The objectives of the EU budgetary assistance are to enhance public finance management and improve budget execution of education, health, and road infrastructure sectors. The program performance criteria include follow-up indicators for public finance, education, and health sectors. The fixed education tranche is disbursed upon satisfactory implementation of the education ten-year program. Implementation of the criteria on public finance, health, and infrastructure determines the variable tranche amount granted to Niger by the EU. A new six years (2009-2013) program is under negotiation with the government.

Amounts 2007 2008 M€ percent M€ percent Fixed macroeconomic tranche 10; disbursed 10 33 10 33 Variable tranche for support to PRSP

15; disbursed: 8.60 50 15 50

Fixed tranche education 5; disbursed 0 17 5 17 Total 30 100 30 100

France Budgetary Support (2006-2008)

3. The objectives of French budgetary support to Niger are to secure partial financing of the Government’s financial and economic program in 2006, and help the Government to mitigate the impact of the exceptional food crisis and improve financial sector environment by clearing partially of commercial banks arrears and loans. In 2006, French budgetary support amounted to CFAF 4.7 billions (of which 1.640 were disbursed), and 10 billions in 2007 (of which 5.6 were disbursed). In 2007, CFAF 4 billions were earmarked for the health sector and the remaining for support to public finance reform and financial sector cleaning up. In 2008, CFAF 3.9 billion budget support is projected from France. African Development Bank (AfDB)

4. In September 2005 the AfDB Board approved a loan of US$26.3 million to finance Niger's 5th Structural Adjustment Program (2005-2006), aimed at improving management of public finance, promoting good governance, strengthening decentralization, and monitoring/evaluating poverty-reduction programs.

5. Apart from the reorganization of public finance and promotion of good governance, another focal point of the program is the elaboration of medium-term expenditure frameworks (MTEF) and program budget in the priority areas of health and education to strengthen poverty reduction. Beginning in 2006,

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these instruments will be introduced in the other sectors, including rural development, transport, equipment, and tourism, to accelerate mobilization of their economic growth potential and job creation. The program also includes actions to strengthen decentralization, initiated in Niger to promote grassroots development and local governance, vital to effectively reduce poverty. 6. AfDB budget support amounted to CFAF 7.8 billion in 2006 (against 13.9 projected) and CFAF 7 billions in 2007 (versus 13.1 projected).In 2008, the projected budgetary support amount is CFAF 6.0 billions.

Other donors’ budgetary support

7. Other bilateral donors (Norway and the Netherlands) are providing budgetary support to the implementation of EFA-FT initiatives. Belgium is also supporting the education and health sectors through budgetary aid under the conditionality that overall macroeconomic reform program progress is satisfactory. Other multilateral (BCEAO, WAEMU) provided CFAF 3.2 billions budget support to help mitigate the impact of food price crisis. The total will amount to CFA.F 5.8.

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Annex 3: IMF Assessment Letter for World Bank

74

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Operations Portfolio (IBRD/IDA and Grants) as of 3/25/08

Active Projects

Difference Between

Last PSR Expected and

Actual

Supervision Rating Original Amount in US$ Millions Disbursements a/

Project ID Project Name Development Objectives

Implementation Progress

Fiscal Year IBRD IDA GRANT Cancel. Undisb. Orig. Frm

Rev'd

P061209 NE-Basic Education SIL (FY04) MU MS 2004 30 8.02 4.9 -2.8 P065991 NE-Com Action Prgm (FY03) S MS 2003 39.5 5.12 -2.12 P074316 NE-Financial Sec (FY04) MS MS 2004 14.8 8.67 6.22

P083350 NE-Inst Strngt & Hlth Sec Prgm (FY06) MS S 2006 35 29.24 7.45

P096198 NE-MS Demographic SIL (FY07) MS MS 2007 10 10 -0.19 P071612 NE-MultiSec STI/HIV/AIDS 2 (FY03) MS MU 2003 25 7.72 5.05 -2.08

P072996 NE-Priv Irrigation Promotion SIL (FY02) S S 2002 38.72 2.73 -5.06 -0.77

P098963 NE-Rural & Social Policy DPO 2 (FY07) S MS 2007 50 25.81 24.7

P061558 NE-Water Sec SIL (FY01) HS S 2001 58 8.7 -8.74 -1.76 P093806 Niger Basin Wtr Res Dev (FY08) S S 2008 15 15.58 P092473 Africa Emergency Locust (FY05) MS MS 2005 9.9 5.36 Overall Result 325.92 126.95 32.21 -7.4

Closed Projects 51

IBRD/IDA * Total Disbursed (Active) 202.89

of which has been repaid 0.00

Total Disbursed (Closed) 1,101.74

of which has been repaid 113.62

Total Disbursed (Active + Closed) 1,304.63

of which has been repaid 113.62

Total Undisbursed (Active) 126.95

Total Undisbursed (Closed) 0.00

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Annex 4: IDA Program Summary - Proposed Lending Program (As of 4/30/08)

Fiscal year Project ID US$(M)Strategic Rewards (H/M/L)b

Implementation Risks (H/M/L)b

2008 Local Urban Infrastructure Development 30.0 M M Avian Flu Component added to Community Action Program 1 4.7 H L Niger Basin Water Resources Development Project 15.0 H L Transport Sector Program Support Project 30.0 H M Subtotal 79.7 2009 Community Action Program 2 APL 30.0 H L Agro-Pastoral Export Promotion 30.0 H M Reform Management and TA 10.0 M M DPO III on Growth 40.0 H M Subtotal 100.0 2010 Water Sector Support II 50.0 H L DPO IV/ PRSC 1 50.0 M M Subtotal 100.0 2011 Education Enhancement and Skills Development 30.0 H L Sources of Growth 30.0 M L DPO V/ PRSC 2 40.0 M M Subtotal 100.0 TOTAL 279.7

Annex 5: Niger at a Glance

Niger at a glance 3/21/08

Sub-Key Development Indicators Saharan Low

Niger Africa income(2006)

Population, mid-year (millions) 14.4 770 2,403Surface area (thousand sq. km) 1,267 24,265 29,215Population growth (%) 3.3 2.3 1.8Urban population (% of total population) 17 36 30

GNI (Atlas method, US$ billions) 3.7 648 1,562GNI per capita (Atlas method, US$) 260 842 650GNI per capita (PPP, international $) 830 2,032 2,698

GDP growth (%) 5.2 5.6 8.0GDP per capita growth (%) 1.8 3.2 6.1

(most recent estimate, 2000–2006)

Poverty headcount ratio at $1 a day (PPP, %) 61 a 41 ..Poverty headcount ratio at $2 a day (PPP, %) 86 a 72 ..Life expectancy at birth (years) 45 47 59Infant mortality (per 1,000 live births) 150 96 75Child malnutrition (% of children under 5) 40 29 ..

Adult literacy, male (% of ages 15 and older) 43 69 72Adult literacy, female (% of ages 15 and older) 15 50 50Gross primary enrollment, male (% of age group) 54 98 108Gross primary enrollment, female (% of age group) 39 86 96

Access to an improved water source (% of population) 46 56 75Access to improved sanitation facilities (% of population) 13 37 38

Net Aid Flows 1980 1990 2000 2006 b

(US$ millions)Net ODA and official aid 165 388 208 515Top 3 donors (in 2005): France 49 80 41 70 United States 9 31 5 31 Germany 22 39 12 25

Aid (% of GNI) 6.7 16.0 11.7 15.2Aid per capita (US$) 27 46 18 37

Long-Term Economic Trends

Consumer prices (annual % change) .. -2.9 2.9 0.3GDP implicit deflator (annual % change) 20.8 -1.6 4.5 1.8

Exchange rate (annual average, local per US$) 211.3 272.3 712.0 522.9Terms of trade index (2000 = 100) .. 152 100 95

1980–90 1990–2000 2000–06

Population, mid-year (millions) 6.2 8.5 11.8 14.4 3.1 3.3 3.4GDP (US$ millions) 2,509 2,481 1,798 3,597 -0.1 2.4 3.9

Agriculture 45.4 36.2 38.7 40.9 1.7 3.0 6.4Industry 24.2 16.6 18.2 17.2 -1.7 2.0 3.1 Manufacturing 3.9 6.8 7.0 6.7 -2.7 2.6 3.9Services 35.8 49.9 45.4 44.5 -0.7 1.9 3.7

Household final consumption expenditure 75.1 83.8 83.4 80.8 -0.6 1.5 ..General gov't final consumption expenditure 10.4 15.0 13.0 11.7 4.4 0.8 ..Gross capital formation 28.1 8.1 11.4 18.9 -7.1 4.0 ..

Exports of goods and services 24.6 15.0 17.8 15.4 -2.9 3.1 ..Imports of goods and services 38.1 22.0 25.7 24.8 -6.3 -2.1 ..Gross savings 17.1 -2.1 2.8 12.2

Note: Figures in italics are for years other than those specified. 2006 data are preliminary. .. indicates data are not available.a. Country poverty estimate is for earlier period. b. Aid data are for 2005.

Development Economics, Development Data Group (DECDG).

(average annual growth %)

(% of GDP)

30 20 10 0 10 20 30

0-4

10-14

20-24

30-34

40-44

50-54

60-64

70-74

percent

Age distribution, 2006

Male Female

0

50

100

150

200

250

300

350

1990 1995 2000 2005

Niger Sub-Saharan Africa

Under-5 mortality rate (per 1,000)

-15

-10

-5

0

5

10

15

90 95 00 05

GDP GDP per capita

Growth of GDP and GDP per capita (%)

Niger

Balance of Payments and Trade 2000 2006

(US$ millions)Total merchandise exports (fob) 283 438Total merchandise imports (cif) 402 830Net trade in goods and services -135 -409

Current account balance -147 -397 as a % of GDP -8.2 -11.0

Workers' remittances and compensation of employees (receipts) 14 60

Reserves, including gold .. ..

Central Government Finance

(% of GDP)Current revenue (including grants) 10.3 11.5 Tax revenue 8.0 10.1Current expenditure 11.2 10.8

Technology and Infrastructure 2000 2005Overall surplus/deficit -5.7 -8.5

Paved roads (% of total) 7.9 25.0Highest marginal tax rate (%) Fixed line and mobile phone Individual .. .. subscribers (per 1,000 people) 2 23 Corporate .. .. High technology exports

(% of manufactured exports) 3.0 3.2External Debt and Resource Flows

Environment(US$ millions)Total debt outstanding and disbursed 1,677 820 Agricultural land (% of land area) 30 30Total debt service 26 58 Forest area (% of land area) 1.0 1.0Debt relief (HIPC, MDRI) 798 489 Nationally protected areas (% of land area) .. 7.7

Total debt (% of GDP) 93.2 22.8 Freshwater resources per capita (cu. meters) .. 251Total debt service (% of exports) 7.4 10.0 Freshwater withdrawal (% of internal resources) 62.3 ..

Foreign direct investment (net inflows) 8 0 CO2 emissions per capita (mt) 0.10 0.09Portfolio equity (net inflows) 1 0

GDP per unit of energy use (2000 PPP $ per kg of oil equivalent) .. ..

Energy use per capita (kg of oil equivalent) .. ..

World Bank Group portfolio 2000 2006

(US$ millions)

IBRD Total debt outstanding and disbursed – 0 Disbursements – 0 Principal repayments – 0 Interest payments – 0

IDA Total debt outstanding and disbursed 723 182 Disbursements 68 51

Private Sector Development 2000 2006 Total debt service 14 13

Time required to start a business (days) – 24 IFC (fiscal year)Cost to start a business (% of GNI per capita) – 416.8 Total disbursed and outstanding portfolio 0 0Time required to register property (days) – 49 of which IFC own account 0 0

Disbursements for IFC own account 0 0Ranked as a major constraint to business Portfolio sales, prepayments and (% of managers surveyed who agreed) repayments for IFC own account 0 0 Tax rates .. 32.8 Anticompetitive or informal practices .. 20.8 MIGA

Gross exposure – –Stock market capitalization (% of GDP) .. .. New guarantees – –Bank capital to asset ratio (%) .. ..

Note: Figures in italics are for years other than those specified. 2006 data are preliminary. 3/21/08.. indicates data are not available. – indicates observation is not applicable.

Development Economics, Development Data Group (DECDG).

0 25 50 75 100

Control of corruption

Rule of law

Regulatory quality

Political stability

Voice and accountability

Country's percentile rank (0-100)higher values imply better ratings

2006

2000

Governance indicators, 2000 and 2006

Source: Kaufmann-Kraay-Mastruzzi, World Bank

Short-term, 40 IBRD, 0

Other multi- lateral, 349

IMF, 26

IDA, 182

Private, 26

Bilateral, 197

Composition of total external debt, 2006

US$ millions

80

1990 1995 2000 2007

Employment to population ratio, 15+, total (%) 78 79 79 79Employment to population ratio, ages 15-24, total (%) 68 70 70 71Income share held by lowest 20% 7.5 2.6 .. ..Malnutrition prevalence, weight for age (% of children under 5) 41.0 .. 43.6 39.9Poverty headcount ratio at national poverty line (% of population) .. 63.0 .. ..Prevalence of undernourishment (% of population) 41 42 .. ..Vulnerable employment, total (% of total employment) .. .. .. ..

Literacy rate, youth female (% of females ages 15-24) .. .. .. 23Literacy rate, youth male (% of males ages 15-24) .. .. .. 52Persistence to last grade of primary, total (% of cohort) .. .. 69 53Primary completion rate, total (% of relevant age group) 15 13 18 33Total enrollment, primary (% net) .. .. 27 42

Proportion of seats held by women in national parliament (%) 5 .. 1 12Ratio of female to male enrollments in tertiary education .. .. .. 29Ratio of female to male primary enrollment 61 .. 69 73Ratio of female to male secondary enrollment 37 .. 61 63Ratio of young literate females to males (% ages 15-24) .. .. .. 44Share of women employed in the nonagricultural sector (% of total nonagricultural employment 11.0 .. .. ..

Immunization, measles (% of children ages 12-23 months) 25 40 34 47Mortality rate, infant (per 1,000 live births) 191 176 159 148Mortality rate, under-5 (per 1,000) 320 295 270 253

Adolescent fertility rate (births per 1,000 women ages 15-19) .. 229 224 201Births attended by skilled health staff (% of total) 15 .. 16 18Contraceptive prevalence (% of women ages 15-49) 4 .. 14 11Maternal mortality ratio (modeled estimate, per 100,000 live births) .. .. .. 1,800Pregnant women receiving prenatal care (%) 30 .. 41 46Unmet need for contraception (% of married women ages 15-49) 19 .. 17 16

Children with fever receiving antimalarial drugs (% of children under age 5 with fever) .. .. 48 33Condom use, population ages 15-24, female (% of females ages 15-24) .. .. .. ..Condom use, population ages 15-24, male (% of males ages 15-24) .. .. .. ..Incidence of tuberculosis (per 100,000 people) 124 137 153 174Prevalence of HIV, female (% ages 15-24) .. .. .. 0.5Prevalence of HIV, total (% of population ages 15-49) .. .. 0.7 0.8Tuberculosis cases detected under DOTS (%) .. 31 40 49

Annual freshwater withdrawals, total (% of internal resources) .. .. 62.3 ..CO2 emissions (kg per PPP $ of GDP) 0.3 0.3 0.2 ..CO2 emissions (metric tons per capita) 0.1 0.1 0.1 ..Forest area (% of land area) 2 .. 1 1Improved sanitation facilities (% of population with access) 3 5 5 7Improved water source (% of population with access) 41 41 41 42Marine protected areas, (% of surface area) .. .. .. ..Nationally protected areas (% of total land area) .. .. .. ..

Aid per capita (current US$) 50 29 19 29Debt service (PPG and IMF only, % of exports of G&S, excl. workers' remittances) 6.6 7.8 7.9 2.3Internet users (per 100 people) 0.0 0.0 0.0 0.3Mobile phone subscribers (per 100 people) 0.0 0.0 0.0 6.3Telephone mainlines (per 100 people) 0.1 0.1 0.2 0.2

Fertility rate, total (births per woman) 7.9 7.7 7.5 7.0GNI per capita, Atlas method (current US$) 300 190 170 280GNI, Atlas method (current US$) (billions) 2.4 1.8 1.9 4.0Gross capital formation (% of GDP) 8.1 7.3 11.4 23.1Life expectancy at birth, total (years) 47 50 53 56Literacy rate, adult total (% of people ages 15 and above) .. .. .. 29Population, total (millions) 7.8 9.3 11.1 14.2Trade (% of GDP) 37.0 41.5 43.5 40.1

Millennium Development Goals

Goal 1: Eradicate extreme poverty and hunger

Goal 2: Achieve universal primary education

Goal 3: Promote gender equality and empower women

Goal 4: Reduce child mortality

Goal 5: Improve maternal health

Goal 6: Combat HIV/AIDS, malaria, and other diseases

Goal 7: Ensure environmental sustainability

Figures in italics refer to periods other than those specified.

Goal 8: Develop a global partnership for development

Other

Source: World Development Indicators database

81

Map of Niger